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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 000-21731
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
North Carolina 56-1869557
<S> <C>
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
- --------------------------------------------- -------------------------
<S> <C>
6 3/4% Notes due December 1, 2003 New York Stock Exchange
7% Notes due December 1, 2006 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of
this Form 10-K. [X]
The aggregate value of the Common Units held by nonaffiliates of the
registrant (based on the closing price on the New York Stock Exchange of a
share of Common Stock of Highwoods Properties, Inc., the general partner of the
registrant) on March 20, 2000 was 137,684,862.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Highwoods Properties, Inc. in
connection with its Annual Meeting of Shareholders to be held May 24, 2000 are
incorporated by reference in Part III Items 10, 11 and 13.
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<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
- ---------- ---------
<S> <C> <C>
PART I
1. Business .................................................................. 3
2. Properties ................................................................ 10
3. Legal Proceedings ......................................................... 15
4. Submission of Matters to a Vote of Security Holders ....................... 15
X. Executive Officers of the Registrant ...................................... 16
PART II
5. Market for Registrant's Equity and Related Security Holder Matters ........ 17
6. Selected Financial Data ................................................... 18
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................. 19
7A. Quantitative and Qualitative Disclosures About Market Risk ................ 27
8. Financial Statements and Supplementary Data ............................... 28
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 28
PART III
10. Directors and Executive Officers of the Registrant ........................ 29
11. Executive Compensation .................................................... 29
12. Security Ownership of Certain Beneficial Owners and Management ............ 29
13. Certain Relationships and Related Transactions ............................ 29
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 30
</TABLE>
2
<PAGE>
PART I
We refer to (1) Highwoods Properties, Inc. as the "Company," (2) Highwoods
Realty Limited Partnership (formerly Highwoods/Forsyth Limited Partnership) as
the "Operating Partnership," (3) the Company's common stock as "Common Stock"
and (4) the Operating Partnership's common partnership interests as "Common
Units."
ITEM 1. BUSINESS
General
The Operating Partnership is managed by its general partner, the Company,
a self-administered and self-managed equity REIT that began operations through
a predecessor in 1978. Originally founded to oversee the development, leasing
and management of the 201-acre Highwoods Office Center in Raleigh, North
Carolina, we have since evolved into one of the largest owners and operators of
surburban office, industrial and retail properties in the southeastern and
midwestern United States. At December 31, 1999, we
o owned or had a majority interest in 563 in-service office, industrial and
retail properties, encompassing approximately 39.0 million rentable square
feet and 1,885 apartment units;
o owned an interest (50% or less) in 42 in-service office and industrial
properties, encompassing approximately 3.5 million rentable square feet
and 418 apartment units;
o owned 1,473 acres (and have agreed to purchase an additional 317 acres
over the next three years) of undeveloped land suitable for future
development; and
o were developing an additional 41 properties, which will encompass
approximately 4.8 million rentable square feet.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 1999, the Company owned
87% of the Common Units in the Operating Partnership. Limited partners
(including certain officers and directors of the Company) own the remaining
Common Units. Holders of Common Units may redeem them for the cash value of one
share of the Company's Common Stock or, at the Company's option, one share
(subject to certain adjustments) of Common Stock.
We also provide leasing, property management, real estate development,
construction and other services for our properties as well as for third
parties. We conduct our third-party, fee-based services through Highwoods
Services, Inc., a subsidiary of the Operating Partnership, and through
Highwoods/ Tennessee Properties, Inc., a wholly owned subsidiary of the
Company.
The Company was incorporated in Maryland in 1994. The Operating
Partnership was formed in North Carolina in 1994. Our executive offices are
located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and
our telephone number is (919) 872-4924. We maintain offices in each of our
primary markets.
Operating Strategy
Diversification. Since our formation in 1994, we have significantly
reduced our dependence on any particular market, property type or tenant. Our
in-service portfolio has expanded from 41 North Carolina office properties (40
of which were in the Research Triangle area of North Carolina) to 605
in-service office, industrial and retail properties and 2,303 apartment units
in 17 markets in the Southeast and Midwest.
Development and Acquisition Opportunities. We generally seek to engage in
the development of office and industrial projects in our existing geographic
markets, primarily in suburban business parks. We intend to focus our
development efforts on build-to-suit projects and projects where we have
3
<PAGE>
identified sufficient demand. In build-to-suit development, the building is
significantly pre-leased to one or more tenants prior to construction.
Build-to-suit projects often foster strong long-term relationships with
tenants, creating future development opportunities as the facility needs of
tenants increase. We believe our commercially zoned and unencumbered
development land in existing business parks is an advantage we have over many
of our competitors in pursuing development opportunities.
We also seek to acquire selective suburban office and industrial
properties in our existing geographic markets at prices below replacement cost
that offer attractive returns. These would include acquisitions of
underperforming, high quality properties in our existing markets that offer us
opportunities to improve such properties' operating performance.
Managed Growth Strategy. Our strategy has been to focus our real estate
activities in markets where we believe our extensive local knowledge gives us a
competitive advantage over other real estate developers and operators. As we
expanded into new markets, we have continued to maintain this localized
approach by combining with local real estate operators with many years of
development and management experience in their respective markets.
Approximately two-thirds of our properties were either developed by us or are
managed on a day-to-day basis by personnel who previously managed, leased
and/or developed those properties before their acquisition by us.
Our development and acquisition activities also benefit from our local
market presence and knowledge. Our property-level officers have on average more
than 20 years of real estate experience in their respective markets. Because of
this experience, we are in a better position to evaluate acquisition and
development opportunities. In addition, our relationships with our tenants and
those tenants at properties for which we conduct third-party, fee-based
services may lead to development projects when these tenants seek new space.
Efficient, Customer Service-Oriented Organization. We provide a complete
line of real estate services to our tenants and third parties. We believe that
our in-house development, acquisition, construction management, leasing and
management services allow us to respond to the many demands of our existing and
potential tenant base. We provide our tenants cost-effective services, such as
build-to-suit construction and space modification, including tenant
improvements and expansions. In addition, the breadth of our capabilities and
resources provides us with market information not generally available. We
believe that the operating efficiencies achieved through our fully integrated
organization also provide a competitive advantage in setting our lease rates
and pricing other services.
Flexible and Conservative Capital Structure. We are committed to
maintaining a flexible and conservative capital structure that: (1) allows
growth through development and acquisition opportunities; (2) promotes future
earnings growth; and (3) provides access to the private and public equity and
debt markets on favorable terms. Accordingly, we expect to meet our long-term
liquidity requirements, including funding our existing and future development
activity, through a combination of:
o borrowings under our unsecured revolving credit facility;
o the issuance of unsecured debt securities;
o borrowings of secured debt;
o the issuance of equity securities by both the Company and the Operating
Partnership;
o the selective disposition of non-core assets; and
o the sale or contribution of certain of our wholly owned properties to
strategic joint ventures formed with selected institutional investors.
4
<PAGE>
Recent Developments
The following table summarizes the acquisitions and dispositions completed
during 1999 as well as assets contributed to joint ventures in 1999 ($ in
thousands):
Acquisition Activity
<TABLE>
<CAPTION>
Acquisition
Building Closing Rentable Initial
Property Market Type (1) Date Square Feet Cost
- --------------------------- ----------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Cypress Commons Tampa O 06/04/99 114,000 $ 12,000
Cypress Center Tampa O 06/30/99 83,000 8,000
5404 Cypress Center Tampa O 07/21/99 153,000 15,700
Century Plaza I & II Atlanta O 09/01/99 206,000 19,500
3322 West End Nashville O 10/08/99 216,000 30,100
Innsbrook Center Richmond O 12/27/99 67,000 7,625
Mercer Plaza Richmond O 12/27/99 121,000 13,875
------- --------
Total 960,000 $106,800
======= ========
</TABLE>
Disposition Activity
<TABLE>
<CAPTION>
Building Date Rentable Sales
Property Market Type (1) Sold Square Feet Price
- ------------------------------------ ------------------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Members Warehouse Piedmont Triad I 04/01/99 80,000 $ 2,200
Comeau Building South Florida O 04/20/99 87,000 4,200
South Florida portfolio South Florida O/I 06/07/99 3,275,000 323,000
Phoenix Building Research Triangle O 06/07/99 26,000 3,000
Baltimore portfolio Baltimore O 06/30/99 737,000 82,200
Grassy Creek Piedmont Triad I 06/30/99 665,000 17,300
Virginia Center Tech Park Richmond O 08/02/99 120,000 8,500
1765 The Exchange Atlanta O 08/12/99 90,000 7,400
4000 Old Court Medical Baltimore O 08/12/99 42,000 5,800
Cotton Building Research Triangle O 08/31/99 40,000 3,600
4000 Aerial Center Research Triangle O 09/02/99 25,000 3,300
Georgetown Market Place Kansas City R 11/10/99 95,000 7,625
Riverside Building Hampton Roads O 12/10/99 87,000 8,250
Central Florida portfolio Orlando/Tampa O/I 12/20/99 2,122,000 165,329
Florida Flex Tampa O/I 12/22/99 751,000 45,700
Clearwater Tower Tampa O 12/29/99 100,000 8,300
Penn Wick, Tama & Cole Garden Kansas City M 12/31/99 N/A 675
--------- --------
Total 8,342,000 $696,379
========= ========
</TABLE>
Joint Venture Activity
<TABLE>
<CAPTION>
Rentable
Building Date Square
Name Market Type (1) Contributed Feet Proceeds
- ----------------------------- ---------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Dreilander-Fonds 98/29 Various O 03/15/99 1,198,000 $142,000
--------- --------
Total 1,198,000 $142,000
========= ========
</TABLE>
- ----------
(1) O = Office
I = Industrial
R = Retail
M = Multifamily
5
<PAGE>
Development Activity
The following table summarizes the 24 development projects placed in
service during 1999 ($ in thousands):
Placed In Service
<TABLE>
<CAPTION>
Month
Building Placed Number of Rentable Initial
Name Market Type (1) in Service Properties Square Feet Cost (2)
- ----------------------------- ------------------- ---------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Newpoint Place III Atlanta O Feb-99 1 84,000 $ 3,358
Chastain Place II Atlanta O Mar-99 1 64,000 2,773
Chastain Place III Atlanta O Mar-99 1 58,000 2,253
Highwoods Center I at
Tradeport Atlanta O Apr-99 1 46,000 3,603
Airpark South Warehouse VI Piedmont Triad I Apr-99 1 189,000 7,714
Bluegrass Lakes I Atlanta I Jun-99 1 112,000 4,883
Capital One Building 1 Richmond O Jun-99 1 126,000 12,387
Eastshore II Richmond O Jun-99 1 77,000 7,701
Highwoods Common Richmond O Jun-99 1 49,000 4,916
Ridgefield III Asheville O Jul-99 1 57,000 5,642
Tradeport I Atlanta I Jul-99 1 87,000 3,323
Tradeport II Atlanta I Jul-99 1 87,000 4,110
Capital One Building II Richmond O Jul-99 1 44,000 4,569
Patewood VI Greenville O Aug-99 1 107,000 12,675
Air Park South Warehouse II Piedmont Triad I Aug-99 1 136,000 3,315
CNA Maitland III Orlando O Aug-99 1 79,000 9,874
Cool Springs I Nashville O Sep-99 1 153,000 16,361
Highwoods Centre Research Triangle O Sep-99 1 76,000 8,789
Situs II Research Triangle O Sep-99 1 59,000 6,826
Capital One Building 3 Richmond O Oct-99 1 126,000 13,230
Highwoods Centre Hampton Roads O Nov-99 1 103,000 9,501
Overlook Research Triangle O Nov-99 1 97,000 11,257
Concourse Center One Piedmont Triad O Dec-99 1 86,000 9,078
Red Oak Research Triangle O Dec-99 1 65,000 6,740
-- ------- --------
Total 24 2,167,000 $174,878
== ========= ========
</TABLE>
- ----------
(1) O = Office
I = Industrial
(2) Initial Cost includes estimated amounts required to complete the project,
including tenant improvement costs.
6
<PAGE>
We had 33 suburban office properties, six industrial properties and two
retail properties under development totaling 4.8 million rentable square feet
of office and industrial space at December 31, 1999. The following table
summarizes these development projects as of December 31, 1999:
In-process
<TABLE>
<CAPTION>
Rentable Estimated Cost at Pre-Leasing Estimated Estimated
Name Market Square Feet Cost 12/31/99 Percentage (1) Completion Stabilization (2)
- ----------------------- ------------------- ------------- ----------- ---------- ---------------- ------------ ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Office:
Caterpillar Financial
Center Nashville 313,000 $ 54,000 $ 38,938 100% 1Q00 1Q00
Eastshore I Richmond 68,000 7,535 6,335 100 1Q00 1Q00
Eastshore III Richmond 80,000 8,580 8,613 100 1Q00 1Q00
Intermedia Building 1 Tampa 200,000 27,040 21,170 100 1Q00 1Q00
Intermedia Building 2 Tampa 30,000 4,056 376 100 1Q00 1Q00
Intermedia Building 3 Tampa 170,000 22,984 18,500 100 1Q00 1Q00
Genus Orlando 30,000 3,307 -- 100 3Q00 3Q00
iXL Richmond 57,000 6,875 -- 100 3Q00 3Q00
Intermedia Building 4 Tampa 200,000 29,219 5,158 100 3Q00 3Q00
Valencia Place Kansas City 241,000 34,850 30,734 80 1Q00 4Q00
ECPI Build-to-suit Piedmont Triad 30,000 3,020 843 100 3Q00 4Q00
Intermedia Building 5 Tampa 200,000 29,219 2,562 100 3Q01 3Q01
Capital Plaza Orlando 303,000 53,000 34,027 40 1Q00 4Q01
Highwoods Tower II Research Triangle 167,000 25,134 1,495 72 1Q01 2Q02
------- -------- -------- ---
In-Process
Office Total
or Weighted
Average 2,089,000 $308,819 $168,751 87%
========= ======== ======== ===
Industrial:
ALO Piedmont Triad 27,000 $ 1,055 $ 287 100% 2Q00 2Q00
Bluegrass Valley I Atlanta 135,000 5,664 2,829 100 3Q00 4Q00
--------- -------- -------- ---
In-Process Industrial
Total or Weighted
Average 162,000 $ 6,719 $ 3,116 100%
========= ======== ======== ===
Retail:
Valencia Place Kansas City 81,000 $ 16,650 $ 10,245 83% 1Q00 4Q00
--------- -------- -------- ---
In-Process Retail
Total or Weighted
Average 81,000 $ 16,650 $ 10,245 83%
========= ======== ======== ===
Total or Weighted
Average of all
In-Process
Development
Projects 2,332,000 $332,188 $182,112 88%
========= ======== ======== ===
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95% occupied or one
year from the date of completion.
7
<PAGE>
Completed-Not Stabilized
<TABLE>
<CAPTION>
Rentable Estimated Cost at
Name Market Square Feet Cost 12/31/99
- ------------------------- ------------------- ------------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Office:
Deerfield I Atlanta 50,000 $ 4,382 $ 3,895
Parkway Plaza 12 Charlotte 22,000 1,800 1,652
Lakefront Plaza I Hampton Roads 77,000 7,477 7,718
Southwind Building D Memphis 64,000 6,800 7,122
Westwood South Nashville 125,000 13,530 13,329
3737 Glenwood Ave. Research Triangle 108,000 16,700 16,529
10 Glenlake South Atlanta 259,000 35,100 36,732
Deerfield II Atlanta 67,000 6,994 4,578
Highwoods Center II @
Tradeport Atlanta 54,000 4,825 4,316
Parkway Plaza 11 Charlotte 32,000 2,600 2,511
Parkway Plaza 14 Charlotte 90,000 7,690 6,829
Belfort Park C1 Jacksonville 50,000 4,830 1,996
Belfort Park C2 Jacksonville 36,000 2,730 2,434
4101 Research Commons Research Triangle 73,000 9,311 8,437
Stony Point II Richmond 136,000 13,881 12,794
HIW Center @ Peachtree
Corners Atlanta 109,000 9,238 5,881
Mallard Creek V Charlotte 118,000 12,262 10,488
Lakeview Ridge III Nashville 131,000 13,100 10,989
Lakpoint II Tampa 225,000 34,106 22,960
------- -------- --------
Completed-Not Stabilized
Office Total or
Weighted Average 1,826,000 $207,356 $181,190
========= ======== ========
Industrial:
Air Park South
Warehouse III Piedmont Triad 120,000 $ 3,626 $ 2,894
Air Park South
Warehouse IV Piedmont Triad 86,000 2,750 2,679
HIW Distribution Center Richmond 166,000 6,487 6,328
Newpoint II Atlanta 131,000 5,167 4,825
--------- -------- --------
Completed-Not Stabilized
Industrial Total or
Weighted Average 503,000 $ 18,030 $ 16,726
========= ======== ========
Retail:
Seville Square Kansas City 99,000 $ 21,000 $ 20,791
--------- -------- --------
Completed-Not Stabilized
Retail Total or
Weighted Average 99,000 $ 21,000 $ 20,791
========= ======== ========
Total or Weighted
Average of all
Completed-Not
Stabilized
Development Projects 2,428,000 $246,386 $218,707
========= ======== ========
Total or Weighted
Average of all
Development Projects 4,760,000 $578,574 $400,819
========= ======== ========
<CAPTION>
Percent
leased/ Estimated Estimated
Name Pre-leased (1) Completion Stabilization (2)
- ------------------------- ---------------- ------------ ------------------
<S> <C> <C> <C>
Office:
Deerfield I 100% 3Q99 1Q00
Parkway Plaza 12 95 1Q99 1Q00
Lakefront Plaza I 96 2Q99 1Q00
Southwind Building D 97 2Q99 1Q00
Westwood South 94 3Q99 1Q00
3737 Glenwood Ave. 92 3Q99 1Q00
10 Glenlake South 90 1Q99 2Q00
Deerfield II -- 3Q99 2Q00
Highwoods Center II @
Tradeport 56 3Q99 2Q00
Parkway Plaza 11 64 1Q99 2Q00
Parkway Plaza 14 57 2Q99 2Q00
Belfort Park C1 28 3Q99 2Q00
Belfort Park C2 38 3Q99 2Q00
4101 Research Commons 66 3Q99 2Q00
Stony Point II 78 2Q99 2Q00
HIW Center @ Peachtree
Corners 59 3Q99 3Q00
Mallard Creek V 49 4Q99 4Q00
Lakeview Ridge III 60 2Q99 4Q00
Lakpoint II 75 4Q99 4Q00
---
Completed-Not Stabilized
Office Total or
Weighted Average 72%
===
Industrial:
Air Park South
Warehouse III 100% 4Q99 1Q00
Air Park South
Warehouse IV 100 4Q99 1Q00
HIW Distribution Center 82 1Q99 2Q00
Newpoint II 33 3Q99 2Q00
---
Completed-Not Stabilized
Industrial Total or
Weighted Average 77%
===
Retail:
Seville Square 97% 2Q99 3Q00
---
Completed-Not Stabilized
Retail Total or
Weighted Average 97%
===
Total or Weighted
Average of all
Completed-Not
Stabilized
Development Projects 74%
===
Total or Weighted
Average of all
Development Projects 81%
===
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95% occupied or one
year from the date of completion.
8
<PAGE>
Development Analysis
<TABLE>
<CAPTION>
Rentable Estimated Pre-Leasing
Square Feet Cost Percentage (1)
------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Summary By Estimated Stabilization Date
First Quarter 2000 1,436,000 $173,783 99%
Second Quarter 2000 1,121,000 100,670 65
Third Quarter 2000 495,000 69,639 90
Fourth Quarter 2000 961,000 119,652 76
Third Quarter 2001 200,000 29,219 100
Fourth Quarter 2001 303,000 53,000 40
Second Quarter 2002 167,000 25,134 72
Held for Sale 77,000 7,477 96
--------- -------- ---
Total or Weighted Average 4,760,000 $578,574 81%
========= ======== ===
Summary by Market:
Atlanta 805,000 $ 71,370 69%
Charlotte 262,000 24,352 57
Jacksonville 86,000 7,560 32
Kansas City 421,000 72,500 85
Memphis 64,000 6,800 97
Nashville 569,000 80,630 89
Orlando 333,000 56,307 45
Piedmont Triad 263,000 10,451 100
Research Triangle 348,000 51,145 77
Richmond 507,000 43,358 88
Tampa 1,025,000 146,624 95
Held for Sale 77,000 7,477 96
--------- -------- ---
Total or Weighted Average 4,760,000 $578,574 81%
========= ======== ===
Build-to-Suit 1,092,000 $142,890 100%
Multi-tenant 3,591,000 428,207 74
Held for Sale 77,000 7,477 96
--------- -------- ---
Total or Weighted Average 4,760,000 $578,574 81%
========= ======== ===
</TABLE>
<TABLE>
<CAPTION>
Average
Rentable Average
Square Estimated Average
Feet Cost Pre-Leasing (1)
---------- --------------- ----------------
(in thousands)
<S> <C> <C> <C>
Average Per Property Type:
Office 119,938 $15,897 79%
Industrial 110,833 4,125 82
Retail 90,000 18,825 91
Held for Sale 77,000 7,477 96
------- ------- --
Weighted Average 116,098 $14,112 81%
======= ======= ==
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
Competition
Our properties compete for tenants with similar properties located in our
markets primarily on the basis of location, rent charged, services provided and
the design and condition of the facilities. We also compete with other REITs,
financial institutions, pension funds, partnerships, individual investors and
others when attempting to acquire and develop properties.
Employees
As of December 31, 1999, the Operating Partnership employed 529 persons,
as compared to 609 at December 31, 1998.
9
<PAGE>
ITEM 2. PROPERTIES
General
As of December 31, 1999, we owned or had a majority interest in 563
in-service office, industrial and retail properties, encompassing approximately
39.0 million rentable square feet and 1,885 apartment units. The following
table sets forth certain information about our majority-owned in-service
properties at December 31, 1999 in each of our 17 markets:
<TABLE>
<CAPTION>
Percentage of December 1999 Rental Revenue
Rentable --------------------------------------------------------
Square Feet (1) Occupancy (2) Office Industrial Retail Multi-Family Total
---------------- --------------- -------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Piedmont Triad ............ 8,691,000 93% 6.4% 4.7% -- -- 11.1%
Atlanta ................... 6,003,000 94 9.4 2.9 -- -- 12.3
Research Triangle ......... 4,871,000 94 14.4 0.4 -- -- 14.8
Tampa ..................... 3,360,000 97 11.1 0.3 -- -- 11.4
Kansas City ............... 3,014,000 94 3.6 0.4 5.7% 3.6% 13.3
Nashville ................. 2,419,000 90 7.0 0.7 -- -- 7.7
Richmond .................. 2,127,000 98 5.6 0.2 -- -- 5.8
Charlotte ................. 1,893,000 92 3.6 0.6 -- -- 4.2
Orlando ................... 1,713,000 95 5.4 -- -- -- 5.4
Jacksonville .............. 1,488,000 87 3.7 -- -- -- 3.7
Greenville ................ 1,220,000 94 3.1 0.2 -- -- 3.3
Memphis ................... 779,000 99 3.1 -- -- -- 3.1
Columbia .................. 426,000 81 1.1 -- -- -- 1.1
Tallahassee ............... 413,000 98 1.4 -- -- -- 1.4
Hampton Roads ............. 279,000 84 0.4 0.2 -- -- 0.6
Asheville ................. 180,000 88 0.3 0.1 -- -- 0.4
Other ..................... 100,000 93 0.4 -- -- -- 0.4
--------- -- ---- ---- --- --- -----
Total ..................... 38,976,000 94% 80.0% 10.7% 5.7% 3.6% 100.0%
========== == ==== ==== === === =====
</TABLE>
- ----------
(1) Excludes Kansas City's basement space and apartment units.
(2) Excludes Kansas City's apartment units occupancy of 96%.
10
<PAGE>
The following table sets forth certain information about the portfolio of
our majority-owned in-service and development properties as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------- ---------------------------
Percent Percent
Rentable Leased/ Rentable Leased/
Square Feet Pre-Leased Square Feet Pre-leased
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
In-Service
Office .............................. 26,072,000 94% 31,110,000 94%
Industrial .......................... 11,325,000 94 11,871,000 93
Retail .............................. 1,579,000 94 1,661,000 92
---------- -- ---------- --
Total or Weighted Average ......... 38,976,000 94% 44,642,000 94%
========== == ========== ==
Development
Completed -- Not Stabilized
Office .............................. 1,826,000 72% 1,196,000 77%
Industrial .......................... 503,000 77 461,000 89
Retail .............................. 99,000 97 -- --
---------- -- ---------- --
Total or Weighted Average ......... 2,428,000 74% 1,657,000 80%
========== == ========== ==
In Process
Office .............................. 2,089,000 87% 4,389,000 63%
Industrial .......................... 162,000 100 652,000 66
Retail .............................. 81,000 83 200,000 65
---------- --- ---------- --
Total or Weighted Average ......... 2,332,000 88% 5,241,000 64%
========== === ========== ==
Total
Office .............................. 29,987,000 36,695,000
Industrial .......................... 11,990,000 12,984,000
Retail .............................. 1,759,000 1,861,000
---------- ----------
Total ............................. 43,736,000 51,540,000
========== ==========
</TABLE>
Tenants
The following table sets forth information concerning the 20 largest
tenants of our majority-owned in-service properties as of December 31, 1999:
<TABLE>
<CAPTION>
Percent of Total
Number Annualized Annualized
Tenant of Leases Rental Revenue (1) Rental Revenue
- ----------------------------------- ----------- -------------------- -----------------
(in thousands)
<S> <C> <C> <C>
AT&T .............................. 9 $ 13,323 2.7%
Federal Government ................ 63 13,249 2.7
Bell South ........................ 52 10,261 2.1
IBM ............................... 11 8,757 1.8
Capital One Services .............. 5 7,009 1.4
US Airways ........................ 8 6,518 1.3
PricewaterhouseCoopers ............ 8 5,719 1.2
Nortel Networks ................... 3 5,192 1.1
Sara Lee .......................... 9 4,584 0.9
Sprint ............................ 13 4,212 0.9
Intermedia Communications ......... 17 4,198 0.9
State of Florida .................. 7 4,150 0.9
Lockheed Martin ................... 4 3,482 0.7
Prudential ........................ 14 3,115 0.6
International Paper ............... 9 2,704 0.6
MCI Worldcom ...................... 22 2,674 0.5
Bank of America ................... 16 2,378 0.5
IKON Office Soultions ............. 8 2,328 0.5
GTE ............................... 7 2,313 0.5
General Electric .................. 12 2,301 0.5
-- -------- ----
Total ......................... 297 $108,467 22.3%
=== ======== ====
</TABLE>
- ----------
(1) Annualized Rental Revenue is December 1999 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12.
11
<PAGE>
The following tables set forth certain information about leasing
activities at our majority-owned in-service properties (excluding apartment
units) for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999
--------------------------------------------
Office Industrial Retail
-------------- -------------- --------------
<S> <C> <C> <C>
Net Effective Rents
Related to Re-Leased
Space:
Number of lease
transactions (signed
leases) ..................... 1,051 249 101
Rentable square footage
leased ...................... 5,086,408 2,786,017 378,304
Average per rentable
square foot over the
lease term:
Base rent ................... $ 15.58 $ 5.35 $ 17.24
Tenant improvements ......... ( .82) ( .28) ( 1.02)
Leasing commissions ......... ( .39) ( .13) ( .44)
Rent concessions ............ ( .03) ( .01) ( .01)
----------- ---------- ----------
Effective rent .............. $ 14.34 $ 4.93 $ 15.77
Expense stop (1) ............ ( 4.19) ( .28) ( .07)
----------- ---------- ----------
Equivalent effective net
rent ....................... $ 10.15 $ 4.65 $ 15.70
=========== ========== ==========
Average term in years ......... 5 4 6
=========== ========== ==========
Rental Rate Trends:
Average final rate with
expense pass-throughs ....... $ 15.13 $ 5.05 $ 12.21
Average first year cash
rental rate ................. $ 15.68 $ 5.24 $ 16.28
----------- ---------- ----------
Percentage increase ........... 3.64% 3.76% 33.33%
=========== ========== ==========
Capital Expenditures
Related to Re-leased
Space:
Tenant Improvements:
Total dollars committed
under signed leases ........ $21,748,441 $3,621,621 $4,589,543
Rentable square feet ........ 5,086,408 2,786,017 378,304
----------- ---------- ----------
Per rentable square foot..... $ 4.28 $ 1.30 $ 12.13
=========== ========== ==========
Leasing Commissions:
Total dollars committed
under signed leases ........ $ 8,990,333 $1,336,828 $1,069,227
Rentable square feet ........ 5,086,408 2,786,017 378,304
----------- ---------- ----------
Per rentable square foot..... $ 1.77 $ .48 $ 2.83
=========== ========== ==========
Total:
Total dollars committed
under signed leases ........ $30,738,774 $4,958,449 $5,658,770
Rentable square feet ........ 5,086,408 2,786,017 378,304
----------- ---------- ----------
Per rentable square foot..... $ 6.04 $ 1.78 $ 14.96
=========== ========== ==========
<CAPTION>
1998 1997
------------------------------------------- -----------------------------
Office Industrial Retail Office Industrial
-------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Effective Rents
Related to Re-Leased
Space:
Number of lease
transactions (signed
leases) ..................... 1,042 207 26 520 241
Rentable square footage
leased ...................... 5,004,005 1,400,108 66,964 2,531,393 1,958,539
Average per rentable
square foot over the
lease term:
Base rent ................... $ 16.00 $ 5.81 $ 14.81 $ 16.04 $ 5.37
Tenant improvements ......... ( 0.81) (0.26) ( 0.82) ( 1.06) (0.22)
Leasing commissions ......... ( 0.35) (0.12) ( 0.58) ( 0.39) (0.13)
Rent concessions ............ ( 0.03) -- ( 0.26) ( 0.01) (0.01)
----------- ---------- ------- ----------- ----------
Effective rent .............. $ 14.81 $ 5.43 $ 13.15 $ 14.58 $ 5.01
Expense stop (1) ............ ( 4.25) (0.37) ( 0.84) ( 3.53) (0.23)
----------- ---------- ------- ----------- ----------
Equivalent effective net
rent ....................... $ 10.56 $ 5.06 $ 12.31 $ 11.05 $ 4.78
=========== ========== ======= =========== ==========
Average term in years ......... 5 3 6 4 3
=========== ========== ======= =========== ==========
Rental Rate Trends:
Average final rate with
expense pass-throughs ....... $ 14.12 $ 5.39 $ 10.35 $ 13.78 $ 5.08
Average first year cash
rental rate ................. $ 15.12 $ 5.58 $ 12.41 $ 14.76 $ 5.37
----------- ---------- ------- ----------- ----------
Percentage increase ........... 7.08% 3.53% 19.9 % 7.11% 5.71%
=========== ========== ======= =========== ==========
Capital Expenditures
Related to Re-leased
Space:
Tenant Improvements:
Total dollars committed
under signed leases ........ $19,144,349 $1,226,526 $340,620 $11,443,099 $1,421,203
Rentable square feet ........ 5,004,005 1,400,108 66,964 2,531,393 1,958,539
----------- ---------- -------- ----------- ----------
Per rentable square foot..... $ 3.83 $ 0.88 $ 5.09 $ 4.52 $ 0.73
=========== ========== ======== =========== ==========
Leasing Commissions:
Total dollars committed
under signed leases ........ $ 8,348,495 $ 558,840 $222,315 $ 4,247,280 $ 890,280
Rentable square feet ........ 5,004,005 1,400,108 66,964 2,531,393 1,958,539
----------- ---------- -------- ----------- ----------
Per rentable square foot..... $ 1.67 $ 0.40 $ 3.32 $ 1.68 $ 0.45
=========== ========== ======== =========== ==========
Total:
Total dollars committed
under signed leases ........ $27,492,844 $1,785,367 $562,935 $15,690,379 $2,311,483
Rentable square feet ........ 5,004,005 1,400,108 66,964 2,531,393 1,958,539
----------- ---------- -------- ----------- ----------
Per rentable square foot..... $ 5.49 $ 1.28 $ 8.41 $ 6.20 $ 1.18
=========== ========== ======== =========== ==========
</TABLE>
- ----------
(1) "Expense stop" represents operating expenses (generally including taxes,
utilities, routine building expense and common area maintenance) for which
we will not be reimbursed by our tenants.
12
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases at our majority-owned in-service properties (excluding apartment units)
as of December 31, 1999, assuming no tenant exercises renewal options.
Office Properties:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations (1) Leases
- -------------- ----------- ----------------- ----------------- --------------- ----------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
2000 898 3,439,598 13.8% $ 56,400 $ 16.40 14.1%
2001 598 3,665,100 14.8 59,636 16.27 14.9
2002 657 3,834,351 15.5 62,252 16.24 15.6
2003 456 3,775,629 15.2 61,296 16.23 15.3
2004 374 2,726,830 11.0 44,668 16.38 11.2
2005 113 1,456,658 5.9 23,138 15.88 5.8
2006 64 1,647,918 6.6 27,106 16.45 6.8
2007 29 773,551 3.1 12,624 16.32 3.2
2008 53 1,540,816 6.2 21,702 14.08 5.4
2009 22 976,289 3.9 15,750 16.13 3.9
Thereafter 88 1,000,782 4.0 15,274 15.26 3.8
----- ---------- ----- -------- -------- -----
3,352 24,837,522 100.0% $399,846 $ 16.10 100.0%
===== ========== ===== ======== ======== =====
</TABLE>
Industrial Properties:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations (1) Leases
- -------------- ----------- ----------------- ----------------- --------------- ----------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
2000 228 2,537,554 23.1% $11,734 $ 4.62 20.2%
2001 149 1,771,632 16.1 8,643 4.88 14.9
2002 138 1,778,493 16.2 8,035 4.52 13.8
2003 58 787,214 7.2 4,429 5.63 7.6
2004 75 2,310,262 21.0 12,116 5.24 20.8
2005 17 323,313 2.9 2,402 7.43 4.1
2006 14 459,385 4.2 3,291 7.16 5.7
2007 7 189,148 1.7 1,264 6.68 2.2
2008 6 247,737 2.3 2,006 8.10 3.5
2009 12 422,377 3.8 3,638 8.61 6.3
Thereafter 10 159,727 1.5 540 3.38 0.9
--- --------- ----- ------- ------- -----
714 10,986,842 100.0% $58,098 $ 5.29 100.0%
=== ========== ===== ======= ======= =====
</TABLE>
- ----------
(1) Annual Rents Under Expiring Leases are December 1999 rental revenue (base
rent plus operating expense pass-throughs) multiplied by 12.
13
<PAGE>
Retail Properties:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations (1) Leases
- ---------------- ----------- ----------------- ----------------- --------------- ----------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
2000 97 228,767 14.5% $ 3,757 $ 16.42 12.6%
2001 53 130,267 8.3 3,175 24.37 10.7
2002 50 145,077 9.2 2,459 16.95 8.3
2003 46 118,582 7.5 2,531 21.34 8.5
2004 33 209,764 13.3 2,315 11.04 7.8
2005 16 52,135 3.3 1,496 28.69 5.0
2006 21 71,533 4.5 1,628 22.76 5.5
2007 10 52,542 3.3 949 18.06 3.2
2008 15 107,595 6.8 3,413 31.72 11.5
2009 21 141,808 9.0 2,713 19.13 9.1
Thereafter 17 318,489 20.3 5,302 16.65 17.8
--- --------- ----- ------- -------- -----
379 1,576,559 100.0% $29,738 $ 18.86 100.0%
=== ========= ===== ======= ======== =====
</TABLE>
Total:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations(1) Leases
- ---------------- ----------- ----------------- ----------------- --------------- ---------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
2000 1,223 6,205,919 16.6% $ 71,891 $ 11.58 14.7%
2001 800 5,566,999 14.9 71,454 12.84 14.7
2002 845 5,757,921 15.4 72,746 12.63 15.0
2003 560 4,681,425 12.5 68,256 14.58 14.0
2004 482 5,246,856 14.0 59,099 11.26 12.1
2005 146 1,832,106 4.9 27,036 14.76 5.5
2006 99 2,178,836 5.8 32,025 14.70 6.6
2007 46 1,015,241 2.7 14,837 14.61 3.0
2008 74 1,896,148 5.1 27,121 14.30 5.6
2009 55 1,540,474 4.1 22,101 14.35 4.5
Thereafter 115 1,478,998 4.0 21,116 14.28 4.3
----- --------- ----- -------- -------- -----
4,445 37,400,923 100.0% $487,682 $ 13.04 100.0%
===== ========== ===== ======== ======== =====
</TABLE>
- ----------
(1) Annual Rents Under Expiring Leases are December 1999 rental revenue (base
rent plus operating expense pass-throughs) multiplied by 12.
14
<PAGE>
Development Land
As of December 31, 1999, we owned 1,473 acres and had committed to
purchase over the next three years an additional 317 acres of land for
development. We estimate that we can develop approximately 12.6 million square
feet of office, industrial and retail space on the development land.
All of the development land is zoned and available for office, industrial
or retail development, substantially all of which has utility infrastructure
already in place. We believe that our commercially zoned and unencumbered land
in existing business parks gives us an advantage in our future development
activities over other commercial real estate development companies in many of
our markets. Any future development, however, is dependent on the demand for
industrial or office space in the area, the availability of favorable financing
and other factors, and no assurance can be given that any construction will
take place on the development land. In addition, if construction is undertaken
on the development land, we will be subject to the risks associated with
construction activities, including the risk that occupancy rates and rents at a
newly completed property may not be sufficient to make the property profitable,
construction costs may exceed original estimates and construction and lease-up
may not be completed on schedule, resulting in increased debt service expense
and construction expense.
ITEM 3. LEGAL PROCEEDINGS
On October 2, 1998, John Flake, a former stockholder of J.C. Nichols,
filed a putative class action lawsuit on behalf of himself and the other former
stockholders of J.C. Nichols in the United States District Court for the
District of Kansas against J.C. Nichols, certain of its former officers and
directors and the Company. The complaint alleges, among other things, that in
connection with the merger of J.C. Nichols and the Company (1) J.C. Nichols and
the named directors and officers of J.C. Nichols breached their fiduciary
duties to J.C. Nichols' stockholders, (2) J.C. Nichols and the named directors
and officers of J.C. Nichols breached their fiduciary duties to members of the
J.C. Nichols Company Employee Stock Ownership Trust, (3) all defendants
participated in the dissemination of a proxy statement containing materially
false and misleading statements and omissions of material facts in violation of
Section 14(a) of the Securities Exchange Act of 1934 and (4) the Company filed
a registration statement with the SEC containing materially false and
misleading statements and omissions of material facts in violation of Sections
11 and 12(2) of the Securities Act of 1933. The plaintiff seeks equitable
relief and monetary damages. We believe that the defendants have meritorious
defenses to the plaintiffs' allegations, and intend to vigorously defend this
litigation. By order dated June 18, 1999, the court granted in part and denied
in part our motion to dismiss. The court has granted the plaintiff's motion
seeking certification of the proposed class of plaintiffs with respect to the
remaining claims. Discovery in the matter is proceeding. Due to the inherent
uncertainties of the litigation process and the judicial system, we are not
able to predict the outcome of this litigation. If this litigation is not
resolved in our favor, it could have a material adverse effect on our business,
financial condition and results of operations.
In addition, we are a party to a variety of legal proceedings arising in
the ordinary course of our business. We believe that we are adequately covered
by insurance and indemnification agreements. Accordingly, none of such
proceedings are expected to have a material adverse effect on our business,
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company is the sole general partner of the Operating Partnership. The
following table sets forth certain information with respect to the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position and Background
- ---------------------- ----- ---------------------------------------------------------------------------
<S> <C> <C>
Ronald P. Gibson 55 Director, President and Chief Executive Officer. Mr. Gibson is one of our
founders and has served as President or managing partner of our
predecessor since its formation in 1978.
John L. Turner 53 Director, Vice Chairman of the Board of Directors and Chief Investment
Officer. Mr. Turner co-founded the predecessor of Forsyth Properties in
1975.
Edward J. Fritsch 41 Executive Vice President, Chief Operating Officer and Secretary.
Mr. Fritsch joined us in 1982.
Gene H. Anderson 54 Director and Senior Vice President. Mr. Anderson manages the operations
of our Georgia properties. Mr. Anderson was the founder and president
of Anderson Properties, Inc. prior to its merger with the Company.
Michael E. Harris 50 Senior Vice President. Mr. Harris is responsible for our operations in
Tennessee, Missouri, Kansas and Maryland. Mr. Harris was executive vice
president of Crocker Realty Trust prior to its merger with the Company.
Before joining Crocker Realty Trust, Mr. Harris served as senior vice
president, general counsel and chief financial officer of Towermarc
Corporation, a privately owned real estate development firm.
Marcus H. Jackson 43 Senior Vice President. Mr. Jackson is responsible for our operations in
Virginia, North Carolina and South Carolina. Prior to joining us in 1998,
Mr. Jackson was senior vice president of Compass Development and
Construction Services.
Dale R. Johannes 49 Senior Vice President. Mr. Johannes is responsible for our operations in
Florida. From 1990 to 1997, Mr. Johannes served as chief operating
officer of Associated Capital Properties, Inc.
Carman J. Liuzzo 39 Vice President, Chief Financial Officer and Treasurer. Prior to joining us
in 1994, Mr. Liuzzo was vice president and chief accounting officer for
Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant Properties,
Inc. Mr. Liuzzo is a certified public accountant.
Mack D. Pridgen III 50 Vice President and General Counsel. Prior to joining us in 1997,
Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
</TABLE>
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
Market Information and Distributions
There is no established public trading market for the Common Units. The
following table sets forth the cash distributions paid per Common Unit during
each quarter. Comparable cash distributions are expected in the future. As of
March 20, 2000 there were 198 record holders of Common Units (other than the
Company).
<TABLE>
<CAPTION>
Quarter 1999 1998
Ended: Distributions Distributions
- ---------------------- --------------- --------------
<S> <C> <C>
March 31 ............. $ 0.54 $ 0.51
June 30 .............. 0.54 0.51
September 30 ......... 0.555 0.54
December 31 .......... 0.555 0.54
</TABLE>
Sales of Unregistered Securities
In connection with the acquisition of real estate, the Operating
Partnership frequently issues Common Units to sellers of real estate in
reliance on exemptions from registration under the Securities Act of 1933. In
connection with acquisitions in 1999, the Operating Partnership issued 450,451
Common Units in offerings exempt from the registration requirements of the
Securities Act. We exercised reasonable care to assure that each of the
offerees of Common Units in 1999 was an "accredited investor" under Rule 501 of
the Securities Act and that the investors were not purchasing the Common Units
with a view to their distribution. Specifically, we relied on the exemptions
provided by Section 4(2) of the Securities Act or Rule 506 under the Securities
Act.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Operating Partnership as of December 31, 1999, 1998, 1997, 1996 and 1995
and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 ($ in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenue .............................. $ 579,874 $ 509,762 $ 273,165 $ 132,302 $ 73,522
Rental property
operating expenses (1) ................... 173,676 154,211 76,743 33,657 17,049
General and
administrative ........................... 22,345 20,630 10,216 5,636 2,737
Interest expense ........................... 111,385 93,959 47,394 25,230 13,720
Depreciation and amortization .............. 112,039 91,397 47,260 21,105 11,082
----------- ----------- ----------- ----------- ---------
Income before cost of unsuccessful
transactions, gain on disposition
of assets and extraordinary item ......... 160,429 149,565 91,552 46,674 28,934
Cost of unsuccessful transactions .......... (1,500) (146) -- -- --
Gain on disposition of assets .............. 7,997 1,716 -- -- --
----------- ----------- ----------- ----------- ---------
Income before extraordinary item ........... 166,926 151,135 91,552 46,674 28,934
Extraordinary item-loss
on early extinguishment
of debt .................................. (7,341) (387) (6,945) (2,432) (1,068)
----------- ----------- ----------- ----------- ---------
Net income ................................. $ 159,585 $ 150,748 $ 84,607 $ 44,242 $ 27,866
Dividends on preferred units ............... (32,580) (30,092) (13,117) -- --
----------- ----------- ----------- ----------- ---------
Net income available for Class A
common units ............................. $ 127,005 $ 120,656 $ 71,490 $ 44,242 $ 27,866
=========== =========== =========== =========== =========
Net income per common
unit -- basic ............................ $ 1.81 $ 1.86 $ 1.54 $ 1.48 $ 1.49
=========== =========== =========== =========== =========
Net income per common
unit -- diluted .......................... $ 1.81 $ 1.85 $ 1.53 $ 1.47 $ 1.48
=========== =========== =========== =========== =========
Balance Sheet Data
(at end of period):
Net real estate assets ..................... $3,649,059 $3,891,883 $2,601,211 $1,364,606 $ 593,066
----------- ----------- ----------- ----------- ---------
Total assets ............................... 3,972,079 4,247,700 2,707,240 1,429,488 621,134
----------- ----------- ----------- ----------- ---------
Total mortgages and
notes payable ............................ 1,719,117 1,906,216 978,558 555,876 182,736
----------- ----------- ----------- ----------- ---------
Other data:
Number of in-service
properties ............................... 563 658 481 292 191
----------- ----------- ----------- ----------- ---------
Total rentable square
feet ..................................... 38,976,000 44,642,000 30,721,000 17,455,000 9,215,000
=========== =========== =========== =========== =========
</TABLE>
- ----------
(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security and
utilities.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview and Background
The Highwoods Group (the predecessor to the Operating Partnership) was
comprised of 13 office properties and one warehouse facility (the
"Highwoods-Owned Properties"), 94 acres of development land and the management,
development and leasing business of Highwoods Properties Company ("HPC"). On
June 14, 1994, following completion of the Company's initial public offering,
the Company, through a business combination involving entities under varying
common ownership, succeeded to the Highwoods-Owned Properties, HPC's real
estate business and 27 additional office properties owned by unaffiliated
parties (such combination being referred to as the "Formation Transaction").
The Company is the sole general partner of the Operating Partnership. The
Operating Partnership owns the Company's interests in the properties and
conducts substantially all of its operations. We acquired three additional
properties in 1994 after the Formation Transaction.
In February 1995, we expanded into other North Carolina markets and
diversified our portfolio to include industrial and service center properties
with our $170.0 million, 57-property business combination with Forsyth
Partners. During 1995, we acquired an aggregate of 144 properties, encompassing
6.4 million square feet, at an initial cost of $369.9 million.
In September 1996, we acquired 5.7 million rentable square feet of office
and service center space through our $566.0 million merger with Crocker Realty
Trust, Inc. During 1996, we acquired an aggregate of 91 properties,
encompassing 7.3 million square feet, at an initial cost of $704.0 million.
In October 1997, we acquired 6.4 million rentable square feet of office
space through our $617.0 million merger with Associated Capital Properties,
Inc. During 1997, we acquired an aggregate of 176 properties, encompassing 12.8
million rentable square feet, at an initial cost of $1.1 billion.
In July 1998, we acquired 5.7 million rentable square feet of office,
industrial and retail space as well as multi-family communities through our
$544.0 million merger with J.C. Nichols Company. During 1998, we acquired an
aggregate of 186 properties, encompassing 14.9 million rentable square feet and
2,325 apartment units, at an initial cost of $1.2 billion.
During 1999, in an effort to increase portfolio quality and return on
invested capital, we sold 123 properties, encompassing 8.3 million rentable
square feet for an aggregate sales price of $696.4 million and contributed or
sold to joint ventures 13 properties, encompassing 1.2 million rentable square
feet for a sales price of $142.0 million. In addition, we acquired seven
properties, encompassing 960,000 rentable square feet at an initial cost of
$106.8 million. See "Business -- Recent Developments" for a table summarizing
all acquisition, disposition and joint venture activity in 1999.
This information should be read in conjunction with the accompanying
consolidated financial statements and the related notes thereto.
Results of Operations
Comparison of 1999 to 1998. Revenues from rental operations increased
$66.2 million, or 13.3%, from $496.7 million for the year ended December 31,
1998 to $562.9 million for the year ended December 31, 1999. The increase is
primarily a result of our acquisition and development activity in 1998 and
1999. In total, we acquired or completed the development of 3.1 million
rentable square feet of majority-owned office, industrial and retail properties
during 1999. These additions to our portfolio were offset by the disposition of
8.8 million rentable square feet of majority owned office, industrial and
retail properties and 418 apartment units (including the removal of certain
properties from our consolidated financial statements as a result of the
reorganization of the Des Moines partnerships) in 1999. Same property revenues,
which are the revenues of the 403 in-service properties owned on January 1,
1998, increased 3% for the year ended December 31, 1999 compared to the year
ended December 31, 1998.
19
<PAGE>
During the year ended December 31, 1999, 1,401 leases represented 8.3
million square feet of office, industrial and retail space were executed at an
average rate per square foot which was 4.9% higher than the average rate per
square foot on the expired leases.
Interest and other income increased $3.2 million from $13.2 million in
1998 to $16.4 million in 1999. The increase is primarily related to an increase
in interest income as we maintained a higher cash position. We also generated
additional management fees, development fees and leasing commissions in 1999.
The Operating Partnership generated $914,425 in auxiliary income (vending and
parking) as a result of acquiring multifamily communities in the merger with
J.C. Nichols.
Rental operating expenses increased $19.5 million, or 12.6%, from $154.2
million in 1998 to $173.7 million in 1999. The increase is primarily a result
of our acquisition and development activity in 1998 and 1999. In total, we
acquired or completed the development of 3.1 million rentable square feet of
majority-owned office, industrial and retail properties during 1999. These
additions to our portfolio were offset by the disposition of 8.8 million
rentable square feet of majority-owned office, industrial and retail properties
and 418 apartment units (including the removal of certain properties from our
consolidated financial statements as a result of the reorganization of the Des
Moines partnerships) in 1999. Rental expenses as a percentage of related rental
revenues remained consistent at 31.0% in 1998 and 1999.
Depreciation and amortization for the years ended December 31, 1999 and
1998 were $112.0 million and $91.4 million, respectively. The increase of $20.6
million, or 22.5%, is due to an average increase in depreciable assets and
deferred leasing costs. Interest expense increased $17.4 million, or 18.5%,
from $94.0 million in 1998 to $111.4 million in 1999. The increase is
attributable to an average increase in outstanding debt related to our
acquisition and development activities. The weighted average interest rates on
outstanding borrowings remained consistent in 1998 and 1999. Interest expense
for the years ended December 31, 1999 and 1998 included $2.8 million and $2.6
million, respectively, of amortization of noncash deferred financing costs and
of the costs related to our interest rate hedge contracts. General and
administrative expenses decreased from 4.1% of total revenue in 1998 to 3.9% in
1999.
Net income before extraordinary item equaled $166.9 million and $151.1
million for the years ended December 31, 1999 and 1998, respectively. The
Operating Partnership incurred an extraordinary loss in 1999 and 1998 of $7.3
million and $387,000 respectively, related to the early extinguishment of debt.
The Operating Partnership recorded $32.6 million and $30.1 million in preferred
unit dividends for the years ended December 31, 1999 and 1998, respectively.
Comparison of 1998 to 1997. Revenue from rental operations increased $229.8
million, or 86.1%, from $266.9 million for the year ended December 31, 1997 to
$496.7 million for the year ended December 31, 1998. The increase is a result of
our acquisition and development activity in 1997 and 1998. In total, we acquired
186 office, industrial and retail properties, encompassing 14.9 million square
feet and 2,325 apartment units during 1998. Same property revenues, which are
the revenues of the 282 in-service properties (encompassing 16.7 million square
feet) owned on January 1, 1997 and December 31, 1998, increased 4.7% for the
year ended December 31, 1998, compared to the year ended December 31, 1997.
During 1998, 1,312 leases, representing 6.4 million square feet of office,
industrial and retail space, were executed at an average rate per square foot
which was 6.8% higher than the average rate per square foot on the expired
leases.
Interest and other income increased $7.0 million from $6.2 million in 1997
to $13.2 million in 1998. The increase is primarily related to an increase in
interest income as we maintained a higher cash position. We also generated
additional management fees, development fees and leasing commissions in 1998.
The Operating Partnership generated $650,000 in auxiliary income (vending and
parking) as a result of acquiring multifamily communities in the merger with
J.C. Nichols.
20
<PAGE>
Rental operating expenses increased $77.5 million, or 101.0%, from $76.7
million in 1997 to $154.2 million in 1998. Rental expenses as a percentage of
related rental revenues increased from 28.7% in 1997 to 31.0% in 1998. The
increase is a result of an increase in the percentage of office properties in
the portfolio, which have fewer triple net lease pass-throughs.
Depreciation and amortization for the years ended December 31, 1998 and
1997 were $91.4 million and $47.3 million, respectively. The increase of $44.1
million, or 93.2%, is due to an average increase in depreciable assets and
deferred leasing costs. Interest expense increased $46.6 million, or 98.3%,
from $47.4 million in 1997 to $94.0 million in 1998. The increase is
attributable to an average increase in outstanding debt related to our
acquisition and development activities. Interest expense for the years ended
December 31, 1998 and 1997 included $2.6 million and $2.3 million,
respectively, of amortization of noncash deferred financing costs and of the
costs related to our interest rate hedge contracts. General and administrative
expenses increased from 3.7% of total revenue in 1997 to 4.1% in 1998.
Net income before extraordinary item equaled $151.1 million and $91.6
million for the years ended December 31, 1998 and 1997, respectively. The
Operating Partnership incurred an extraordinary loss in the first quarter of
1997 of $3.3 million related to the early extinguishment of debt assumed in the
acquisition of the Anderson Properties and Century Center portfolios. The
Operating Partnership recorded $30.1 million and $13.1 million in preferred
unit dividends for the years ended December 31, 1998 and 1997, respectively.
Liquidity and Capital Resources
Statement of Cash Flows. For the year ended December 31, 1999, the
Operating Partnership generated $234.4 million in cash flows from operating
activities and $154.0 million from investing activities (primarily as a result
of the dispositions of real estate assets, offset in part by additions to real
estate assets). These combined cash flows of $388.4 million were used to fund
financing activities of $385.2 million, primarily consisting of repayments on
our $450.0 million unsecured revolving loan (the "Revolving Loan") and
mortgages and notes payable as well as the payment of distributions during
1999.
Capitalization. The Operating Partnership's indebtedness at December 31,
1999 totaled $1.7 billion and was comprised of $563,000 of secured indebtedness
with a weighted average interest rate of 7.8% and $1.2 billion of unsecured
indebtedness with a weighted average interest rate of 7.3%. Except as stated
below, all of the mortgage and notes payable outstanding at December 31, 1999
were either fixed rate obligations or variable rate obligations covered by
interest rate hedge contracts. A portion of our $450.0 million unsecured
revolving loan (the "Revolving Loan") and approximately $39.0 million of
floating rate notes payable assumed upon consummation of the merger with J.C.
Nichols were not covered by interest rate hedge contracts on December 31, 1999.
We completed the following financing activities during 1999:
o June 1999 equity settlement. On June 9, 1999, the Company settled its August
1997 forward equity transaction with UBS AG, London Branch ("UBS") through a
combination of cash and shares of Common Stock. In connection with the
settlement, 246,424 shares of the Company's common stock were returned and
retired.
o July 1999 debt retirement. On July 1, 1999, we retired a $133.0 million 7.9%
mortgage note that was secured by 44 of our properties held by AP Southeast
Portfolio Partners, L.P., one of our subsidiaries, by using $138.0 million
of availability under our Revolving Loan to repay the principal amount of
the mortgage note plus the required yield maintenance premium for early
maturity.
o October debt borrowing. On October 21, 1999, we borrowed $188.4 million from
Monumental Life Insurance Company, an affiliate of AEGON USA Realty
Advisors, Inc., pursuant to one $94.2 million 7.77% mortgage note due 2009
and one $94.2 million 7.87% mortgage note due 2009, which notes are secured
by 28 of our properties. We used the net proceeds from these mortgage loans,
together with $2.1 million that we received from counterparties to settle
two treasury lock agreements in September 1999, to repay amounts outstanding
under our revolving Loan.
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<PAGE>
o December credit facility amendment. On December 9, 1999, we and our lenders
amended our Revolving Loan to, among other things, reduce the overall
borrowing committment from $600 million to $450 million.
o December share repurchases. On December 14, 1999, the Company announced that
its board of directors had authorized a share repurchase plan pursuant to
which the Company may, at its sole and absolute discretion, repurchase up to
10.0 million shares of Common Stock and Common Units. In December 1999, the
Company used $25.5 million of net proceeds from our recent disposition
activity, either through direct payments or repayment of borrowings under
the Revolving Loan, to repurchase 1.2 million shares of Common Stock through
periodic open market or privately negotiated transactions at a weighted
average price of $22.15 per share.
To meet in part our long-term liquidity requirements, we borrow funds at a
combination of fixed and variable rates. Borrowings under the Revolving Loan
bear interest at variable rates. Our long-term debt, which consists of
long-term financings and the issuance of debt securities, typically bears
interest at fixed rates. In addition, we have assumed fixed rate and variable
rate debt in connection with acquiring properties. Our interest rate risk
management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve
these objectives, from time to time we enter into interest rate hedge contracts
such as collars, swaps, caps and treasury lock agreements in order to mitigate
our interest rate risk with respect to various debt instruments. We do not hold
or issue these derivative contracts for trading or speculative purposes.
The following table sets forth information regarding our interest rate
hedge contracts as of December 31, 1999 ($ in thousands):
<TABLE>
<CAPTION>
Notional Maturity Fixed Fair Market
Type of Hedge Amount Date Reference Rate Rate Value
- --------------- ---------- ---------- ----------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Swap $20,505 6/10/02 1-Month LIBOR + 0.75% 7.700% $ (493)
Collar 80,000 10/15/01 1-Month LIBOR 5.60-6.25 525
</TABLE>
We enter into swaps, collars and caps to limit our exposure to an increase
in variable interest rates, particularly with respect to amounts outstanding
under our Revolving Loan. The interest rate on all of our variable rate debt is
adjusted at one- and three-month intervals, subject to settlements under these
contracts. We also enter into treasury lock agreements from time to time in
order to limit our exposure to an increase in interest rates with respect to
future debt offerings. Net payments made to counterparties under interest rate
hedge contracts were $305,000 during 1999 and were recorded as increases to
interest expense.
In addition, we are exposed to certain losses in the event of
nonperformance by the counterparties under the interest rate hedge contracts.
We expect the counterparties, which are major financial institutions, to
perform fully under these contracts. However, if the counterparties were to
default on their obligations under the interest rate hedge contracts, we could
be required to pay the full rates on our debt, even if such rates were in
excess of the rates in the contracts.
Current and Future Cash Needs. Historically, rental revenue has been the
principal source of funds to pay operating expenses, debt service, stockholder
distributions and capital expenditures, excluding nonrecurring capital
expenditures. In addition, construction management, maintenance, leasing and
management fees have provided sources of cash flow. We presently have no plans
for major capital improvements to the existing properties, other than normal
recurring building improvements, tenant improvements and lease commissions. We
expect to meet our short-term liquidity requirements generally through working
capital and net cash provided by operating activities along with the Revolving
Loan.
Our short-term (within the next 12 months) liquidity needs also include,
among other things, the funding of approximately $153.4 million of our existing
development activity. See "Business -- Development Activity." We expect to find
our short-term liquidity needs through a combination of:
22
<PAGE>
o additional borrowings under our Revolving Loan (approximately $175.0
million was available as of March 20, 2000);
o the issuance of secured debt;
o the selective disposition of non-core assets; and
o the sale or contribution of some of our wholly owned properties to
strategic joint ventures to be formed with selected partners interested in
investing with us, which will have the net effect of generating additional
capital through such sale or contributions.
Our long-term liquidity needs generally include the funding of existing
and future development activity, selective asset acquisitions and the
retirement of mortgage debt, amounts outstanding under the Revolving Loan and
long-term unsecured debt. We remain committed to maintaining a flexible and
conservative capital structure. Accordingly, we expect to meet our long-term
liquidity needs through a combination of (1) the issuance by the Operating
Partnership of additional unsecured debt securities, (2) the issuance of
additional equity securites by the Company and the Operating Partnership as
well as (3) the soures described above with respect to our short-term
liquidity. We expect to use such sources to meet our long-term liquidity
requirements either through direct payments or repayment of borrowings under
the Revolving Loan. We do not intend to reserve funds to retire existing
secured or unsecured indebtedness upon maturity. Instead, we will seek to
refinance such debt at maturity or retire such debt through the issuance of
equity or debt securities.
We anticipate that our available cash and cash equivalents and cash flows
from operating activities, together with cash available from borrowings and
other sources, will be adequate to meet our capital and liquidity needs in both
the short and long-term. However, if these sources of funds are insufficient or
unavailable, our ability to satisfy our cash requirements may be adversely
affected.
Recent Developments
Disposition Activity. We currently have 786,000 rentable square feet of
properties under contract for sale in various transactions totaling $57.8
million. Additionally, 3.2 million rentable square feet of properties are under
various letters of intent for sale at $293.5 million. These transactions are
subject to customary closing conditions, including due diligence and
documentation, and are expected to close during the first and second quarters
of 2000. However, we can provide no assurance that all or parts of these
transactions will be consummated.
We expect to use a portion of the net proceeds from our recent and pending
disposition activity to reinvest in tax-deferred exchange transactions under
Section 1031 of the Internal Revenue Code. We expect to reinvest up to $27.1
million of the remaining net proceeds from disposition activity as of December
31, 1999 and up to $75.0 million of the net proceeds from pending disposition
activity to acquire in tax-deferred exchange transactions in-service
properties, development land and development projects located in core markets
and in sub-markets where we have a strong presence. For an exchange to qualify
for tax-deferred treatment under Section 1031, the net proceeds from the sale
of a property must be held by an escrow agent until applied toward the purchase
of real estate qualifying for gain deferral. Given the competition for
properties meeting our investment criteria, there may be some delay in
reinvesting such proceeds. Delays in reinvesting such proceeds will reduce our
income from operations. In addition, the use of net proceeds from dispositions
to fund development activity, either through direct payments or repayment of
borrowings under our Revolving Loan, will reduce our income from operations
until such development projects are placed in service.
Possible Environmental Liabilities
In connection with owning or operating our properties, we may be liable
for certain costs due to possible environmental liabilities. Under various
laws, ordinances and regulations, such as the Comprehensive Environmental
Response Compensation and Liability Act, and common law, an owner or operator
of real estate is liable for the costs to remove or remediate certain hazardous
or toxic chemicals or
23
<PAGE>
substances on or in the property. Owners or operators are also liable for
certain other costs, including governmental fines and injuries to persons and
property. Such laws often impose liability without regard to whether the owner
or operator knew of, or was responsible for, the presence of the hazardous or
toxic chemicals or substances. The presence of such substances, or the failure
to remediate such substances properly, may adversely affect the owner's or
operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal, treatment or
transportation of hazardous or toxic chemicals or substances may also be liable
for the same types of costs at a disposal, treatment or storage facility,
whether or not that person owns or operates that facility.
Certain environmental laws also impose liability for releasing
asbestos-containing materials. Third parties may seek recovery from owners or
operators of real property for personal injuries associated with
asbestos-containing materials. A number of our properties have
asbestos-containing materials or material that we presume to be
asbestos-containing materials. In connection with owning and operating our
properties, we may be liable for such costs.
In addition, it is not unusual for property owners to encounter on-site
contamination caused by off-site sources. The presence of hazardous or toxic
chemicals or substances at a site close to a property could require the
property owner to participate in remediation activities or could adversely
affect the value of the property. Contamination from adjacent properties has
migrated onto at least three of our properties; however, based on current
information, we do not believe that any significant remedial action is
necessary at these affected sites.
As of the date hereof, we have obtained Phase I environmental assessments
(and, in certain instances, Phase II environmental assessments) on
substantially all of our in-service properties. These assessments have not
revealed, nor are we aware of, any environmental liability at our properties
that we believe would materially adversely affect our financial position,
operations or liquidity taken as a whole. This projection, however, could be
incorrect depending on certain factors. For example, material environmental
liabilities may have arisen after the assessments were performed or our
assessments may not have revealed all environmental liabilities or may have
underestimated the scope and severity of environmental conditions observed.
There may also be unknown environmental liabilities at properties for which we
have not obtained a Phase I environmental assessment or have not yet obtained a
Phase II environmental assessment. In addition, we base our assumptions
regarding environmental conditions, including groundwater flow and the
existence and source of contamination, on readily available sampling data. We
cannot guarantee that such data is reliable in all cases. Moreover, we cannot
provide any assurances (1) that future laws, ordinances or regulations will not
impose a material environmental liability or (2) that tenants, the condition of
land or operations in the vicinity of our properties or unrelated third parties
will not affect the current environmental condition of our properties.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. In their leases, we require these tenants to
comply with all applicable laws and to be responsible to us for any damages
resulting from their use of the property. We are not aware of any material
environmental problems resulting from tenants' use or generation of hazardous
or toxic chemicals or substances. We cannot provide any assurances, however,
that all tenants will comply with the terms of their leases or remain solvent.
If tenants do not comply or do not remain solvent, we may at some point be
responsible for contamination caused by such tenants.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which is required to be adopted in fiscal years beginning after
June 15, 1999. In June 1999, FASB issued Statement No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the FASB Statement
No. 133, which stipulates the required adoption date to be all fiscal years
beginning after June 15, 2000. Statement No. 133 requires us to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge,
24
<PAGE>
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The fair
market value of our derivatives is discussed in Item 7A.
Compliance with the Americans with Disabilities Act
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers, and noncompliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although we believe that our properties are substantially in compliance with
these requirements, we may incur additional costs to comply with the ADA.
Although we believe that such costs will not have a material adverse effect on
us, if required changes involve a greater expenditure than we currently
anticipate, our results of operations, liquidity and capital resources could be
materially adversely affected.
Funds From Operations and Cash Available for Distributions
We consider funds from operations ("FFO") to be a useful financial
performance measure of the operating performance of an equity REIT because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt
and to fund acquisitions and other capital expenditures. FFO does not represent
net income or cash flows from operating, investing or financing activities as
defined by Generally Accepted Accounting Principles ("GAAP"). It should not be
considered as an alternative to net income as an indicator of our operating
performance or to cash flows as a measure of liquidity. FFO does not measure
whether cash flow is sufficient to fund all cash needs, including principal
amortization, capital improvements and distributions to stockholders. Further,
FFO as disclosed by other REITs may not be comparable to our calculation of
FFO, as described below. FFO and cash available for distributions should not be
considered as alternatives to net income as an indication of our performance or
to cash flows as a measure of liquidity.
FFO equals net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. In March 1995, the National
Association of Real Estate Investment Trusts ("NAREIT") issued a clarification
of the definition of FFO. In October 1999, NAREIT issued an additional
clarification effective as of January 1, 2000, stipulating that FFO should
include both recurring and non-recurring operating results. Consistent with
this clarification, non-recurring items that are not defined as "extraordinary"
under GAAP will be reflected in the calculation of FFO. Gains and losses from
the sale of depreciable operating property will continue to be excluded from
the calculation of FFO. The clarification provides that amortization of
deferred financing costs and depreciation of non-real estate assets are no
longer to be added back to net income in arriving at FFO. Cash available for
distribution is defined as funds from operations reduced by non-revenue
enhancing capital expenditures for building improvements and tenant
improvements and lease commissions related to second generation space.
25
<PAGE>
FFO and cash available for distribution for the years ended December 31,
1999, 1998 and 1997 are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
FFO:
Income before extraordinary item .............................. $ 166,926 $ 151,135 $ 91,552
Add/(Deduct):
Dividends on preferred units ................................ (32,580) (30,092) (13,117)
Cost of unsuccessful transactions ........................... 1,500 146 --
Severance costs and other division closing expenses ......... 1,813 -- --
Gain on disposition of assets ............................... (7,997) (1,716) --
Depreciation and amortization ............................... 112,039 91,397 47,260
Depreciation on unconsolidated subsidiaries ................. 3,215 974 --
--------- --------- ---------
FFO ........................................................ 244,916 211,844 125,695
Cash Available for Distribution:
Add/(Deduct):
Rental income from straight-line rents ...................... (14,983) (13,385) (7,035)
Amortization of deferred financing costs .................... 2,823 2,598 2,256
Non-incremental revenue generating capital expenditures:
Building improvements paid ................................. (10,056) (9,029) (4,401)
Second generation tenant improvements paid ................. (25,043) (20,115) (9,889)
Second generation lease commissions paid ................... (13,653) (13,055) (5,535)
--------- --------- ---------
Cash available for distribution .......................... $ 184,004 $ 158,858 $ 101,091
========= ========= =========
Weighted average Common Units outstanding -- diluted .......... 70,268 65,132 46,813
========= ========= =========
Dividend payout ratio:
FFO ......................................................... 62.8% 64.6% 73.7%
========= ========= =========
Cash available for distribution ............................. 83.6% 86.1% 91.7%
========= ========= =========
</TABLE>
Inflation
In the last five years, inflation has not had a significant impact on us
because of the relatively low inflation rate in our geographic areas of
operation. Most of the leases require the tenants to pay their pro rata share
of operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing our exposure to increases in operating expenses
resulting from inflation. In addition, 83% of the leases are for remaining
terms of less than seven years, which may enable us to replace existing leases
with new leases at a higher base if rents on the existing leases are below the
then-existing market rate.
Disclosure Regarding Forward-looking Statements
Some of the information in this Annual Report on Form 10-K may contain
forward-looking statements. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." You can identify forward-looking statements by our use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. Although we believe that our
plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement:
26
<PAGE>
o our markets could suffer unexpected increases in development of office,
industrial and retail properties;
o the financial condition of our tenants could deteriorate;
o the costs of our development projects could exceed our original estimates;
o we may not be able to complete development, acquisition or joint venture
projects as quickly or on as favorable terms as anticipated;
o we may not be able to lease or release space quickly or on as favorable terms
as old leases;
o we may have incorrectly assessed the environmental condition of our
properties;
o an unexpected increase in interest rates would increase our debt service
costs;
o we may not be able to continue to meet our long-term liquidity requirements
on favorable terms;
o we could lose key executive officers; and
o our southeastern markets may suffer an unexpected decline in economic growth
or increase in unemployment rates.
Given these uncertainties, we caution you not to place undue reliance on
forward-looking statements. We undertake no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effects of potential changes in interest rates are discussed below.
Our market risk discussion includes "forward-looking statements" and represents
an estimate of possible changes in fair value or future earnings that would
occur assuming hypothetical future movements in interest rates. These
disclosures are not precise indicators of expected future losses, but only
indicators of reasonably possible losses. As a result, actual future results
may differ materially from those presented. See "Management's Discussion and
Analysis of Results of Operations -- Liquidity and Capital Resources" and the
notes to the consolidated financial statements for a description of our
accounting policies and other information related to these financial
instruments.
To meet in part our long-term liquidity requirements, we borrow funds at a
combination of fixed and variable rates. Borrowings under the Revolving Loan
bear interest at variable rates. Our long-term debt, which consists of
long-term financings and the issuance of debt securities, typically bears
interest at fixed rates. In addition, we have assumed fixed rate and variable
rate debt in connection with acquiring properties. Our interest rate risk
management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve
these objectives, from time to time we enter into interest rate hedge contracts
such as collars, swaps, caps and treasury lock agreements in order to mitigate
our interest rate risk with respect to various debt instruments. We do not hold
or issue these derivative contracts for trading or speculative purposes.
Certain Variable Rate Debt. As of December 31, 1999, the Operating
Partnership had approximately $159.9 million of variable rate debt outstanding
that was not protected by interest rate hedge contracts. If the weighted
average interest rate on this variable rate debt is 100 basis points higher or
lower in 2000, our interest expense would be increased or decreased
approximately $1.6 million for the year ended December 31, 2000. In addition,
as of December 31, 1999, we had $80.0 million of additional variable rate debt
outstanding that was protected by an interest rate collar that effectively
keeps the interest rate within a range of 85 basis points. We do not believe
that a 100 basis point increase or decrease in interest rates would materially
affect our interest expense during 2000 with respect to this $80.0 million of
debt.
Interest Rate Hedge Contracts. For a discussion of our interest rate hedge
contracts in effect at December 31, 1999, see "Management's Discussion and
Analysis of Financial Condition and Results of
27
<PAGE>
Operations -- Liquidity and Capital Resources -- Capitalization." If interest
rates increase by 100 basis points, the aggregate fair market value of these
interest rate hedge contracts as of December 31, 1999 would increase by
approximately $1.6 million. If interest rates decrease by 100 basis points, the
aggregate fair market value of these interest rate hedge contracts as of
December 31, 1999 would decrease by approximately $1.3 million.
In addition, we are exposed to certain losses in the event of
nonperformance by the counterparties under the hedge contracts. We expect the
counterparties, which are major financial institutions, to perform fully under
these contracts. However, if the counterparties were to default on their
obligations under the interest rate hedge contracts, we could be required to
pay the full rates on our debt, even if such rates were in excess of the rates
in the contracts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company is the sole general partner of the Operating Partnership. The
section under the heading "Election of Directors" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 24, 2000 is
incorporated herein by reference for information on directors of the Company.
See ITEM X in Part I hereof for information regarding executive officers of the
Company.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section titled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Operating Partnership has no executive officers or directors. As of
December 31, 1999, the only person or group known by us to be holding more than
5% of the Common Units was the Company, which owned 60,519,618 Common Units, or
approximately 87% of the outstanding Common Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section under the heading "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed as a Part of this Report
1. Consolidated Financial Statements and Report of Independent Auditors
See Index on Page F-1
2. Financial Statement Schedules
See Index on Page F-1
3. Exhibits
<TABLE>
<CAPTION>
Ex. FN Description
- ---------- ----------- ---------------------------------------------------------------------
<S> <C> <C>
2.1 (1) Master Agreement of Merger and Acquisition by and among the
Company, the Operating Partnership, Associated Capital Properties,
Inc. and its shareholders dated August 27, 1997
2.2 (2) Agreement and Plan of Merger by and among the Company, Jackson
Acquisition Corp. and J.C. Nichols Company dated December 22,
1997
2.3 (3) Amendment No. 1 to Agreement and Plan of Merger by and among the
Company, Jackson Acquisition Corp. and J.C. Nichols Company dated
December 22, 1997
3.1 (4) Amended and Restated Articles of Incorporation of the Company
3.2 (5) Amended and Restated Bylaws of the Company
4.1 (5) Specimen of certificate representing shares of Common Stock
4.2 (6) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust
Company of California, N.A. and Bankers Trust Company dated as of
March 1, 1994
4.3 (7) Indenture among the Operating Partnership, the Company and First
Union National Bank of North Carolina dated as of December 1, 1996
4.4 (8) Specimen of certificate representing 8 5/8% Series A Cumulative
Redeemable Preferred Shares
4.5 (9) Specimen of certificate representing 8% Series B Cumulative
Redeemable Preferred Shares
4.6 (10) Specimen of certificate representing 8% Series D Cumulative
Redeemable Preferred Shares
4.7 (10) Specimen of Depositary Receipt evidencing the Depositary Shares
each representing 1/10 of an 8% Series D Cumulative Redeemable
Preferred Share
4.8 (10) Deposit Agreement, dated April 23, 1998, between the Company and
First Union National Bank, as preferred share depositary
4.9 (2) Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch dated as of August 28, 1997
4.10 (2) Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch dated as of August 28, 1997
4.11 (11) Rights Agreement, dated as of October 6, 1997, between the Company
and First Union National Bank, as rights agent
4.12 (12) Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein dated as of
July 3, 1998
4.13 (2) Agreement to furnish certain instruments defining the rights of
long-term debt holders
10.1 (5) Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 (8) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series A
Preferred Units
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Ex. FN Description
- ----------- ----------- ------------------------------------------------------------------------
<S> <C> <C>
10.3 (9) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series B
Preferred Units
10.4 (10) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series D
Preferred Units
10.5 (13) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to certain rights
of limited partners upon a change of control
10.6 (14) Form of Registration Rights and Lockup Agreement among the
Company and the Holders named therein, which agreement is signed
by all Common Unit holders
10.7 (15) Amended and Restated 1994 Stock Option Plan
10.8 (2) 1997 Performance Award Plan
10.9 (16) Employment Agreement among the Company, the Operating
Partnership and John W. Eakin
10.10 (17) Employment Agreement among the Company, the Operating
Partnership and Gene H. Anderson
10.11 (1) Employment Agreement among the Company, the Operating
Partnership and James R. Heistand
10.12 (19) Form of Executive Supplemental Employment Agreement between the
Company and Named Executive Officers
10.13 (18) Form of warrants to purchase Common Stock of the Company issued
to John L. Turner, William T. Wilson III and John E. Reece II
10.14 (16) Form of warrants to purchase Common Stock of the Company issued
to W. Brian Reames, John W. Eakin and Thomas S. Smith
10.15 (2) Form of warrants to purchase Common Stock of the Company issued
to James R. Heistand and certain other shareholders of Associated
Capital Properties, Inc.
10.16 (20) Purchase and Sale Agreement dated March 22, 1999, by and among
Highwoods/Florida Holdings, L.P. and America's Capital Partners, LLC,
as amended by First Amendment to Purchase and Sale Agreement
dated April 21, 1999
10.17 (20) Purchase and Sale Agreement dated March 22, 1999, by and among
Highwoods/Florida Holdings, L.P. and America's Capital Partners, LLC,
as amended by First Amendment to Purchase and Sale Agreement
dated April 21, 1999
10.18 (19) First Amendment to Credit Agreement among the Operating
Partnership, the Company, the Subsidiaries named therein and the
Lenders named therein dated as of July 3, 1998
10.19 (19) Second Amendment to Credit Agreement among the Operating
Partnership, the Company, the Subsidiaries named therein and the
Lenders named therein dated as of July 3, 1998
10.20 (21) Fourth Amendment to Credit Agreement among the Operating
Partnership, the Company, the Subsidiaries named therein and the
Lenders named therein dated as of December 10, 1999
10.21 1999 Shareholder Value Plan
21 (19) Schedule of subsidiaries of the Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
- ----------
(1) Filed as part of the Company's Current Report on Form 8-K dated August 27,
1997 and incorporated herein by reference.
(2) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.
31
<PAGE>
(3) Filed as part of the Company's Current Report on Form 8-K April 29, 1998
and incorporated herein by reference.
(4) Filed as part of the Company's Current Report on Form 8-K dated September
25, 1997 and amended by articles supplementary filed as part of the
Company's Current Report on Form 8-K dated October 4, 1997 and articles
supplementary filed as part of the Company's Current Report on Form 8-K
dated April 20, 1998, each of which is incorporated herein by reference.
(5) Filed as part of Registration Statement 33-76952 with the SEC and
incorporated herein by reference.
(6) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No.
33-88482 filed with the SEC and incorporated herein by reference.
(7) Filed as part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(8) Filed as part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(9) Filed as part of the Company's Current Report on Form 8-K dated September
25, 1997 and incorporated herein by reference.
(10) Filed as part of the Company's Current Report on Form 8-K dated April 20,
1998 and incorporated herein by reference.
(11) Filed as part of the Company's Current Report on Form 8-K dated October 4,
1997 and incorporated herein by reference.
(12) Filed as part of the Company's Current Report on Form 8-K dated July
3,1998 and incorporated herein by reference.
(13) Filed as part of the Operating Partnership's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and incorporated herein by reference.
(14) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
(15) Filed as part of the Company's proxy statement on Schedule 14A relating to
the 1997 Annual Meeting of Stockholders.
(16) Filed as part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(17) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(18) Filed as part of Registration Statement 33-88364 with the SEC and
incorporated herein by reference.
(19) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference.
(20) Filed as part of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by reference.
(21) Filed as part of the Company's Current Report on Form 8-K dated December
10, 1999 and incorporated herein by reference.
The Company will provide copies of any exhibit, upon written request, at
a cost of $.05 per page.
(b) Reports on Form 8-K
On December 22, 1999, we filed a current report on Form 8-K, dated
December 10, 1999, setting forth certain exhibits under items 5 and 7.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Raleigh, State of North Carolina, on March 30, 2000.
HIGHWOODS REALTY LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., in its
capacity as general partner (the
"General Partner")
By: /s/ RONALD P. GIBSON
-------------------------------------
Ronald P. Gibson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ O. TEMPLE SLOAN, JR. Chairman of the Board of March 30, 2000
- ------------------------------------- Directors of the General
O. Temple Sloan, Jr. Partner
/s/ RONALD P. GIBSON President, Chief Executive March 30, 2000
- ------------------------------------- Officer and Director of the
Ronald P. Gibson General Partner
/s/ JOHN L. TURNER Vice Chairman of the Board March 30, 2000
- ------------------------------------- and Chief Investment
John L. Turner Officer of the General
Partner
/s/ GENE H. ANDERSON Senior Vice President and March 30, 2000
- ------------------------------------- Director of the General
Gene H. Anderson Partner
/s/ THOMAS W. ADLER Director of the General Partner March 30, 2000
- -------------------------------------
Thomas W. Adler
/s/ KAY NICHOLS CALLISON Director of the General Partner March 30, 2000
- -------------------------------------
Kay Nichols Callison
/s/ WILLIAM E. GRAHAM, JR. Director of the General Partner March 30, 2000
- -------------------------------------
William E. Graham, Jr.
/s/ JAMES R. HEISTAND Director of the General Partner March 30, 2000
- -------------------------------------
James R. Heistand
/s/ L. GLENN ORR, JR. Director of the General Partner March 30, 2000
- -------------------------------------
L. Glenn Orr, Jr.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ WILLARD H. SMITH JR. Director of the General Partner March 30, 2000
- -------------------------------------
Willard H. Smith Jr.
/s/ CARMAN J. LIUZZO Vice President and Chief March 30, 2000
- ------------------------------------- Financial Officer (Principal
Carman J. Liuzzo Financial Officer and
Principal Accounting
Officer) and Treasurer of the
General Partner
</TABLE>
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Highwoods Realty Limited Partnership
Report of Independent Auditors ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ........................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997.. F-4
Consolidated Statements of Partners' Capital for the Years Ended December 31, 1999, 1998
and 1997 .............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997 .................................................................................. F-6
Notes to Consolidated Financial Statements ............................................. F-8
Schedule III -- Real Estate and Accumulated Depreciation ............................... F-30
</TABLE>
All other schedules are omitted because they are not applicable, or
because the required information is included in the financial statements or
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE OWNERS
HIGHWOODS REALTY LIMITED PARTNERSHIP
We have audited the accompanying consolidated balance sheets of Highwoods
Realty Limited Partnership (a majority-owned subsidiary of Highwoods
Properties, Inc.) as of December 31, 1999 and 1998, and the related
consolidated statements of income, partners' capital, and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Operating
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highwoods
Realty Limited Partnership at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 18, 2000
F-2
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
($ in thousands, except per unit amounts)
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Assets
Real estate assets, at cost:
Land & improvements ....................................................... $ 468,077 $ 538,814
Buildings and tenant improvements ......................................... 3,055,859 3,173,825
Development in process .................................................... 186,925 189,465
Land held for development ................................................. 168,396 150,622
Furniture, fixtures and equipment ......................................... 7,917 7,665
---------- ----------
3,887,174 4,060,391
Less -- accumulated depreciation .......................................... (238,115) (168,508)
---------- ----------
Net real estate assets .................................................... 3,649,059 3,891,883
Property held for sale .................................................... 48,960 131,262
Cash and cash equivalents .................................................. 33,915 30,696
Restricted cash ............................................................ 1,854 24,263
Accounts receivable, net of allowance of $800 and $1,688
at December 31, 1999 and 1998, respectively ............................... 22,127 27,644
Advances to related parties ................................................ 15,096 10,420
Notes receivable ........................................................... 44,892 12,865
Accrued straight-line rents receivable ..................................... 35,951 27,194
Investment in unconsolidated affiliates .................................... 33,758 15,234
Other assets:
Deferred leasing costs .................................................... 66,783 45,785
Deferred financing costs .................................................. 40,125 38,750
Prepaid expenses and other ................................................ 15,612 15,162
---------- ----------
122,520 99,697
Less -- accumulated amortization .......................................... (36,053) (23,458)
---------- ----------
Other assets, net ....................................................... 86,467 76,239
---------- ----------
Total assets ........................................................... $3,972,079 $4,247,700
========== ==========
Liabilities and Partners' capital
Mortgages and notes payable ................................................ $1,719,117 $1,906,216
Accounts payable, accrued expenses and other liabilities ................... 106,601 125,168
---------- ----------
Total liabilities ......................................................... 1,825,718 2,031,384
Redeemable operating partnership units:
Class A Common Units, 8,809,218 and 10,111,978 outstanding
at December 31, 1999 and 1998, respectively ............................. 208,140 260,383
Class B Common Units, 196,492 and 291,756 outstanding
at December 31, 1999 and 1998, respectively ............................. 4,643 7,513
Series A Preferred Units, 125,000 outstanding
at December 31, 1999 and 1998 ........................................... 121,809 121,809
Series B Preferred Units, 6,900,000 outstanding
at December 31, 1999 and 1998 ........................................... 166,346 166,346
Series D Preferred Units, 400,000 outstanding
at December 31, 1999 and 1998 ........................................... 96,842 96,842
Partners' capital:
Class A Common Units:
General partner Common Units, 703,884 and 690,955, outstanding
at December 31, 1999 and 1998, respectively ............................ 15,740 15,634
Limited partner Common Units, 60,875,308 (includes 1,150,000 units in
treasury) and 58,292,597 outstanding at December 31, 1999 and 1998,
respectively ........................................................... 1,558,316 1,547,789
Less treasury units, 1,150,000 units at December 31, 1999 ............... (25,475) --
---------- ----------
Total Partners' capital ................................................ 1,548,581 1,563,423
---------- ----------
$3,972,079 $4,247,700
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
($ in thousands, except per unit amounts)
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Rental property .................................................. $ 562,888 $ 496,739 $ 266,933
Equity in net earnings/(losses) of unconsolidated affiliates ..... 633 (207) --
Interest and other income ........................................ 16,353 13,230 6,232
----------- ----------- -----------
Total Revenue .................................................... 579,874 509,762 273,165
Operating expenses:
Rental property .................................................. 173,676 154,211 76,743
Depreciation and amortization .................................... 112,039 91,397 47,260
Interest expense:
Contractual .................................................... 108,562 91,361 45,138
Amortization of deferred financing costs ....................... 2,823 2,598 2,256
----------- ----------- -----------
111,385 93,959 47,394
General and administrative ....................................... 22,345 20,630 10,216
----------- ----------- -----------
Income before cost of unsuccessful transactions, gain on
disposition of assets and extraordinary item ................... 160,429 149,565 91,552
Costs of unsuccessful transactions ............................... (1,500) (146) --
Gain on disposition of assets .................................... 7,997 1,716 --
----------- ----------- -----------
Income before extraordinary item ................................. 166,926 151,135 91,552
Extraordinary item -- loss on early extinguishment
of debt .......................................................... (7,341) (387) (6,945)
----------- ----------- -----------
Net income ....................................................... 159,585 150,748 84,607
Dividends on preferred units ...................................... (32,580) (30,092) (13,117)
----------- ----------- -----------
Net income available for Class A Common Units .................... $ 127,005 $ 120,656 $ 71,490
=========== =========== ===========
Net income (loss) per Common Unit -- Basic:
Income before extraordinary item ................................. $ 1.91 $ 1.87 $ 1.69
Extraordinary item -- loss on early extinguishment of debt ....... $ (.10) $ (.01) $ (0.15)
----------- ----------- -----------
Net income ....................................................... $ 1.81 $ 1.86 $ 1.54
=========== =========== ===========
Net income (loss) per Common Unit -- Diluted:
Income before extraordinary item ................................. $ 1.91 $ 1.86 $ 1.68
Extraordinary item -- loss on early extinguishment of debt ....... $ (.10) $ (.01) $ (0.15)
----------- ----------- -----------
Net income ....................................................... $ 1.81 $ 1.85 $ 1.53
=========== =========== ===========
Weighted average Common Units outstanding -- Basic:
Class A Common Units:
General Partner ................................................ 699,850 645,552 464,218
Limited Partners ............................................... 69,285,163 63,909,671 45,786,572
Class B Common Units:
Limited Partners ............................................... 196,492 291,756 171,000
----------- ----------- -----------
Total ............................................................ 70,181,505 64,846,979 46,421,790
=========== =========== ===========
Weighted average Common Units outstanding -- Diluted:
Class A Common Units:
General Partner ................................................ 700,713 648,403 468,129
Limited Partners ............................................... 69,370,571 64,191,905 46,173,816
Class B Common Units:
Limited Partners ............................................... 196,492 291,756 171,000
----------- ----------- -----------
Total ............................................................ 70,267,776 65,132,064 46,812,945
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
(in thousands)
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Class A Common Unit
--------------------------
General Limited Total
Partner's Partners' Treasury Partners'
Capital Capital Units Capital
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 .......................... $ 7,014 $ 694,407 $ $ 701,421
Offering proceeds ..................................... -- 345,325 345,325
Distributions paid .................................... (874) (86,574) (87,448)
Preferred distributions paid .......................... (131) (12,986) (13,117)
Net income ............................................ 846 83,761 84,607
Adjustments of redeemable Common Unit to fair value ... (471) (46,675) (47,146)
Conversion of redeemable Common Unit to Common
Shares .............................................. 161 15,967 16,128
Transfer of limited partner's interest ................ 3,452 (3,452) --
-------- ---------- ------- ----------
Balance at December 31, 1997 .......................... $ 9,997 $ 989,773 $ 999,770
Offering proceeds ..................................... -- 405,912 405,912
Distributions paid .................................... (1,369) (135,522) (136,891)
Preferred distributions paid .......................... (301) (29,791) (30,092)
Net income ............................................ 1,507 149,241 150,748
Adjustments of redeemable Common Unit to fair value ... 1,387 137,213 138,600
Conversion of redeemable Common Unit to Common
Shares .............................................. 408 40,347 40,755
Redemption of Common Units ............................ (54) (5,325) (5,379)
Transfer of limited partners' interest ................ 4,059 (4,059) --
-------- ---------- ------- ----------
Balance at December 31, 1998 .......................... $ 15,634 $1,547,789 $1,563,423
Offering Proceeds ..................................... -- 22,053 22,053
Purchase of treasury units ............................ -- -- (25,475) (25,475)
Distributions Paid .................................... (1,541) (152,547) (154,088)
Preferred distributions paid .......................... (326) (32,254) (32,580)
Net Income ............................................ 1,596 157,989 159,585
Adjustments of redeemable Common Unit to fair value ... (219) (21,680) (21,899)
Conversion of redeemable Common Unit to Common
Shares .............................................. 376 37,186 37,562
Transfer of limited partner's interest ................ 220 (220) --
-------- ---------- ------- ----------
Balance at December 31, 1999 .......................... $ 15,740 $1,558,316 (25,475) $1,548,581
======== ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income .......................................................... $ 159,585 $ 150,748 $ 84,607
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ...................................................... 101,230 84,738 44,120
Amortization ...................................................... 10,809 9,257 5,396
Loss on early extinguishment of debt .............................. 7,341 387 6,945
Gain on disposition of assets ..................................... (7,997) (1,716) --
Changes in operating assets and liabilities:
Accounts receivable .............................................. 5,455 (7,139) (8,605)
Prepaid expenses and other assets ................................ 336 393 (3,263)
Accrued straight-line rents receivable ........................... (15,834) (14,161) (6,848)
Accounts payable, accrued expenses and other liabilities ......... (26,482) 38,972 4,994
---------- ---------- ----------
Net cash provided by operating activities ...................... 234,443 261,479 127,346
---------- ---------- ----------
Investing activities:
Proceeds from disposition of assets ................................. 696,379 26,347 1,419
Additions to real estate assets ..................................... (514,270) (943,048) (464,618)
Advances to subsidiaries ............................................ (4,676) (1,348) (6,666)
Other ............................................................... (23,447) (35,332) (53,391)
---------- ---------- ----------
Net cash provided by/(used in) investing activities .............. 153,986 (953,381) (523,256)
---------- ---------- ----------
Financing activities:
Distributions paid .................................................. (154,088) (136,891) (87,448)
Payment of preferred unit dividends ................................. (32,580) (30,092) (11,720)
Net proceeds from contributed capital -- Preferred Units ............ -- 197,746 288,155
Net proceeds from contributed capital -- Common Units ............... 23,089 96,842 345,325
Purchase of treasury units .......................................... (25,475) -- --
Payment of prepayment penalties ..................................... (7,341) (387) (6,945)
Borrowings on revolving loans ....................................... 536,500 873,000 563,500
Repayment of revolving loans ........................................ (676,500) (846,500) (264,000)
Proceeds from mortgages and notes payable ........................... 324,693 745,356 100,000
Repayment of mortgages and notes payable ............................ (371,792) (170,304) (532,481)
Payment of deferred financing costs ................................. (1,716) (14,988) (278)
---------- ---------- ----------
Net cash (used in)/provided by financing activities .............. (385,210) 713,782 394,108
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalents ................ 3,219 21,880 (1,802)
Cash and cash equivalents at beginning of the period ................ 30,696 8,816 10,618
---------- ---------- ----------
Cash and cash equivalents at end of the period ...................... $ 33,915 $ 30,696 $ 8,816
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest .............................................. $ 143,836 $ 63,664 $ 51,283
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows -- Continued
(in thousands)
For the Years Ended December 31, 1999, 1998 and 1997
Supplemental disclosure of non-cash investing and financing activities:
The following summarizes the net assets contributed by the Common Unit holders
of the Operating Partnership or assets acquired/(or sold) subject to mortgage
notes payable or notes receivable.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Assets:
Net real estate assets ........................................... $ (78,012) $465,078 $782,136
Cash and cash equivalents ........................................ (4,719) 55,064 --
Restricted cash .................................................. -- -- 2,727
Net tenant leasing costs ......................................... -- -- 131
Net deferred financing costs ..................................... -- -- 227
Investment in unconsolidated affiliates .......................... (2,975) 12,364 --
Notes receivable ................................................. 13,830 29,176 --
Accounts receivable and other .................................... 32,695 6,634 913
--------- -------- --------
Total Assets ................................................... (39,181) 568,316 786,134
--------- -------- --------
Liabilities:
Mortgages and notes payable ...................................... (58,531) 326,106 555,663
Accounts payable, accrued expenses and other liabilities ......... 7,604 34,044 19,527
--------- -------- --------
Total Liabilities .............................................. (50,927) 360,150 575,190
--------- -------- --------
Net Assets .................................................... $ 11,746 $208,166 $210,944
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of the Operating Partnership
Highwoods Realty Limited Partnership (formerly Highwoods/Forsyth Limited
Partnership, the "Operating Partnership") is managed by its general partner,
Highwoods Properties, Inc. (the "Company"), a self-administered and
self-managed real estate investment trust ("REIT") which operates in the
southeastern and midwestern United States. The Operating Partnership's
majority-owned assets include 563 in-service office, industrial and retail
properties; 1,885 apartment units; 1,473 acres of undeveloped land suitable for
future development; and an additional 41 properties under development.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 1999, the Company owned
87% of the common partnership interests ("Common Units") in the Operating
Partnership. Limited partners (including certain officers and directors of the
Company) own the remaining Common Units. Holders of Common Units may redeem
them for the cash value of one share of the Company's common stock, $.01 par
value (the "Common Stock'), or, at the Company's option, one share (subject to
certain adjustments) of Common Stock.
The Operating Partnership also provides leasing, property management, real
estate development, construction and miscellaneous services for its properties
as well as for third parties. The Operating Partnership conducts its
third-party fee-based services through Highwoods Services, Inc., a subsidiary
of the Operating Partnership accounted for using the equity method of
accounting, and through Highwoods/Tennessee Properties, Inc., a wholly owned
subsidiary of the Company.
Generally one year after issuance, the Operating Partnership is obligated
to redeem each Common Unit at the request of the holder thereof for cash equal
to the fair market value of one share of the Company's Common Stock at the time
of such redemption, provided that the Company at its option may elect to
acquire any such Common Unit presented for redemption for cash or one share of
Common Stock. When a Common Unit holder redeems a Common Unit for a share of
Common Stock or cash, the minority interest will be reduced and the Company's
share in the Operating Partnership will be increased. The Common Units owned by
the Company are not redeemable for cash.
Basis of Presentation
The consolidated financial statements include the accounts of the
Operating Partnership and its majority owned affiliates. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
The extraordinary loss represents the payment of prepayment penalties and
the write off of loan origination fees related to the early extinguishment of
debt and is shown net of the minority interest's share in the loss.
Real Estate Assets
All capitalizable costs related to the improvement or replacement of
commercial real estate properties are capitalized. Depreciation is computed by
the straight-line method over the estimated useful life of 40 years for
buildings and improvements and 5 to 7 years for furniture, fixtures and
equipment. Tenant improvements are amortized over the life of the respective
leases, using the straight-line method.
F-8
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
The Operating Partnership evaluates its real estate assets upon occurrence
of significant adverse changes in their operations to assess whether any
impairment indicators are present that affect the recovery of the recorded
value. If any real estate assets are considered impaired, a loss is provided to
reduce the carrying value of the property to its estimated fair value. As of
December 31, 1999, none of the Operating Partnership's assets were considered
impaired.
The Operating Partnership has 786,000 square feet of properties under
contract for sale in various transactions totaling $57.8 million. These real
estate assets which are recorded at the lower of cost or estimated sales price,
net of costs to sell have a carrying value of $49.0 million and have been
classified as assets held for sale in the accompanying financial statements.
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
The Operating Partnership was required by a certain mortgage note to
maintain various depository accounts, a cash collateral account and a
contingency reserve account. All rents with respect to the collateralized
properties were made payable to, and deposited directly in, the depository
accounts, which were then transferred to the cash collateral account.
Subsequent to payment of debt service and other required escrows, the residual
balance of the cash collateral account was funded to the Operating Partnership
for capital expenditures and operations. The Operating Partnership was required
to maintain a minimum contingency reserve account balance of $7,000,000. During
1999, the Operating Partnership paid off such mortgage note, and is no longer
required to maintain the depository and contingency reserve accounts. However,
the Operating Partnership is required by certain mortgage notes to escrow real
estate taxes with the mortgagor. At December 31, 1999, and 1998, those balances
were $1,683,282 and $2,672,448, respectively.
Investment in Unconsolidated Affiliates
Investment in unconsolidated affiliates are accounted for on the equity
method and reflect the Operating Partnership's share of income or loss of the
affiliate, reduced by distributions received and increased by contributions
made.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. Unpaid rents are included in accounts receivable. Certain lease
agreements provide for the reimbursement of real estate taxes, insurance,
advertising and certain common area maintenance costs. These additional rents
are recorded on the accrual basis. All rent and other receivables from tenants
are due from commercial building tenants located in the properties.
Deferred Lease Fees and Loan Costs
Lease fees, concessions and loan costs are capitalized at cost and
amortized over the life of the related lease or loan term, respectively.
F-9
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Redeemable Common Units
Holders of redeemable Common Units may request redemption of each of their
Common Units by the Operating Partnership for cash equal to the fair market
value of one share of the Company's Common Stock at any time after expiration
of the applicable "lock-up" period. The Company, the general partner of the
Operating Partnership, may at its option choose to satisfy the redemption
requirement by issuing Common Stock on a one-for-one basis for the number of
Common Units submitted for redemption. In accordance with ASR 268 issued by the
Securities and Exchange Commission, these Common Units are classified outside
of permanent partners' capital in the accompanying balance sheet. The recorded
value of the Common Units is based on fair value at the balance sheet date as
measured by the closing price of the Company's common stock on that date
multiplied by the total number of Common Units outstanding.
Income Taxes
No provision has been made for income taxes because such taxes, if any,
are the responsibility of the individual partners.
Concentration of Credit Risk
Management of the Operating Partnership performs ongoing credit
evaluations of its tenants. The majority-owned properties (excluding apartment
units) are leased to approximately 3,445 tenants in 17 geographic locations.
The Operating Partnership tenants engage in a wide variety of businesses. There
is no dependence upon any single tenant.
Interest Rate Risk Management
The Operating Partnership may enter into interest rate hedge contracts
such as swaps, caps and collars in order to mitigate its interest rate risk on
a related financial instrument. The Operating Partnership has designated these
derivative financial instruments as hedges and applies deferral accounting.
Gains and losses related to the termination of such derivative financial
instruments are deferred and amortized to interest expense over the term of the
debt instrument. Payments to or from counterparties are recorded as adjustments
to interest expense.
The Operating Partnership also utilizes treasury lock agreements to hedge
interest rate risk on anticipated debt offerings. These anticipatory hedges are
designated as hedges of identified debt issuances which have a high probability
of occurring. Gains and losses resulting from changes in the market value of
these contracts are deferred and amortized into interest expense over the life
of the related debt instrument.
The Operating Partnership is exposed to certain losses in the event of
non-performance by the counterparties under the interest rate hedge contracts.
The counterparties are major financial institutions and are expected to perform
fully under the agreements. However, if they were to default on their
obligations under the arrangements, the Operating Partnership could be required
to pay the full rate under its $450 million unsecured revolving loan (the
"Revolving Loan") and the variable rate mortgages, even if such rate were in
excess of the rate in the interest rate hedge contracts. The Operating
Partnership would not realize a material loss as of December 31, 1999, in the
event of non-performance by any one counterparty. Additionally, the Operating
Partnership limits the amount of credit exposure with any one institution.
F-10
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Common Unit and Stock Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of a share at the date of grant.
With each issuance of a share, the Operating Partnership will issue to the
Company one Common Unit upon payment of the exercise price to the Operating
Partnership; therefore the Operating Partnership accounts for the Company's
stock options as if issued by the Operating Partnership. In addition, the
Operating Partnership grants options for a fixed number of Common Units to
employees with an exercise price equal to the fair value of a share of Common
Stock at the date of grant. As described in Note 9, the Operating Partnership
has elected to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for stock and Common Unit options.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("FAS 130"). FAS 130 requires that total comprehensive income and
comprehensive income per share be disclosed with equal prominence as net income
and earnings per share. Comprehensive income is defined as changes in partners'
capital exclusive of transactions with owners such as capital contributions and
dividends. The Operating Partnership adopted this Standard in 1998. The
Operating Partnership did not report any comprehensive income items in any of
the years presented.
Segment Reporting
Effective January 1, 1998, the Operating Partnership adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"), which superceded Statement of
Financial Accounting Standards No. 14, Financial Reporting for Segments of a
Business Enterprise. FAS 131 establishes standards for the public reporting of
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. The adoption of FAS 131 did not affect
the Operating Partnership's net income or financial position.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which is required to be adopted in fiscal years beginning after
June 15, 1999. In June 1999, FASB issued Statement No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the FASB Statement
No. 133, which stipulates the required adoption date to be all fiscal years
beginning after June 15, 2000. Statement No. 133 requires the Operating
Partnership to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives with either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective
F-11
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
portion of a derivative's change in fair value will be immediately recognized
in earnings. The fair market value of the Operating Partnership's derivatives
is discussed in Note 3.
Reclassifications
Certain amounts in the December 31, 1998 Financial Statements have been
reclassified to conform to the December 31, 1999 presentation. These
reclassifications had no material effect on net income or partners' capital as
previously reported.
2. INVESTMENT IN UNCONSOLIDATED AFFILIATES
On March 15, 1999, the Operating Partnership closed a transaction with
Schweiz-Deutschland-USA Dreilander Beteiligung Objekt DLF 98/29-Walker Fink-KG
("DLF"), pursuant to which the Operating Partnership sold or contributed
certain office properties valued at approximately $142.0 million to a newly
created limited partnership (the "Joint Venture"). DLF contributed
approximately $55.0 million for a 77.19% interest in the Joint Venture, and the
Joint Venture borrowed approximately $71 million from third-party lenders. The
Operating Partnership retained the remaining 22.81% interest in the Joint
Venture, received net cash proceeds of approximately $124.0 million and is the
sole and exclusive manager and leasing agent of the Joint Venture's properties,
for which the Operating Partnership receives customary management fees and
leasing commissions. At December 31, 1999, the carrying value of the Operating
Partnership's investment in DLF was $14.6 million.
In addition, in connection with its merger with J.C. Nichols Company in
July 1998, the Company succeeded to the interests of J.C. Nichols in a
strategic alliance with R&R Investors, Ltd. pursuant to which R&R Investors
manages and leases certain co-venture properties located in the Des Moines
area. As a result of the merger, the Operating Partnership acquired an
ownership interest of 50% or more in a series of nine co-ventures with R&R
Investors. Certain of these properties were previously included in the
Operating Partnership's consolidated financial statements. On June 2, 1999, the
Operating Partnership agreed with R&R Investors to reorganize its respective
ownership interests in the Des Moines properties such that each would own a 50%
interest in the properties in the Des Moines area. The impact of the
reorganization was immaterial to the consolidated financial statements of the
Operating Partnership.
As a result of these transactions, the Operating Partnership had
investments accounted for under the equity method of accounting which consisted
of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
Percent owned Percent owned
--------------- --------------
<S> <C> <C>
Dallas County Partners .................. 50.00% 50.00%
Dallas County Partners II ............... 50.00 50.00
Dallas County Partners III, LLC ......... 50.00 50.00
Fountain Three .......................... 50.00 50.00
Center Court Partners ................... -- 50.00
Terrace Place Place Partners ............ -- 50.00
Meredith Drive Associates L.P. .......... -- 49.50
DLF ..................................... 22.81 --
RRHWoods, LLC ........................... 50.00 --
Highwoods-Markel Assoc., LLC ............ 50.00 --
</TABLE>
F-12
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. INVESTMENT IN UNCONSOLIDATED AFFILIATES -- (Continued)
Selected aggregate financial data for unconsolidated affiliates for 1999 and
1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(in thousands)
<S> <C> <C>
Total assets .............. $246,830 $100,037
Total liabilities ......... $333,034 $ 95,098
Net income ................ $ 3,786 $ 1,404
</TABLE>
3. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consisted of the following at December 31,
1999, and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
(in thousands)
<S> <C> <C>
Mortgage notes payable:
7.9% mortgage note due 2001 ................... $ -- $ 133,000
9.0% mortgage note due 2005 ................... 38,400 39,043
8.1% mortgage note due 2005 ................... 29,914 30,454
8.0% mortgage note due 2007 ................... 42,167 42,842
7.8% mortgage note due 2009 ................... 94,024 --
7.9% mortgage note due 2009 ................... 94,027 --
8.0% mortgage notes due 2013 .................. 59,064 55,754
6.0% to 10.5% mortgage notes due between
2000 and 2022 ................................ 166,080 235,234
Variable rate Industrial Revenue Bonds due
between 2000 and 2015 ........................ 37,000 70,800
Variable rate mortgage notes due 2021 ......... 1,889 1,975
---------- ----------
$ 562,565 $ 609,102
---------- ----------
Unsecured indebtedness:
6.75% notes due 2003 .......................... $ 100,000 $ 100,000
8.0% notes due 2003 ........................... 150,000 150,000
7.0% notes due 2006 ........................... 110,000 110,000
7.125% notes due 2008 ......................... 100,000 100,000
8.125% notes due 2009 ......................... 50,000 50,000
7.19% notes due 2011 .......................... 100,000 100,000
6.835% notes due 2013 ......................... 125,000 125,000
7.5% notes due 2018 ........................... 200,000 200,000
Variable rate note due 2002 ................... 20,552 21,114
Revolving loan due 2001 ....................... 201,000 341,000
---------- ----------
$1,156,552 $1,297,114
---------- ----------
Total .................................................. $1,719,117 $1,906,216
========== ==========
</TABLE>
Secured Indebtedness
Mortgage notes payable were secured by real estate with an aggregate
carrying value of $1.1 billion at December 31, 1999.
The 7.9% mortgage note due 2001, which was paid off during 1999, had been
secured by 45 of the properties (the "Mortgage Note Properties"), which were
held by AP Southeast Portfolio Partners, L.P.
F-13
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE -- (Continued)
(the "Financing Partnership"). The Operating Partnership had a 99.99% economic
interest in the Financing Partnership, which was managed indirectly by the
Operating Partnership. The 7.9% mortgage note was a conventional, monthly pay,
first mortgage note in the principal amount of $133 million issued by the
Financing Partnership. The 7.9% mortgage note was a limited recourse obligation
of the Financing Partnership as to which, in the event of a default under the
indenture or the mortgage, recourse may have been only against the Mortgage
Note Properties and other assets that had been pledged as security. The 7.9%
mortgage note was issued to Kidder Peabody Acceptance Corporation I pursuant to
an indenture, dated March 1, 1994, among the Financing Partnership, Bankers
Trust Company of California, N.A. and Bankers Trust Company.
Unsecured Indebtedness
On June 24, 1997, a trust formed by the Operating Partnership sold $100.0
million of Exercisable Put Option Securities due June 15, 2004 ("X-POS"), which
represent fractional undivided beneficial interest in the trust. The assets of
the trust consist of, among other things, $100.0 million of Exercisable Put
Option Notes due June 15, 2011 (the "Put Option Notes"), issued by the
Operating Partnership. The Put Option Notes bear an interest rate of 7.19%,
representing an effective borrowing cost of 7.09% from the date of issuance
through June 15, 2004, net of a related put option and certain interest rate
hedge contract costs. Under certain circumstances, the Put Option Notes could
become subject to early maturity on June 15, 2004.
On February 2, 1998, the Operating Partnership sold $125.0 million of
MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013. The
MOPPRS bear an interest rate of 6.835%, representing an effective borrowing
cost of 6.31% from the date of issuance through January 31, 2003 (the
"Remarketing Date"), net of a related remarketing option. Under certain
circumstances, the MOPPRS could become subject to early maturity on the
Remarketing Date.
During 1998, the Operating Partnership obtained a $600.0 million unsecured
revolving loan (as amended, the "Revolving Loan"). The Operating Partnership
and its lenders amended the Revolving Loan as of December 10, 1999 to reduce
the overall borrowing committment to $450.0 million. The Revolving Loan, as
amended, matures in July 2001 and carries an interest rate based upon the
Operating Partnership's senior unsecured credit rating. The Revolving Loan also
includes a $225.0 million competitive bid sub-facility. At December 31, 1999,
the effective interest rate for borrowing under the Revolving Loan was 7.3%.
The Operating Partnership had $213.0 million of borrowing availability under
the Revolving Loan at December 31, 1999. The terms of the Revolving Loan
require the Operating Partnership to pay an annual facility fee equal to .15%
of the aggregate amount of the Revolving Loan and include certain restrictive
covenants which limit, among other things, dividend payments, and which require
compliance with certain financial ratios and measurements. At December 31,
1999, the Operating Partnership was in compliance with these covenants.
Interest Rate Hedge Contracts
To meet in part its long-term liquidity requirements, the Operating
Partnership borrows funds at a combination of fixed and variable rates.
Borrowings under the Revolving Loan bear interest at variable rates. The
Operating Partnership's long-term debt, which consists of long-term financings
and the issuance of debt securities, typically bears interest at fixed rates.
In addition, the Operating Partnership has assumed fixed rate and variable rate
debt in connection with acquiring properties. The Operating Partnership's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve these objectives, from time to time the Operating Partnership enters
into interest rate hedge contracts such as collars, swaps, caps
F-14
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE -- (Continued)
and treasury lock agreements in order to mitigate its interest rate risk with
respect to various debt instruments. The Operating Partnership does not hold or
issue these derivative contracts for trading or speculative purposes.
The following table sets forth information regarding the Operating
Partnership's interest rate hedge contracts as of December 31, 1999 ($ in
thousands):
<TABLE>
<CAPTION>
Notional Maturity Fixed Fair Market
Type of Hedge Amount Date Reference Rate Rate Value
- --------------- ---------- ---------- ----------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Swap $20,505 6/10/02 1-Month LIBOR + 0.75% 7.700% $ (493)
Collar 80,000 10/15/01 1-Month LIBOR 5.60-6.25 525
</TABLE>
The interest rate on all of the Operating Partnership's variable rate debt
is adjusted at one- and three-month intervals, subject to settlements under
these contracts. Net payments made to counterparties under interest rate hedge
contracts were $305,000, $48,000 and $47,000 in 1999, 1998 and 1997,
respectively, and were recorded as increases to interest expense.
In addition, the Operating Partnership is exposed to certain losses in the
event of non-performance by the counterparties under the interest rate hedge
contracts. The Operating Partnership expects the counterparties, which are
major financial institutions, to perform fully under these contracts. However,
if the counterparties were to default on their obligations under the interest
rate hedge contracts, the Operating Partnership could be required to pay the
full rates on its debt, even if such rates were in excess of the rates in the
contracts.
Other Information
The aggregate maturities of the mortgage and notes payable at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Year of Maturity Principal Amount
- -------------------------------- -----------------
(in thousands)
<S> <C>
2000 ......................... $ 28,859
2001 ......................... 218,608
2002 ......................... 64,477
2003 ......................... 267,956
2004 ......................... 113,508
Thereafter ................... 1,025,709
----------
$1,719,117
==========
</TABLE>
Total interest capitalized was $29,147,000, $17,968,000, and $7,238,000 in
1999, 1998 and 1997, respectively.
4. EMPLOYEE BENEFIT PLANS
Management Compensation Program
The executive officers of the Company, which is the general partner of the
Operating Partnership, participate in an annual cash incentive bonus program
whereby they are eligible for cash bonuses based on a percentage of their
annual base salary as of the prior December. Each executive target level bonus
is determined by competitive analysis and the executive's ability to influence
overall performance of the Company and, assuming certain levels of the
Company's performance, ranges from 40% to 85% of base salary depending on
position in the Company. The eligible bonus percentage for each executive is
F-15
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. EMPLOYEE BENEFIT PLANS -- (Continued)
determined by a weighted average of the Company's actual performance versus its
annual plan using the following measures: return on invested capital, growth in
funds from operations ("FFO") per share, property level cash flow as a
percentage of plan, general and administrative expenses as a percentage of
revenue and growth in same store net operating income. To the extent this
weighted average is less than or exceeds the Company's targeted performance
level, the bonus percentage paid is proportionally reduced or increased on a
predetermined scale. Depending on the Company's performance, annual incentive
bonuses could range from zero to 200% of an executive's target level bonus.
Bonuses are accrued in the year earned and are included in accrued expenses in
the Consolidated Balance Sheets.
Prior to January 1, 1999, the Company paid a portion of each executive
officer's bonus in the form of phantom stock awards under a deferred
compensation plan. Such were credited with a specified number of units of
phantom stock equal to such number of shares of common stock as could be
purchased with 25% of the employee's cash bonus. Five years from the date of
the phantom stock grant, the executive officers will receive the value of a
share of common stock for each unit of phantom stock and an additional amount
equal to the value of the dividends paid during the period on the corresponding
common stock assuming reinvestment. Payouts with respect to phantom stock
grants may be made in shares of common stock or cash or both. If an executive
officer leaves the Company's employ for any reason (other than death,
disability or normal retirement) prior to the end of the five-year period, all
phantom stock awards will be forfeited.
Beginning on January 1, 1999, the Company established a Shareholder Value
Plan which provides executive officers to participate in a long term incentive
plan which includes annual grants of stock options, restricted shares and
units. The mix of awards varies by position in the Company and for certain
corporate officers, including the Chief Executive Officer, no restricted shares
are granted. The stock options vest ratably over four years. The restricted
shares vest 50% after three years and 50% after five years.
The Shareholder Value Plan rewards the executive officers of the Company
when the total shareholder returns measured by increases in the market value of
the Company's common stock plus the dividends on those shares exceeds a
comparable index of the Company's peers over a three year period. The payout
for this program is determined by the Company's percent change in shareholder
return compared to the composite index of its peer group. If the Company's
performance is not at least 100% of the peer group index, no payout is made. To
the extent performance exceeds the peer group, the payout increases. A new
three year plan cycle beings each year under this program.
The Company's obligations to its executive officers are reimbursed by the
Operating Partnership.
401(k) Savings Plan
The Company has a 401(k) savings plan covering substantially all employees
who meet certain age and employment criteria. The Company matches the first 6%
of compensation deferred at the rate of 50% of employee contributions. During
1999, 1998, and 1997 the Company contributed $763,000, $588,000, and $353,000,
respectively to the 401(k) plan. Administrative expenses of the plan are paid
by the Company. The Company's obligations under and related to the 401(k)
savings plan are reimbursed by the Operating Partnership.
Employee Stock Purchase Plan
In August 1997, the Company instituted an Employee Stock Purchase Plan for
all active employees. At the end of each three-month offering period, each
participant's account balance is applied to acquire shares of Common Stock at
90% of the market value of the Common Stock, calculated as the lower of
F-16
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. EMPLOYEE BENEFIT PLANS -- (Continued)
the average closing price on the New York Stock Exchange on the five
consecutive days preceding the first day of the quarter or the five days
preceding the last day of the quarter. A participant may not invest more than
$7,500 per quarter. Employees purchased 29,214 and 24,046 shares of Common
Stock under the Employee Stock Purchase Plan during the years ended December
31, 1999 and 1998, respectively. With each share of Common Stock issued under
the Employee Stock Purchase Plan, the Operating Partnership issues one Common
Unit to the Company in exchange for the price paid by the employee for the
share.
5. RENTAL INCOME
The Operating Partnership's real estate assets are leased to tenants under
operating leases, substantially all of which expire over the next 10 years. The
minimum rental amounts under the leases are generally either subject to
scheduled fixed increases or adjustments based on the Consumer Price Index.
Generally, the leases also require that the tenants reimburse the Operating
Partnership for increases in certain costs above the base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 1999, are as
follows (in thousands):
<TABLE>
<S> <C>
2000 ....................... $ 449,767
2001 ....................... 411,026
2002 ....................... 352,705
2003 ....................... 287,564
2004 ....................... 224,948
Thereafter ................. 830,727
----------
$2,556,737
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Operating Partnership makes advances to Highwoods Services, Inc. for
working capital purposes. These advances bear interest at a rate of 8% per
annum, are due on demand and totaled $15.1 million at December 31, 1999 and
$10.4 million at December 31, 1998. The Operating Partnership recorded interest
income from these advances of $1.1 million, $826,000 and $142,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
On December 8, 1998, the Operating Partnership purchased the Bluegrass
Valley office development project from a limited liability company controlled
by an executive officer and director of the Company for approximately $2.5
million. On July 16, 1999, the Operating Partnership purchased development land
and an option to purchase other development land in the Bluegrass Valley office
development project from the same limited liability company controlled by the
same executive officer and director of the Company for approximately $4.6
million in common units.
On October 1, 1997, the Operating Partnership sold the Ivy Distribution
Center in Winston-Salem, North Carolina, to a limited liability company
controlled by an executive officer and director of the Company for $2.1
million. The Operating Partnership accepted a note receivable of $2.1 million
as consideration for this transaction which approximated the carrying value of
the property. The note bore interest at 8% per annum and was paid in full on
October 8, 1998. The Operating Partnership recorded interest income of $123,000
and $41,000 for the years ended December 31, 1998 and 1997, respectively.
F-17
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. RELATED PARTY TRANSACTIONS -- (Continued)
On March 18, 1997, the Operating Partnership purchased 5.68 acres of
development land in Raleigh, North Carolina, for $1,298,959 from a partnership
in which an executive officer and director and an additional director of the
Company each had an 8.5% limited partnership interest.
7. PARTNERS' CAPITAL
Distributions
Distributions paid on Common Units (including Redeemable Class A and Class
B Common Units) were $2.19, $2.10 and $1.98 per Common Unit for the years ended
December 31, 1999, 1998 and 1997 respectively.
On January 31, 2000 the Board of Directors declared a Common Unit
distribution of $.555 per Common Unit payable on February 18, 2000, to Common
Unitholders of record on February 10, 2000. Such distributions are prorated
with respect to Common Units that have not been outstanding for the full prior
quarter.
Preferred Units
On February 7, 1997, the Operating Partnership issued 125,000 Series A
Preferred Units to the Company. The Series A Preferred Units are non-voting and
have a liquidation preference of $1,000 per unit for an aggregate liquidation
preference of $125.0 million plus accrued and unpaid distributions. The net
proceeds (after underwriting commission and other offering costs) of the Series
A Preferred Units issued were $121.8 million. The Company is entitled to
receive cumulative preferential cash distributions at a rate of 8 5/8% of the
liquidation preference per annum (equivalent to $86.25 per unit). On or after
February 12, 2027, the Series A Preferred Units will be redeemed for cash upon
the redemption of the corresponding Series A Preferred Stock issued by the
Company. The redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the sale proceeds of
other units, which may include other preferred units.
On September 22, 1997, the Operating Partnership issued 6,900,000 Series B
Preferred Units to the Company. The Series B Preferred Units are non-voting and
have a liquidation preference of $25 per unit for an aggregate liquidation
preference of $172.5 million plus accrued and unpaid distributions. The net
proceeds (after underwriting commission and other offering costs) of the Series
B Preferred Units issued were $166.3 million. The Company is entitled to
receive cumulative preferential cash distributions at a rate of 8% of the
liquidation preference per annum (equivalent to $2.00 per unit). On or after
September 25, 2002, the Series B Preferred Units will be redeemed for cash upon
the redemption of the corresponding Series B Preferred Stock issued by the
Company. The redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the sale proceeds of
other units, which may include other preferred units.
On April 23, 1998, the Operating Partnership issued 400,000 Series D
Preferred Units to the Company. The Series D Preferred Units are non-voting and
have a liquidation preference of $250 per unit for an aggregate liquidation
preference of $100 million plus accrued and unpaid distributions. The net
proceeds (after underwriting commission and other offering costs) of the Series
D Preferred Units issued were $96.8 million. The Company is entitled to receive
cumulative preferential cash distributions at a rate of 8% of the liquidation
preference per annum (equivalent to $20.00 per unit). On or after April 23,
2003, the Series D Preferred Units will be redeemed for cash upon the
redemption of the corresponding Series D Preferred Stock issued by the Company.
The redemption price (other than the portion
F-18
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. PARTNERS' CAPITAL -- (Continued)
thereof consisting of accrued and unpaid distributions) is payable solely out
of the sale proceeds of other units, which may include other preferred units.
Stock Repurchase
On December 14, 1999, the Company announced that its board of directors
had authorized a share repurchase plan pursuant to which the Company may, at
its sole and absolute discretion, repurchase up to 10.0 million shares of its
outstanding Common Stock and Common Units. As of December 31, 1999, the Company
had used $25.5 million of net proceeds from its recent disposition activity,
either through direct payments or repayment of borrowings under the Revolving
Loan, to repurchase 1.2 million shares of Common Stock through periodic open
market or privately negotiated transactions at a weighted average price of
$22.15 per share.
8. EARNINGS PER COMMON UNIT
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," which is effective for financial
statements for periods ending after December 15, 1997. FASB Statement No. 128
requires the restatement of prior period earnings per share and requires the
disclosure of additional supplemental information detailing the calculation of
earnings per share.
FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per share.
Unlike primary earnings per common unit, basic earnings per Common Unit
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per Common Unit is very similar to the previously reported
fully diluted earnings per Common Unit. It is computed using the weighted
average number of Common Units and the dilutive effect of options, warrants and
convertible securities outstanding, using the "treasury stock" method. Earnings
per Common Unit data are required for all periods for which an income statement
or summary of earnings is presented, including summaries outside the basic
financial statements. All earnings per Common Unit amounts for all periods
presented have, where appropriate, been restated to conform to the FASB
Statement 128 requirements.
F-19
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. EARNINGS PER COMMON UNIT -- (Continued)
The following table sets forth the computation of basic and diluted
earnings per Common Unit:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
(in thousands, except per unit amounts)
<S> <C> <C> <C>
Numerator:
Income before extraordinary item .............................. $ 166,926 $ 151,135 $ 91,552
Dividends on preferred units .................................. (32,580) (30,092) (13,117)
Extraordinary item -- loss on early extinguishment of debt..... (7,341) (387) (6,945)
--------- --------- ---------
Numerator for basic earnings per Common Unit -- net
income available for Class A Common Unit holders .............. $ 127,005 $ 120,656 $ 71,490
Numerator for diluted earnings per share -- net income
available for Class A Common Unit holders ..................... $ 127,005 $ 120,656 $ 71,490
Denominator:
Denominator for basic earnings per Common
Unit -- weighted-average shares ............................... 70,182 64,847 46,422
Effect of dilutive securities:
Employee stock options ...................................... 78 240 318
Warrants .................................................... 8 45 73
--------- --------- ---------
Dilutive potential Common Units ............................... 86 285 391
Denominator for diluted earnings per Common
Unit -- adjusted weighted average Common Units and
assumed conversions ........................................... 70,268 65,132 46,813
Basic earnings per Common Unit ................................. $ 1.81 $ 1.86 $ 1.54
========= ========= =========
Diluted earnings per Common Unit ............................... $ 1.81 $ 1.85 $ 1.53
========= ========= =========
</TABLE>
For additional disclosures regarding the outstanding preferred Units, the
employee stock options and the warrants, see Notes 4, 7 and 9.
9. STOCK OPTIONS AND WARRANTS
As of December 31, 1999, 6,000,000 shares of the Company's authorized
Common Stock were reserved for issuance upon the exercise of options under the
Amended and Restated 1994 Stock Option Plan. Options generally vest over a
four- or five-year period beginning with the date of grant.
In 1995, the Financial Accounting Standards Board issued a Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). SFAS 123 recommends the use of a fair value based
method of accounting for an employee stock option whereby compensation cost is
measured at the grant date on the fair value of the award and is recognized
over the service period (generally the vesting period of the award). However,
SFAS 123 specifically allows an entity to continue to measure compensation cost
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") so long as pro forma disclosures of net income and
earnings per share are made as if SFAS 123 had been adopted. The Company has
elected to follow APB 25 and related interpretations in accounting for its
employee stock options because the Company believes that the models available
to estimate the fair value of employee stock options do not provide a reliable
single measure of the fair value of employee stock options. Moreover, such
models required the input of highly subjective assumptions, which can
materially affect the fair value estimates. APB 25 requires the recognition of
compensation expense at the date of grant equal to the difference between the
option price and the value of the underlying stock. Because the exercise price
of the Company's employee
F-20
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTIONS AND WARRANTS -- (Continued)
stock options equals the market price of the underlying stock on the date of
grant, the Company records no compensation expense for the award of employee
stock options.
Under SFAS 123, a public entity must estimate the fair value of a stock
option by using an option-pricing model that takes into account as of the grant
date the exercise price and expected life of the options, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the option.
SFAS provides examples of possible pricing models and includes the
Black-Scholes pricing model, which the Company used to develop its pro forma
disclosures. However, as previously noted, the Company does not believe that
such models provide a reliable single measure of the fair value of employee
stock options. Furthermore, the Black-Scholes model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable, rather than for use in estimating the fair value of
employee stock options subject to vesting and transferability restrictions.
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, only options granted subsequent to that date were valued
using this Black-Scholes model. The fair value of the options granted in 1999
was estimated at the date of grant using the following weighted average
assumptions: risk-free rates ranging between 4.21% and 6.81%, dividend yield of
10.65% and a weighted average expected life of the options of five years. The
fair value of the options granted in 1998 was estimated at the date of grant
using the following weighted-average assumptions: risk-free interest rates
ranging between 3.29% and 6.01%, dividend yield of 9.0% and a weighted average
expected life of the options of five years. The fair value of the 1997 options
were estimated at the date of grant using the following weighted average
assumptions: risk-free interest rates ranging between 5.75% and 6.72%, dividend
yield of 6.5% and a weighted-average expected life of the options of five
years. Had the compensation cost for the Company's stock option plans been
determined based on the fair value at the date of grant for awards in 1999,
1998 and 1997 consistent with the provisions of SFAS 123, the Company's net
income and net income per share would have decreased to the pro forma amounts
indicated below (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended
December 31
--------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Net income -- as reported ............................. $ 127,005 $ 120,656 $ 71,490
Net income -- pro forma ............................... $ 124,673 $ 118,491 $ 70,311
Net income per share -- basic (as reported) ........... $ 1.81 $ 1.86 $ 1.54
Net income per share -- diluted (as reported) ......... $ 1.81 $ 1.85 $ 1.53
Net income per share -- basic (pro forma) ............. $ 1.78 $ 1.83 $ 1.51
Net income per share -- diluted (pro forma) ........... $ 1.77 $ 1.82 $ 1.50
</TABLE>
F-21
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTIONS AND WARRANTS -- (Continued)
The following table summarizes information about employees' and Board of
Directors' stock options outstanding at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Weighted
Average
Number Exercise
of Shares Price
------------- -----------
<S> <C> <C>
Balances at December 31, 1996 ......... 1,265,700 $ 24.67
Options granted ....................... 2,250,765 32.90
Options canceled ...................... (76,040) 22.20
Options exercised ..................... (117,428) 21.84
--------- --------
Balances at December 31, 1997 ......... 3,322,997 $ 30.40
Options granted ....................... 737,754 27.21
Options canceled ...................... (11,800) 31.11
Options exercised ..................... (25,400) 21.98
--------- --------
Balances at December 31, 1998 ......... 4,023,551 $ 29.83
Options granted ....................... 1,091,051 22.24
Options canceled ...................... (614,328) 30.82
Options exercised ..................... (100,840) 19.91
--------- --------
Balances at December 31, 1999 ......... 4,399,434 $ 28.01
========= ========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------------
Weighted
Average
Number of Exercise
Shares Price
----------- -----------
<S> <C> <C>
December 31, 1997 ......... 686,870 $ 30.94
December 31, 1998 ......... 1,315,898 $ 26.65
December 31, 1999 ......... 1,227,004 $ 26.47
</TABLE>
Exercise prices for options outstanding as of December 31, 1999, ranged
from $9.54 to $35.50. The weighted average remaining contractual life of those
options is 7.6 years. Using the Black-Scholes options valuation model, the
weighted average fair value of options granted during 1999, 1998 and 1997 was
$0.68, $2.98, and $3.23, respectively.
Warrants
In connection with various acquisitions in 1997, 1996 and 1995 the Company
issued warrants to certain officers and directors.
<TABLE>
<CAPTION>
Number of
Warrants Exercise
Date of Issuance Outstanding Price
- --------------------------- ------------- -----------
<S> <C> <C>
February 1995 ......... 100,000 $ 21.00
April 1996 ............ 150,000 $ 28.00
October 1997 .......... 1,390,610 $ 32.50
December 1997 ......... 120,000 $ 34.13
---------
Total ................. 1,760,610
=========
</TABLE>
F-22
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTIONS AND WARRANTS -- (Continued)
The warrants granted in February 1995, April 1996 and December 1997 expire
10 years from the date of issuance. All warrants are exercisable from the date
of issuance. The warrants granted in October 1997 do not have an expiration
date. There were no warrants issued during 1998 and 1999. Upon exercise of a
warrant, the Company will contribute the exercise price to the Operating
Partnership in exchange for Common Units; therefore, the Operating Partnership
accounts for such warrants as if issued by the Operating Partnership.
10. COMMITMENTS AND CONTINGENCIES
Lease
Certain properties in the portfolio are subject to land leases expiring
through 2082. Rental payments on these leases are adjusted annually based on
either the consumer price index or on a predetermined schedule.
For three properties, the Operating Partnership has the option to purchase
the leased land during the lease term at the greater of 85% of appraised value
or $35,000 per acre.
For one property, the Operating Partnership has the option to purchase the
leased land at any time during the lease term. The purchase price ranges from
$1,800,000 to $2,200,000 depending on the exercise date.
The obligation for future minimum lease payments is as follows (in
thousands):
<TABLE>
<S> <C>
2000 ..................... $ 1,194
2001 ..................... 1,194
2002 ..................... 1,167
2003 ..................... 1,149
2004 ..................... 1,149
Thereafter ............... 49,860
-------
$55,713
=======
</TABLE>
Litigation
On October 2, 1998, John Flake, a former stockholder of J.C. Nichols,
filed a putative class action lawsuit on behalf of himself and the other former
stockholders of J.C. Nichols in the United States District Court for the
District of Kansas against J.C. Nichols, certain of its former officers and
directors and the Company. The complaint alleges, among other things, that in
connection with the merger of J.C. Nichols and the Company (1) J.C. Nichols and
the named directors and officers of J.C. Nichols breached their fiduciary
duties to J.C. Nichols' stockholders, (2) J.C. Nichols and the named directors
and officers of J.C. Nichols breached their fiduciary duties to members of the
J.C. Nichols Company Employee Stock Ownership Trust, (3) all defendants
participated in the dissemination of a proxy statement containing materially
false and misleading statements and omissions of material facts in violation of
Section 14(a) of the Securities Exchange Act of 1934 and (4) the Company filed
a registration statement with the SEC containing materially false and
misleading statements and omissions of material facts in violation of Sections
11 and 12(2) of the Securities Act of 1933. The plaintiff seeks equitable
relief and monetary damages. The Company believes that the defendants have
meritorious defenses to the plaintiffs' allegations and intend to vigorously
defend this litigation. By order dated June 18, 1999, the court granted in part
and denied in part the Company's motion to dismiss. The court has granted the
plaintiff's motion seeking certification of the proposed class of plaintiffs
with respect to the remaining claims. Discovery in
F-23
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. COMMITMENTS AND CONTINGENCIES -- (Continued)
the matter is proceeding. Due to the inherent uncertainties of the litigation
process and the judicial system, the Company is not able to predict the outcome
of this litigation. If this litigation is not resolved in the Company's favor,
it could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the Company is a party to a variety of legal proceedings
arising in the ordinary course of its business. The Company believes that it is
adequately covered by insurance and indemnification agreements. Accordingly,
none of such proceedings are expected to have a material adverse effect on the
Company's business, financial condition and results of operations.
Contracts
The Operating Partnership has entered into construction contracts totaling
$390.2 million at December 31, 1999. The amounts remaining on these contracts
as of December 31, 1999 totaled $115.1 million.
The Operating Partnership has entered into various contracts under which
it is committed to acquire 317 acres of land over a three-year period for an
aggregate purchase price of approximately $32.0 million.
Capital Expenditures
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than normal recurring building
improvements, tenant improvements and lease commissions.
Environmental Matters
Substantially all of the Operating Partnership's in-service properties
have been subjected to Phase I environmental assessments (and, in certain
instances, Phase II environmental assessments). Such assessments and/or updates
have not revealed, nor is management aware of, any environmental liability that
management believes would have a material adverse effect on the accompanying
consolidated financial statements.
Employment Agreements
As the Operating Partnership has expanded into new markets, it has sought
to enter into business combinations with local real estate operators with many
years of management and development experience in their respective markets.
Accordingly, in connection with joining the Company as executive officers as a
result of such business combinations, these persons have entered into
employment agreements with the Company. The Operating Partnership reimburses
the Company with respect to its obligations under such agreements.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Operating Partnership could
realize upon disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair values . The carrying amounts and estimated fair values
of the Operating Partnership's financial instruments at December 31, 1999 were
as follows (in thousands):
F-24
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------- -------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents ............. $ 33,915 $ 33,915
Accounts and notes receivable ......... $ 67,019 $ 67,019
Mortgages and notes payable ........... $1,719,117 $1,601,548
Interest rate hedge contracts ......... $ 1,300 $ 32
</TABLE>
The fair values for the Operating Partnership's fixed rate mortgages and
notes payable were estimated using discounted cash flow analysis, based on the
Operating Partnership's estimated incremental borrowing rate at December 31,
1999, for similar types of borrowing arrangements. The carrying amounts of the
Operating Partnership's variable rate borrowings approximate fair value.
The fair values of the Operating Partnership's interest rate hedge
contracts represent the estimated amount the Operating Partnership would
receive or pay to terminate or replace the financial instruments at current
market rates.
Disclosures about the fair value of financial instruments are based on
relevant information available to the Operating Partnership at December 31,
1999. Although management is not aware of any factors that would have a
material effect on the fair value amounts reported herein, such amounts have
not been revalued since that date and current estimates of fair value may
significantly differ from the amounts presented herein.
12. ACQUISITION AND DISPOSITIONS
On July 13, 1998, the Company completed its acquisition of the J.C.
Nichols Company ("JCN"), a Missouri real estate operating company, pursuant to
a merger agreement dated December 22, 1997 and amended on April 29, 1998. The
aggregate consideration totaled $544.0 million and consisted of the issuance of
approximately 5.63 million shares of the Company's Common Stock, the assumption
of approximately $229.0 million of debt, approximately $15.0 million in
transaction costs and a cash payment of approximately $120.0 million, net of
cash acquired of approximately $59.0 million. The merger was accounted for
under the purchase method of accounting. The results of operations of JCN have
been included in the Operating Partnership's financial statements for the
period from July 13, 1998 to December 31, 1998. Unaudited pro forma information
is provided in Note 13 as if the acquisition of JCN had occurred at the
beginning of the respective years presented.
During 1999, the Operating Partnership sold approximately 3.3 million
rentable square feet of non-core office and industrial properties, 49 acres of
development land in the South Florida area and 36 in-service central Florida
office properties encompassing 2.1 million rentable square feet for gross
proceeds of approximately $488.3 million. In addition, the Operating
Partnership sold approximately 2.9 million rentable square feet of non-core
office and industrial properties in the Baltimore area and certain other
non-core office and industrial properties for gross proceeds of $208.1 million.
The Operating Partnership recorded a gain of $8.0 million related to these
dispositions. Non-core office and industrial properties generally include
single buildings or business parks that do not fit our long-term strategy.
Pending Dispositions
The Operating Partnership currently has 786,000 rentable square feet of
properties under contract for sale in various transactions totaling $57.8
million. Additionally, 3.2 million rentable square feet of properties are under
various letters of intent for sale at $293.5 million. These transactions are
subject to customary closing conditions, including due diligence and
documentation, and are expected to close
F-25
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. ACQUISITION AND DISPOSITIONS -- (Continued)
during the first and second quarters of 2000. However, the Operating
Partnership can provide no assurance that all or parts of these transactions
will be consummated.
13. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming
the acquisition of JCN occurred as of January 1, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Pro Forma Year Ended
December 31, 1998
---------------------
<S> <C>
Revenues ..................................... $ 558,090
Net income before extraordinary item ......... $ 158,084
Net income ................................... $ 157,697
Net income per share -- basic ................ $ 1.97
Net income per share -- diluted .............. $ 1.96
</TABLE>
The pro forma information is not necessarily indicative of what the
Operating Partnership's results of operations would have been if the
transaction had occurred at the beginning of the period presented.
Additionally, the pro forma information does not purport to be indicative of
the Operating Partnership's results of operations for future periods.
14. SEGMENT INFORMATION
The sole business of the Operating Partnership is the acquisition,
development and operation of rental real estate properties. The Operating
Partnership operates office, industrial and retail properties and apartment
units. There are no material inter-segment transactions.
The Operating Partnership's chief operating decision maker ("CDM")
assesses and measures operating results based upon property level net operating
income. The operating results for the individual assets within each property
type have been aggregated since the CDM evaluates operating results and
allocates resources on a property-by-property basis within the various property
types.
F-26
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. SEGMENT INFORMATION -- (Continued)
The accounting policies of the segments are the same as those described in
Note 1. Further, all operations are within the United States and no tenant
comprises more than 10% of consolidated revenues. The following table
summarizes the rental income, net operating income and assets for each
reportable segment for the years ended December 31, 1999, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Rental Income:
Office segment ................................................. $ 462,099 $425,309 $233,527
Industrial segment ............................................. 51,168 48,134 33,406
Retail segment ................................................. 32,799 13,922 --
Apartment segment .............................................. 16,822 9,374 --
---------- -------- --------
Total Rental Income ............................................ $ 562,888 $496,739 $266,933
========== ======== ========
Net Operating Income:
Office segment ................................................. $ 315,680 $289,403 $162,685
Industrial segment ............................................. 42,361 39,392 27,505
Retail segment ................................................. 21,685 8,869 --
Apartment segment .............................................. 9,486 4,864 --
---------- -------- --------
Total Net Operating Income ..................................... $ 389,212 $342,528 $190,190
Reconciliation to income before minority interest and
extraordinary item:
Equity in income of unconsolidated affiliates .................. 633 (207) --
Cost of unsuccessful transactions .............................. (1,500) (146) --
Gain on disposition of assets .................................. 7,997 1,716 --
Interest and other income ...................................... 16,353 13,230 6,232
Interest expense ............................................... (111,385) (93,959) (47,394)
General and administrative expenses ............................ (22,345) (20,630) (10,216)
Depreciation and amortization .................................. (112,039) (91,397) (47,260)
---------- -------- --------
Income before minority interest and extraordinary item ......... $ 166,926 $151,135 $91,552
========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Total Assets:
Office segment .............. $2,961,360 $3,235,815 $2,348,292
Industrial segment .......... 435,022 495,675 288,511
Retail segment .............. 292,853 239,555 --
Apartment segment ........... 118,549 139,093 --
Corporate and other ......... 164,295 137,562 70,437
---------- ---------- ----------
Total Assets ................ $3,972,079 $4,247,700 $2,707,240
========== ========== ==========
</TABLE>
15. SUBSEQUENT EVENTS
Stock Repurchase. From January 1, 2000 to March 20, 2000, the Company
repurchased 1.5 million shares of Common Stock and Common Units at a weighted
average price of $21.89 per share/unit for an aggregate purchase price of
approximately $31.7 million.
F-27
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for the years ended December 31, 1999,
and 1998 are as follows (in thousands except per unit amounts):
<TABLE>
<CAPTION>
For the year ended December 31, 1999
-------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Total Revenue .............................. $150,586 $146,255 $139,847 $143,186 $579,874
-------- -------- -------- -------- ---------
Income before cost of unsuccessful
transactions, gain on disposition of
assets, and extraordinary item ........... $40,804 $40,140 $42,780 $36,705 $160,429
-------- -------- -------- -------- ---------
Cost of unsuccessful transactions .......... $ -- $ -- $ -- $(1,500) $ (1,500)
Gain on disposition of assets .............. $ 569 $ 1,524 $ 163 $ 5,741 $ 7,997
-------- -------- -------- -------- ---------
Income before extraordinary item ........... $41,373 $41,664 $42,943 $40,946 $166,926
Extraordinary Item-loss on early
extinguishment of debt ................... $ -- $ (777) $(4,997) $(1,567) $ (7,341)
-------- -------- -------- -------- ---------
Net Income ................................. $41,373 $40,887 $37,946 $39,379 $159,585
-------- -------- -------- -------- ---------
Dividends on preferred units ............... $(8,145) $(8,145) $(8,145) $(8,145) $(32,580)
-------- -------- -------- -------- ---------
Net income available for Class A common
units .................................... $33,228 $32,742 $29,801 $31,234 $127,005
======== ======== ======== ======== =========
Net income per common unit-basic:
Income before extraordinary item ......... $ 0.48 $ 0.48 $ 0.49 $ 0.46 $ 1.91
Extraordinary item -- loss on early
extinguishment of debt .................. $ -- $ (0.01) $ (0.07) (0.02) (0.10)
-------- -------- -------- -------- ---------
Net Income ............................... $ 0.48 $ 0.47 $ 0.42 $ 0.44 $ 1.81
======== ======== ======== ======== =========
Net income per common unit-diluted:
Income before extraordinary item ......... $ 0.48 $ 0.48 $ 0.49 $ 0.46 $ 1.91
Extraordinary item -- loss on early
extinguishment of debt .................. $ -- $ (0.01) $ (0.07) (0.02) (0.10)
-------- -------- -------- -------- ---------
Net Income ............................... $ 0.48 $ 0.47 $ 0.42 $ 0.44 $ 1.81
======== ======== ======== ======== =========
</TABLE>
F-28
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- (Continued)
<TABLE>
<CAPTION>
For the year ended December 31, 1998
-------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Total Revenue .............................. $102,384 $115,400 $141,773 $150,205 $509,762
-------- -------- -------- -------- ---------
Income before cost of unsuccessful
transactions, gain on disposition of
assets and extraordinary item ............ $33,981 $37,082 $40,548 $37,954 $149,565
-------- -------- -------- -------- ---------
Cost of unsuccessful transactions .......... -- -- -- (146) (146)
Gain on disposition of assets .............. $ -- $ -- $ -- $ 1,716 $ 1,716
-------- -------- -------- -------- ---------
Income before extraordinary item ........... $33,981 $37,082 $40,548 $39,524 $151,135
Extraordinary Item-loss on early
extinguishment of debt ................... $ (46) $ -- $ (324) $ (17) $ (387)
-------- -------- -------- -------- ---------
Net income ................................. $33,935 $37,082 $40,224 $39,507 $150,748
-------- -------- -------- -------- ---------
Dividends on preferred units ............... $(6,145) $(7,656) $(8,145) $(8,146) $(30,092)
-------- -------- -------- -------- ---------
Net income available for Class A common
units .................................... $27,790 $29,426 $32,079 $31,361 $120,656
======== ======== ======== ======== =========
Net income per common unit-basic:
Income before extraordinary item ......... $ 0.47 $ 0.47 $ 0.48 $ 0.45 $ 1.87
Extraordinary item -- loss on early
extinguishment of debt .................. $ -- $ -- $ -- $ (0.01) $ (0.01)
-------- -------- -------- -------- ---------
Net income ............................... $ 0.47 $ 0.47 $ 0.48 $ 0.44 $ 1.86
======== ======== ======== ======== =========
Net income per common unit-diluted:
Income before extraordinary item ......... $ 0.47 $ 0.47 $ 0.47 $ 0.45 $ 1.86
Extraordinary item -- loss on early
extinguishment of debt .................. $ -- $ -- $ -- $ (0.01) $ (0.01)
-------- -------- -------- -------- ---------
Net income ............................... $ 0.47 $ 0.47 $ 0.47 $ 0.44 $ 1.85
======== ======== ======== ======== =========
</TABLE>
F-29
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31,1999
(in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
--------------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- -------------------------------------- ------------- -------- ------------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Asheville, NC
Ridgefield I -- 636 3,607 -- 257
Ridgefield II -- 910 5,157 -- 274
Ridgefield III -- 743 4,722 -- --
Ridgefield IV -- -- -- 791 --
Atlanta, GA
1765 The Exchange -- 767 6,305 (767) (6,305)
One Point Royal -- 1,754 16,621 (1,754) (16,621)
Two Point Royal -- 1,793 14,951 -- 176
400 North Business Park -- 979 6,112 -- 178
50 Glenlake -- 2,500 20,000 -- 242
6348 Northeast Expressway 1,361 277 1,629 -- 99
6438 Northeast Expressway 1,542 181 2,225 -- 69
Bluegrass Lakes -- 816 3,775 -- --
Bluegrass Place 1 -- 491 2,016 -- 25
Bluegrass Place 2 -- 412 2,529 -- 47
Bluegrass Land Site V10 -- 1,858 -- -- --
Bluegrass Land Site V14 -- 1,454 -- -- --
1700 Century Circle -- 1,115 3,148 -- 403
1800 Century Boulevard -- 1,441 28,939 -- 392
1875 Century Boulevard -- -- 8,790 -- 347
1900 Century Boulevard -- -- 4,721 -- 447
2200 Century Parkway -- -- 14,274 -- 1,117
2400 Century Center -- -- 14,970 -- --
2600 Century Parkway -- -- 10,254 -- 357
2635 Century Parkway -- -- 21,083 -- 1,064
2800 Century Parkway -- -- 19,963 -- 321
Chattahoochee Avenue -- 248 1,817 -- 231
Chastain Place I -- 472 3,011 -- 910
Chastain Place II -- 607 2,097 -- --
Chastain Place III -- 539 1,662 -- --
Corporate Lakes Distribution Center -- 1,275 7,227 -- 445
Cosmopolitan North -- 2,855 4,155 -- 700
Century Plaza 1 -- 1,290 8,425 -- --
Century Plaza 2 -- 1,380 7,589 -- --
Century Plaza 3 -- 570 -- -- --
Deerfield Land -- 879 -- 382 --
Deerfield 1 -- 1,194 2,612 -- 39
EKA Chemical -- 609 9,883 -- 3
1035 Fred Drive -- 270 1,239 -- 16
1077 Fred Drive -- 384 1,191 -- 38
5125 Fulton Industrial Blvd -- 578 3,116 -- 81
Fulton Corporate Center -- 542 2,042 -- 92
10 Glenlake -- 3,021 30,966 -- --
Glenlakes -- 2,908 --(18) (2,898) --
Gwinnett Distribution Center -- 1,128 5,943 -- 330
Kennestone Corporate Center -- 518 4,874 -- 215
Lavista Business Park -- 821 5,244 -- 568
Norcross, I, II -- 326 1,979 -- 43
Nortel -- 3,341 32,109 -- 2
Newpoint Place I -- 825 3,799 -- --
Newpoint Place II -- 1,436 3,321 -- --
Newpoint Place III -- 661 1,866 -- 694
Newpoint Place -- 187 -- 2,973 --
Newpoint - Site E -- 984 --(22) (984) --
Oakbrook I (11) 873 4,948 -- 76
Oakbrook II (11) 1,579 8,388 -- 1,186
Oakbrook III (11) 1,480 8,388 -- 209
Oakbrook IV (11) 953 5,400 -- 130
Oakbrook V (11) 2,206 12,501 -- 262
Oakbrook Summitt 4,531 950 6,572 -- 378
Oxford Lake Business Center -- 855 7,014 -- 99
Peachtree Corners Land -- 1,394 -- -- --
Peachtree Corners II -- 1,392 4,482 -- (31)
Southside Distribution Center -- 810 1,219 -- 3,340
Highwoods Center I @ Tradeport -- 305 3,299 -- --
HIW Center II at Tradeport -- 635 3,474 -- --
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
--------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- -------------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Asheville, NC
Ridgefield I 636 3,864 4,500 396 1987 5-40 yrs.
Ridgefield II 910 5,431 6,341 491 1989 5-40 yrs.
Ridgefield III 743 4,722 5,465 226 1998 5-40 yrs.
Ridgefield IV 791 -- 791 -- N/A N/A
Atlanta, GA
1765 The Exchange -- -- -- -- 1983 5-40 yrs.
One Point Royal -- -- -- -- 1996 5-40 yrs.
Two Point Royal 1,793 15,127 16,920 793 1997 5-40 yrs.
400 North Business Park 979 6,290 7,269 449 1985 5-40 yrs.
50 Glenlake 2,500 20,242 22,742 1,106 1997 5-40 yrs.
6348 Northeast Expressway 277 1,728 2,005 124 1978 5-40 yrs.
6438 Northeast Expressway 181 2,294 2,475 168 1981 5-40 yrs.
Bluegrass Lakes 816 3,775 4,591 124 1999 5-40 yrs.
Bluegrass Place 1 491 2,041 2,532 122 1995 5-40 yrs.
Bluegrass Place 2 412 2,576 2,988 153 1996 5-40 yrs.
Bluegrass Land Site V10 1,858 -- 1,858 -- 1999 5-40 yrs.
Bluegrass Land Site V14 1,454 -- 1,454 -- 1999 5-40 yrs.
1700 Century Circle 1,115 3,551 4,666 372 1972 5-40 yrs.
1800 Century Boulevard 1,441 29,331 30,772 2,205 1975 5-40 yrs.
1875 Century Boulevard -- 9,137 9,137 707 1976 5-40 yrs.
1900 Century Boulevard -- 5,168 5,168 472 1971 5-40 yrs.
2200 Century Parkway -- 15,391 15,391 1,293 1971 5-40 yrs.
2400 Century Center -- 14,970 14,970 906 1998 5-40 yrs.
2600 Century Parkway -- 10,611 10,611 784 1973 5-40 yrs.
2635 Century Parkway -- 22,147 22,147 1,728 1980 5-40 yrs.
2800 Century Parkway -- 20,284 20,284 1,506 1983 5-40 yrs.
Chattahoochee Avenue 248 2,048 2,296 232 1970 5-40 yrs.
Chastain Place I 472 3,921 4,393 460 1997 5-40 yrs.
Chastain Place II 607 2,097 2,704 149 1998 5-40 yrs.
Chastain Place III 539 1,662 2,201 85 1999 5-40 yrs.
Corporate Lakes Distribution Center 1,275 7,672 8,947 669 1988 5-40 yrs.
Cosmopolitan North 2,855 4,855 7,710 476 1980 5-40 yrs.
Century Plaza 1 1,290 8,425 9,715 62 1981 5-40 yrs.
Century Plaza 2 1,380 7,589 8,969 56 1984 5-40 yrs.
Century Plaza 3 570 -- 570 -- 1984 5-40 yrs.
Deerfield Land 1,261 -- 1,261 -- N/A N/A
Deerfield 1 1,194 2,651 3,845 31 1999 5-40 yrs.
EKA Chemical 609 9,886 10,495 443 1998 5-40 yrs.
1035 Fred Drive 270 1,255 1,525 93 1973 5-40 yrs.
1077 Fred Drive 384 1,229 1,613 91 1973 5-40 yrs.
5125 Fulton Industrial Blvd 578 3,197 3,775 250 1973 5-40 yrs.
Fulton Corporate Center 542 2,134 2,676 168 1973 5-40 yrs.
10 Glenlake 3,021 30,966 33,987 1,198 1998 5-40 yrs.
Glenlakes 10 -- 10 -- N/A N/A
Gwinnett Distribution Center 1,128 6,273 7,401 504 1991 5-40 yrs.
Kennestone Corporate Center 518 5,089 5,607 358 1985 5-40 yrs.
Lavista Business Park 821 5,812 6,633 480 1973 5-40 yrs.
Norcross, I, II 326 2,022 2,348 144 1970 5-40 yrs.
Nortel 3,341 32,111 35,452 1,438 1998 5-40 yrs.
Newpoint Place I 825 3,799 4,624 407 1998 5-40 yrs.
Newpoint Place II 1,436 3,321 4,757 9 1999 5-40 yrs.
Newpoint Place III 661 2,560 3,221 149 1998 5-40 yrs.
Newpoint Place 3,160 -- 3,160 -- N/A N/A
Newpoint - Site E -- -- -- -- N/A N/A
Oakbrook I 873 5,024 5,897 448 1981 5-40 yrs.
Oakbrook II 1,579 9,574 11,153 1,081 1983 5-40 yrs.
Oakbrook III 1,480 8,597 10,077 841 1984 5-40 yrs.
Oakbrook IV 953 5,530 6,483 476 1985 5-40 yrs.
Oakbrook V 2,206 12,763 14,969 1,169 1985 5-40 yrs.
Oakbrook Summitt 950 6,950 7,900 543 1981 5-40 yrs.
Oxford Lake Business Center 855 7,113 7,968 488 1985 5-40 yrs.
Peachtree Corners Land 1,394 -- 1,394 -- N/A N/A
Peachtree Corners II 1,392 4,451 5,843 4 1999 5-40 yrs.
Southside Distribution Center 810 4,559 5,369 334 1988 5-40 yrs.
Highwoods Center I @ Tradeport 305 3,299 3,604 153 1999 5-40 yrs.
HIW Center II at Tradeport 635 3,474 4,109 55 1999 5-40 yrs.
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
--------------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ----------------------------------------- ------------- -------- ------------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Atlanta Tradeport -- 6,694 -- -- --
Tradeport I -- 557 2,669 -- --
Tradeport II -- 557 3,456 -- --
Baltimore, MD
4000 Old Court Medical Building -- 862 5,152 (862) (5,152)
9690 Deereco Road -- 1,188 16,296 (1,188) (16,296)
Automatic Data Processing -- 2,277 7,667 (2,277) (7,667)
The Atrium -- 1,390 9,864 (1,390) (9,864)
Business Center at Owings Mills, Lot 7 -- 827 1,581 (827) (1,581)
Business Center at Owings Mills, Lot 8 -- 786 2,241 (786) (2,241)
Business Center at Owings Mills, Lot 9 -- 960 6,125 (960) (6,125)
Clark Building -- 1,675 8,764 (1,675) (8,764)
Merrill Lynch Building -- 2,960 11,316 (2,960) (11,316)
Sportsman Club -- 15,291 -- -- --
Boca Raton, FL
Highwoods Square -- 2,586 14,657 (2,586) (14,657)
Highwoods Plaza -- 1,772 10,042 (1,772) (10,042)
One Boca Place -- 5,736 32,505 (5,736) (32,505)
Charlotte, NC
4101 Stuart Andrew Boulevard -- 70 510 -- 254
4105 Stuart Andrew Boulevard -- 26 189 -- 22
4109 Stuart Andrew Boulevard -- 87 636 -- 40
4201 Stuart Andrew Boulevard -- 110 809 -- 58
4205 Stuart Andrew Boulevard -- 134 979 -- 52
4209 Stuart Andrew Boulevard -- 91 665 -- 52
4215 Stuart Andrew Boulevard -- 133 978 -- 74
4301 Stuart Andrew Boulevard -- 232 1,702 -- 137
4321 Stuart Andrew Boulevard -- 73 534 -- 34
4601 Park Square -- 2,601 7,802 -- 246
Alston & Bird -- 2,362 5,379 -- 31
First Citizens Building -- 647 5,528 -- 482
Twin Lakes Distribution Center -- 2,816 6,570 -- --
Mallard Creek I -- 1,248 4,142 -- 301
Mallard Creek III -- 845 4,762 -- 78
Mallard Creek IV -- 348 1,152 -- 3
Mallard Creek V -- 1,665 8,738 -- --
Mallard Creek VI -- 834 -- -- --
NationsFord Business Park -- 1,206 --(23) (791) --
Oakhill Land -- 2,796 -- -- --
Oak Hill Business Park English (11) 750 4,248 -- 90
Oak Hill Business Park Laurel (11) 471 2,671 -- 282
Oak Hill Business Park+B150 Live Oak -- 1,403 5,611 -- 579
Oak Hill Business Park Scarlett (11) 1,073 6,078 -- 407
Oak Hill Business Park Twin Oak (11) 1,243 7,044 -- 474
Oak Hill Business Park Willow (11) 442 2,505 -- 876
Oak Hill Business Park Water (11) 1,623 9,196 -- 816
Pinebrook -- 846 4,607 -- 218
Parkway Plaza Building 1 -- 1,110 4,741 -- 538
Parkway Plaza Building 2 -- 1,694 6,777 -- 1,267
Parkway Plaza Building 3 (4) 1,570 6,282 -- 567
Parkway Plaza Building 6 -- -- 2,438 -- 534
Parkway Plaza Building 7 -- -- 4,648 -- 237
Parkway Plaza Building 8 -- -- 4,698 -- 203
Parkway Plaza Building 9 -- -- 6,008 -- 28
Parkway Plaza Building 10 -- -- 2,328 160 --
Parkway Plaza Bldg 12 -- 112 1,489 -- --
Parkway Plaza Bldg 14 -- 483 6,077 -- --
University Research Center -- 3,694 13,463 (3,694) (13,463)
Columbia, SC
Center Point I -- 1,313 7,441 -- 88
Center Point II -- 1,183 8,724 1 --
Center Point V -- 265 1,279 -- 264
Center Point VI -- 265 -- -- --
Fontaine I -- 1,219 6,907 -- 326
Fontaine II -- 941 5,335 -- 778
Fontaine III -- 853 4,833 -- 87
Fontaine V -- 395 2,237 -- --
Piedmont Triad, NC
Concourse Center 1 -- 946 7,646 -- --
Airport Center Drive -- 1,600 --(13) (717) --
6348 Burnt Poplar -- 721 2,883 -- 26
6350 Burnt Poplar -- 339 1,365 -- 17
Chimney Rock A/B -- 1,610 3,757 1 4
Chimney Rock C -- 604 1,408 -- 2
Chimney Rock D -- 236 550 -- 2
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ----------------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Atlanta Tradeport 6,694 -- 6,694 -- N/A N/A
Tradeport I 557 2,669 3,226 68 1999 5-40 yrs.
Tradeport II 557 3,456 4,013 86 1999 5-40 yrs.
Baltimore, MD
4000 Old Court Medical Building -- -- -- -- 1987 5-40 yrs.
9690 Deereco Road -- -- -- -- 1989 5-40 yrs.
Automatic Data Processing -- -- -- -- 1998 5-40 yrs.
The Atrium -- -- -- -- 1986 5-40 yrs.
Business Center at Owings Mills, Lot 7 -- -- -- -- 1989 5-40 yrs.
Business Center at Owings Mills, Lot 8 -- -- -- -- 1989 5-40 yrs.
Business Center at Owings Mills, Lot 9 -- -- -- -- 1988 5-40 yrs.
Clark Building -- -- -- -- 1974 5-40 yrs.
Merrill Lynch Building -- -- -- -- 1982 5-40 yrs.
Sportsman Club 15,291 -- 15,291 -- N/A N/A
Boca Raton, FL
Highwoods Square -- -- -- -- 1989 5-40 yrs.
Highwoods Plaza -- -- -- -- 1980 5-40 yrs.
One Boca Place -- -- -- -- 1987 5-40 yrs.
Charlotte, NC
4101 Stuart Andrew Boulevard 70 764 834 177 1984 5-40 yrs.
4105 Stuart Andrew Boulevard 26 211 237 36 1984 5-40 yrs.
4109 Stuart Andrew Boulevard 87 676 763 85 1984 5-40 yrs.
4201 Stuart Andrew Boulevard 110 867 977 117 1982 5-40 yrs.
4205 Stuart Andrew Boulevard 134 1,031 1,165 128 1982 5-40 yrs.
4209 Stuart Andrew Boulevard 91 717 808 96 1982 5-40 yrs.
4215 Stuart Andrew Boulevard 133 1,052 1,185 140 1982 5-40 yrs.
4301 Stuart Andrew Boulevard 232 1,839 2,071 224 1982 5-40 yrs.
4321 Stuart Andrew Boulevard 73 568 641 68 1982 5-40 yrs.
4601 Park Square 2,601 8,048 10,649 343 1972 5-40 yrs.
Alston & Bird 2,362 5,410 7,772 258 1965 5-40 yrs.
First Citizens Building 647 6,010 6,657 919 1989 5-40 yrs.
Twin Lakes Distribution Center 2,816 6,570 9,386 256 1991 5-40 yrs.
Mallard Creek I 1,248 4,443 5,691 196 1986 5-40 yrs.
Mallard Creek III 845 4,840 5,685 201 1990 5-40 yrs.
Mallard Creek IV 348 1,155 1,503 47 1993 5-40 yrs.
Mallard Creek V 1,665 8,738 10,403 28 1999 5-40 yrs.
Mallard Creek VI 834 -- 834 -- N/A N/A
NationsFord Business Park 415 -- 415 -- N/A N/A
Oakhill Land 2,796 -- 2,796 -- N/A N/A
Oak Hill Business Park English 750 4,338 5,088 378 1984 5-40 yrs.
Oak Hill Business Park Laurel 471 2,953 3,424 327 1984 5-40 yrs.
Oak Hill Business Park+B150 Live Oak 1,403 6,190 7,593 663 1989 5-40 yrs.
Oak Hill Business Park Scarlett 1,073 6,485 7,558 592 1982 5-40 yrs.
Oak Hill Business Park Twin Oak 1,243 7,518 8,761 649 1985 5-40 yrs.
Oak Hill Business Park Willow 442 3,381 3,823 424 1982 5-40 yrs.
Oak Hill Business Park Water 1,623 10,012 11,635 1,070 1985 5-40 yrs.
Pinebrook 846 4,825 5,671 307 1986 5-40 yrs.
Parkway Plaza Building 1 1,110 5,279 6,389 567 1982 5-40 yrs.
Parkway Plaza Building 2 1,694 8,044 9,738 1,294 1983 5-40 yrs.
Parkway Plaza Building 3 1,570 6,849 8,419 875 1984 5-40 yrs.
Parkway Plaza Building 6 -- 2,972 2,972 436 1996 5-40 yrs.
Parkway Plaza Building 7 -- 4,885 4,885 493 1985 5-40 yrs.
Parkway Plaza Building 8 -- 4,901 4,901 486 1986 5-40 yrs.
Parkway Plaza Building 9 -- 6,036 6,036 612 1984 5-40 yrs.
Parkway Plaza Building 10 160 2,328 2,488 103 1999 5-40 yrs.
Parkway Plaza Bldg 12 112 1,489 1,601 7 1999 5-40 yrs.
Parkway Plaza Bldg 14 483 6,077 6,560 54 1999 5-40 yrs.
University Research Center -- -- -- -- 1980 5-40 yrs.
Columbia, SC
Center Point I 1,313 7,529 8,842 642 1988 5-40 yrs.
Center Point II 1,184 8,724 9,908 852 1996 5-40 yrs.
Center Point V 265 1,543 1,808 174 1997 5-40 yrs.
Center Point VI 265 -- 265 -- N/A N/A
Fontaine I 1,219 7,233 8,452 599 1985 5-40 yrs.
Fontaine II 941 6,113 7,054 878 1987 5-40 yrs.
Fontaine III 853 4,920 5,773 437 1988 5-40 yrs.
Fontaine V 395 2,237 2,632 186 1990 5-40 yrs.
Piedmont Triad, NC
Concourse Center 1 946 7,646 8,592 126 1999 5-40 yrs.
Airport Center Drive 883 -- 883 -- N/A N/A
6348 Burnt Poplar 721 2,909 3,630 353 1990 5-40 yrs.
6350 Burnt Poplar 339 1,382 1,721 168 1992 5-40 yrs.
Chimney Rock A/B 1,611 3,761 5,372 156 1981 5-40 yrs.
Chimney Rock C 604 1,410 2,014 58 1983 5-40 yrs.
Chimney Rock D 236 552 788 23 1983 5-40 yrs.
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ---------------------------------- -------------- -------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Chimney Rock E -- 1,692 3,948 1 43
Chimney Rock F -- 1,431 3,338 1 4
Chimney Rock G -- 1,044 2,435 1 3
Deep River Corporate Center -- 1,033 5,855 -- 302
Airpark East-Copier Consultants (3) 252 1,008 -- 124
Airpark East-Building 1 (3) 377 1,510 -- 47
Airpark East-Building 2 (3) 461 1,842 -- 23
Airpark East-Building 3 (3) 321 1,283 -- 67
Airpark East-Hewlett Packard -- 149 727(12) 313 701
Airpark East-Inacom Building -- 106 478(12) 222 294
Airpark East-Simplex -- 103 526(12) 196 258
Airpark East-Building A (3) 541 2,913 -- 470
Airpark East-Building B (3) 779 3,200 -- 340
Airpark East-Building C (3) 2,384 9,535 -- 572
Airpark East-Building D -- 271 3,213(12) 575 711
Airpark East Expansion -- -- -- 36 --
Airpark East Land -- 1,317 --(12) (1,306) 64
Airpark East-Service Center 1 (3) 275 1,099 -- 127
Airpark East-Service Center 2 (3) 222 889 -- 119
Airpark East-Service Center 3 (3) 304 1,214 -- 66
Airpark East-Service Center 4 (3) 224 898 -- 74
Airpark East-Service Court (3) 194 774 -- 57
Airpark East-Warehouse 1 (3) 384 1,535 -- 78
Airpark East-Warehouse 2 (3) 372 1,488 -- 86
Airpark East-Warehouse 3 (3) 370 1,480 -- 49
Airpark East-Warehouse 4 (3) 657 2,628 -- 179
Airpark East-Highland (3) 175 699 -- 377
206 South Westgate Drive -- 91 664 -- 19
207 South Westgate Drive -- 138 1,012 -- 8
300 South Westgate Drive -- 68 496 -- 6
305 South Westgate Drive -- 30 220 -- 69
307 South Westgate Drive -- 66 485 -- 14
309 South Westgate Drive -- 68 496 -- 21
311 South Westgate Drive -- 75 551 -- 27
315 South Westgate Drive -- 54 396 -- 13
317 South Westgate Drive -- 81 597 -- 25
319 South Westgate Drive -- 54 396 -- 7
Inman Road Land -- 2,357 -- -- --
7906 Industrial Village Road -- 62 455 -- 22
7908 Industrial Village Road -- 62 455 -- 11
7910 Industrial Village Road -- 62 455 -- 14
Jefferson Pilot Land 7,683 13,560 -- -- --
Airpark North - DC1 (3) 723 2,891 -- 187
Airpark North - DC2 (3) 1,094 4,375 -- 95
Airpark North - DC3 (3) 378 1,511 -- 215
Airpark North - DC4 (3) 377 1,508 -- 141
Airpark North Land -- 804 -- -- --
2606 Phoenix Drive-100 Series -- 63 466 -- --
2606 Phoenix Drive-200 Series -- 63 466 -- 3
2606 Phoenix Drive-300 Series -- 31 229 -- 124
2606 Phoenix Drive-400 Series -- 52 382 -- 11
2606 Phoenix Drive-500 Series -- 64 471 -- 20
2606 Phoenix Drive-600 Series -- 78 575 -- 16
Network Construction -- -- 533 -- 200
5 Dundas Circle -- 72 531 -- 14
7 Dundas Circle -- 75 552 -- 28
8 Dundas Circle -- 84 617 -- 19
302 Pomona Drive -- 84 617 -- 81
304 Pomona Drive -- 22 163 -- 1
306 Pomona Drive -- 50 368 -- 26
308 Pomona Drive -- 72 531 -- 9
9 Dundas Circle -- 51 373 -- 37
2616 Phoenix Drive -- 135 990 -- 82
500 Radar Road -- 202 1,484 -- 109
502 Radar Road -- 39 285 -- 80
504 Radar Road -- 39 285 -- 14
506 Radar Road -- 39 285 -- 7
Regency One-Piedmont Center -- 515 2,347 -- 576
Regency Two-Piedmont Center -- 435 1,859 -- 509
Sears Cenfact -- 861 3,446 -- 26
4000 Spring Garden Street -- 127 933 -- 87
4002 Spring Garden Street -- 39 290 -- 6
4004 Spring Garden Street -- 139 1,019 -- 67
Airpark South Warehouse I -- 537 2,934 -- --
Airpark South Warehouse 2 -- 733 2,548 -- --
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ---------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chimney Rock E 1,693 3,991 5,684 165 1985 5-40 yrs.
Chimney Rock F 1,432 3,342 4,774 139 1987 5-40 yrs.
Chimney Rock G 1,045 2,438 3,483 101 1987 5-40 yrs.
Deep River Corporate Center 1,033 6,157 7,190 604 1989 5-40 yrs.
Airpark East-Copier Consultants 252 1,132 1,384 137 1990 5-40 yrs.
Airpark East-Building 1 377 1,557 1,934 220 1990 5-40 yrs.
Airpark East-Building 2 461 1,865 2,326 229 1986 5-40 yrs.
Airpark East-Building 3 321 1,350 1,671 188 1986 5-40 yrs.
Airpark East-Hewlett Packard 462 1,428 1,890 185 1996 5-40 yrs.
Airpark East-Inacom Building 328 772 1,100 157 1996 5-40 yrs.
Airpark East-Simplex 299 784 1,083 131 1997 5-40 yrs.
Airpark East-Building A 541 3,383 3,924 525 1986 5-40 yrs.
Airpark East-Building B 779 3,540 4,319 548 1988 5-40 yrs.
Airpark East-Building C 2,384 10,107 12,491 1,305 1990 5-40 yrs.
Airpark East-Building D 846 3,924 4,770 586 1997 5-40 yrs.
Airpark East Expansion 36 -- 36 -- N/A N/A
Airpark East Land 11 64 75 -- N/A N/A
Airpark East-Service Center 1 275 1,226 1,501 187 1985 5-40 yrs.
Airpark East-Service Center 2 222 1,008 1,230 131 1985 5-40 yrs.
Airpark East-Service Center 3 304 1,280 1,584 192 1985 5-40 yrs.
Airpark East-Service Center 4 224 972 1,196 119 1985 5-40 yrs.
Airpark East-Service Court 194 831 1,025 116 1990 5-40 yrs.
Airpark East-Warehouse 1 384 1,613 1,997 210 1985 5-40 yrs.
Airpark East-Warehouse 2 372 1,574 1,946 208 1985 5-40 yrs.
Airpark East-Warehouse 3 370 1,529 1,899 190 1986 5-40 yrs.
Airpark East-Warehouse 4 657 2,807 3,464 355 1988 5-40 yrs.
Airpark East-Highland 175 1,076 1,251 94 1990 5-40 yrs.
206 South Westgate Drive 91 683 774 77 1986 5-40 yrs.
207 South Westgate Drive 138 1,020 1,158 114 1986 5-40 yrs.
300 South Westgate Drive 68 502 570 56 1986 5-40 yrs.
305 South Westgate Drive 30 289 319 47 1985 5-40 yrs.
307 South Westgate Drive 66 499 565 61 1985 5-40 yrs.
309 South Westgate Drive 68 517 585 62 1985 5-40 yrs.
311 South Westgate Drive 75 578 653 78 1985 5-40 yrs.
315 South Westgate Drive 54 409 463 50 1985 5-40 yrs.
317 South Westgate Drive 81 622 703 76 1985 5-40 yrs.
319 South Westgate Drive 54 403 457 46 1985 5-40 yrs.
Inman Road Land 2,357 -- 2,357 -- N/A N/A
7906 Industrial Village Road 62 477 539 52 1985 5-40 yrs.
7908 Industrial Village Road 62 466 528 57 1985 5-40 yrs.
7910 Industrial Village Road 62 469 531 60 1985 5-40 yrs.
Jefferson Pilot Land 13,560 -- 13,560 -- N/A N/A
Airpark North - DC1 723 3,078 3,801 364 1986 5-40 yrs.
Airpark North - DC2 1,094 4,470 5,564 557 1987 5-40 yrs.
Airpark North - DC3 378 1,726 2,104 293 1988 5-40 yrs.
Airpark North - DC4 377 1,649 2,026 230 1988 5-40 yrs.
Airpark North Land 804 -- 804 -- N/A N/A
2606 Phoenix Drive-100 Series 63 466 529 52 1989 5-40 yrs.
2606 Phoenix Drive-200 Series 63 469 532 55 1989 5-40 yrs.
2606 Phoenix Drive-300 Series 31 353 384 47 1989 5-40 yrs.
2606 Phoenix Drive-400 Series 52 393 445 49 1989 5-40 yrs.
2606 Phoenix Drive-500 Series 64 491 555 64 1989 5-40 yrs.
2606 Phoenix Drive-600 Series 78 591 669 77 1989 5-40 yrs.
Network Construction -- 733 733 55 1988 5-40 yrs.
5 Dundas Circle 72 545 617 69 1987 5-40 yrs.
7 Dundas Circle 75 580 655 72 1986 5-40 yrs.
8 Dundas Circle 84 636 720 85 1986 5-40 yrs.
302 Pomona Drive 84 698 782 96 1987 5-40 yrs.
304 Pomona Drive 22 164 186 19 1987 5-40 yrs.
306 Pomona Drive 50 394 444 52 1987 5-40 yrs.
308 Pomona Drive 72 540 612 63 1987 5-40 yrs.
9 Dundas Circle 51 410 461 47 1986 5-40 yrs.
2616 Phoenix Drive 135 1,072 1,207 126 1985 5-40 yrs.
500 Radar Road 202 1,593 1,795 205 1981 5-40 yrs.
502 Radar Road 39 365 404 57 1986 5-40 yrs.
504 Radar Road 39 299 338 34 1986 5-40 yrs.
506 Radar Road 39 292 331 34 1986 5-40 yrs.
Regency One-Piedmont Center 515 2,923 3,438 404 1996 5-40 yrs.
Regency Two-Piedmont Center 435 2,368 2,803 439 1996 5-40 yrs.
Sears Cenfact 861 3,472 4,333 425 1989 5-40 yrs.
4000 Spring Garden Street 127 1,020 1,147 131 1983 5-40 yrs.
4002 Spring Garden Street 39 296 335 35 1983 5-40 yrs.
4004 Spring Garden Street 139 1,086 1,225 144 1983 5-40 yrs.
Airpark South Warehouse I 537 2,934 3,471 155 1998 5-40 yrs.
Airpark South Warehouse 2 733 2,548 3,281 35 1999 5-40 yrs.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- ----------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- -------------------------------------- ------------- -------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Airpark South Warehouse 4 -- 489 2,175 -- --
Airpark South Warehouse VI -- 1,690 3,915 -- --
RF Micro Devices -- 512 7,674 (512) (7,674)
Airpark West-1 (4) 954 3,817 -- 824
Airpark West-2 (4) 887 3,536 (3) 498
Airpark West-4 (4) 226 903 -- 132
Airpark West-5 (4) 242 966 -- 76
Airpark West-6 (4) 326 1,308 -- 128
7327 West Friendly Avenue -- 60 441 -- 7
7339 West Friendly Avenue -- 63 465 -- 27
7341 West Friendly Avenue -- 113 831 -- 123
7343 West Friendly Avenue -- 72 531 -- 24
7345 West Friendly Avenue -- 66 485 -- 17
7347 West Friendly Avenue -- 97 709 -- 61
7349 West Friendly Avenue -- 53 388 -- 14
7351 West Friendly Avenue -- 106 778 -- 28
7353 West Friendly Avenue -- 123 901 -- 12
7355 West Friendly Avenue -- 72 525 -- 7
150 Stratford -- 2,777 11,459 -- 404
Chesapeake (4) 1,236 4,944 -- 8
Forsyth Corporate Center (11) 326 1,850 -- 647
The Knollwood-370 (3) 1,819 7,451 -- 472
The Knollwood-380 (3) 2,977 11,912 -- 1,891
RMIC -- 1,091 5,525 -- 626
Robinhood -- 290 1,159 -- 115
101 Stratford -- 1,205 6,810 -- 306
Consolidated Center/ Building I -- 625 2,126 -- 56
Consolidated Center/ Building II -- 625 4,376 -- 138
Consolidated Center/ Building III -- 680 3,522 -- 51
Consolidated Center/ Building IV -- 376 1,624 -- 184
Champion Headquarters -- 1,725 6,280 -- 85
Grassy Creek - Building G -- 1,439 3,357 (1,439) (3,357)
Grassy Creek - Building H -- 1,606 3,748 (1,606) (3,748)
Grassy Creek - Building I -- 1,835 4,283 (1,835) (4,283)
Hampton Park - Building 5 -- 318 742 -- 145
Hampton Park - Building 6 -- 371 866 -- 6
Hampton Park - Building 7 -- 212 495 -- 3
Hampton Park - Building 8 -- 212 495 -- 65
Hampton Park - Building 9 -- 212 495 -- 3
5100 Indiana Avenue -- 490 1,143 -- 2
Members Warehouse -- 602 1,406 (602) (1,406)
Madison Park - Building 5610 -- 211 493 -- --
Madison Park - Building 5620 (10) 941 2,196 -- --
Madison Park - Building 5630 (10) 1,486 3,468 -- 13
Madison Park - Building 5635 (10) 893 2,083 -- --
Madison Park - Building 5640 (10) 3,632 8,476 -- 35
Madison Park - Building 5650 (10) 1,081 2,522 -- 1
Madison Park - Building 5660 (10) 1,910 4,456 -- 10
Madison Park - Building 5655 (10) 5,891 13,753 -- 22
711 Almondridge -- 301 702 -- 25
710 Almondridge -- 1,809 4,221 -- 109
500 Northridge -- 1,789 4,174 -- 2
520 Northridge -- 1,645 3,876 -- 345
531 Northridge Warehouse -- 4,992 11,648 -- 174
531 Northridge Office -- 766 1,788 -- 1
540 Northridge -- 2,038 4,755 -- 140
550 Northridge -- 472 1,102 -- 152
US Airways (11) 2,625 14,824 -- 209
University Commercial
Center-Landmark 03 -- 429 1,771 -- 170
University Commercial
Center-Archer 04 -- 514 2,058 -- 185
University Commercial Center-Service
Center 1 -- 276 1,155 -- 71
University Commercial Center-Service
Center 2 -- 215 859 -- 127
University Commercial Center-Service
Center 3 -- 167 668 -- 26
University Commercial
Center-Warehouse 1 -- 203 812 -- 8
University Commercial
Center-Warehouse 2 -- 196 786 -- 13
Westpoint Business Park-BMF (1) 795 3,181 -- 3
Westpoint Business
Park-Luwabahnson -- 346 1,384 -- 1
Westpoint Business Park-3 & 4 (1) 120 480 -- 38
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- -------------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Airpark South Warehouse 4 489 2,175 2,664 17 1999 5-40 yrs.
Airpark South Warehouse VI 1,690 3,915 5,605 96 1999 5-40 yrs.
RF Micro Devices -- -- -- -- 1997 5-40 yrs.
Airpark West-1 954 4,641 5,595 807 1984 5-40 yrs.
Airpark West-2 884 4,034 4,918 601 1985 5-40 yrs.
Airpark West-4 226 1,035 1,261 176 1985 5-40 yrs.
Airpark West-5 242 1,042 1,284 165 1985 5-40 yrs.
Airpark West-6 326 1,436 1,762 234 1985 5-40 yrs.
7327 West Friendly Avenue 60 448 508 50 1987 5-40 yrs.
7339 West Friendly Avenue 63 492 555 59 1989 5-40 yrs.
7341 West Friendly Avenue 113 954 1,067 120 1988 5-40 yrs.
7343 West Friendly Avenue 72 555 627 62 1988 5-40 yrs.
7345 West Friendly Avenue 66 502 568 61 1988 5-40 yrs.
7347 West Friendly Avenue 97 770 867 115 1988 5-40 yrs.
7349 West Friendly Avenue 53 402 455 52 1988 5-40 yrs.
7351 West Friendly Avenue 106 806 912 99 1988 5-40 yrs.
7353 West Friendly Avenue 123 913 1,036 102 1988 5-40 yrs.
7355 West Friendly Avenue 72 532 604 59 1988 5-40 yrs.
150 Stratford 2,777 11,863 14,640 1,504 1991 5-40 yrs.
Chesapeake 1,236 4,952 6,188 604 1993 5-40 yrs.
Forsyth Corporate Center 326 2,497 2,823 345 1985 5-40 yrs.
The Knollwood-370 1,819 7,923 9,742 1,088 1994 5-40 yrs.
The Knollwood-380 2,977 13,803 16,780 1,950 1990 5-40 yrs.
RMIC 1,091 6,151 7,242 510 1998 5-40 yrs.
Robinhood 290 1,274 1,564 191 1989 5-40 yrs.
101 Stratford 1,205 7,116 8,321 369 1986 5-40 yrs.
Consolidated Center/ Building I 625 2,182 2,807 116 1983 5-40 yrs.
Consolidated Center/ Building II 625 4,514 5,139 243 1983 5-40 yrs.
Consolidated Center/ Building III 680 3,573 4,253 190 1989 5-40 yrs.
Consolidated Center/ Building IV 376 1,808 2,184 119 1989 5-40 yrs.
Champion Headquarters 1,725 6,365 8,090 338 1993 5-40 yrs.
Grassy Creek - Building G -- -- -- -- 1984 5-40 yrs.
Grassy Creek - Building H -- -- -- -- 1985 5-40 yrs.
Grassy Creek - Building I -- -- -- -- 1986 5-40 yrs.
Hampton Park - Building 5 318 887 1,205 39 1981 5-40 yrs.
Hampton Park - Building 6 371 872 1,243 35 1980 5-40 yrs.
Hampton Park - Building 7 212 498 710 20 1983 5-40 yrs.
Hampton Park - Building 8 212 560 772 20 1984 5-40 yrs.
Hampton Park - Building 9 212 498 710 20 1985 5-40 yrs.
5100 Indiana Avenue 490 1,145 1,635 44 1982 5-40 yrs.
Members Warehouse -- -- -- -- 1986 5-40 yrs.
Madison Park - Building 5610 211 493 704 19 1988 5-40 yrs.
Madison Park - Building 5620 941 2,196 3,137 86 1983 5-40 yrs.
Madison Park - Building 5630 1,486 3,481 4,967 135 1983 5-40 yrs.
Madison Park - Building 5635 893 2,083 2,976 81 1986 5-40 yrs.
Madison Park - Building 5640 3,632 8,511 12,143 330 1985 5-40 yrs.
Madison Park - Building 5650 1,081 2,523 3,604 98 1984 5-40 yrs.
Madison Park - Building 5660 1,910 4,466 6,376 173 1984 5-40 yrs.
Madison Park - Building 5655 5,891 13,775 19,666 535 1987 5-40 yrs.
711 Almondridge 301 727 1,028 32 1988 5-40 yrs.
710 Almondridge 1,809 4,330 6,139 168 1989 5-40 yrs.
500 Northridge 1,789 4,176 5,965 166 1988 5-40 yrs.
520 Northridge 1,645 4,221 5,866 155 1988 5-40 yrs.
531 Northridge Warehouse 4,992 11,822 16,814 459 1989 5-40 yrs.
531 Northridge Office 766 1,789 2,555 70 1989 5-40 yrs.
540 Northridge 2,038 4,895 6,933 188 1987 5-40 yrs.
550 Northridge 472 1,254 1,726 67 1989 5-40 yrs.
US Airways 2,625 15,033 17,658 800 1970-1987 5-40 yrs.
University Commercial
Center-Landmark 03 429 1,941 2,370 252 1985 5-40 yrs.
University Commercial
Center-Archer 04 514 2,243 2,757 314 1986 5-40 yrs.
University Commercial Center-Service
Center 1 276 1,226 1,502 174 1983 5-40 yrs.
University Commercial Center-Service
Center 2 215 986 1,201 155 1983 5-40 yrs.
University Commercial Center-Service
Center 3 167 694 861 86 1984 5-40 yrs.
University Commercial
Center-Warehouse 1 203 820 1,023 100 1983 5-40 yrs.
University Commercial
Center-Warehouse 2 196 799 995 97 1983 5-40 yrs.
Westpoint Business Park-BMF 795 3,184 3,979 388 1986 5-40 yrs.
Westpoint Business
Park-Luwabahnson 346 1,385 1,731 169 1990 5-40 yrs.
Westpoint Business Park-3 & 4 120 518 638 63 1988 5-40 yrs.
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------------------- --------------- -------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Westpoint Business Park -- 1,759 --(14) (420) 1
Westpoint Business Park-Wp 11 (1) 393 1,570 -- 65
Westpoint Business Park-Wp 12 (1) 382 1,531 -- 44
Westpoint Business Park-Wp 13 (1) 297 1,192 -- 41
Westpoint Business Park-Fairchild -- 640 2,577 -- 26
Westpoint Business Park-Warehouse5 -- 178 590 -- 336
Greenville, SC
385 Land -- 1,800 -- -- --
Nationsbank Plaza -- 642 9,349 -- 1,867
Brookfield Plaza (11) 1,489 8,437 -- 328
Brookfield-CRS Sirrine -- 3,022 17,125 -- --
Brookfield-YMCA -- 33 189 -- 16
385 Building 1 -- 1,413 1,401 -- 2,778
Patewood I -- 942 5,016 -- 71
Patewood II -- 942 5,018 -- 115
Patewood III (11) 835 4,733 -- 151
Patewood IV (11) 1,210 6,856 -- 4
Patewood V (11) 1,677 9,503 -- 65
Patewood VI -- 2,375 9,643 -- --
769 Pelham Road -- 705 2,778 -- 10
Patewood Business Center -- 1,312 7,436 -- 169
Jacksonville, FL
9A Land -- 3,915 -- -- --
Belfort Park I -- 1,322 4,285 83 218
Belfort Park II -- 831 5,066 52 413
Belfort Park III -- 647 4,063 41 747
Belfort Park VI -- -- -- 484 --
Belfort Park VII -- -- -- 1,560 --
CIGNA Building -- 381 1,592 24 214
Harry James Building -- 272 1,360 17 280
Independent Square -- 3,985 44,633 250 13,667
Three Oaks Plaza -- 1,630 14,036 102 835
Reflections 6,520 958 9,877 60 544
Southpoint Building -- 594 3,987 37 231
SWD Land Annex -- -- -- 1 5
Highwoods Center -- 1,143 6,476 -- 83
Life of the South Building -- 184 4,750 12 563
Tallahasse, FL
Blair Stone Building -- 1,550 32,988 -- 1,170
215 South Monroe St. Building -- 1,950 17,853 4 497
Shawnee Mission, KS
Corinth Square North Shops (6) 2,693 10,772 -- 410
Corinth Shops South (6) 1,043 4,172 -- 52
Fairway Shops 2,710 673 2,694 -- 179
Georgetown Marketplace -- 1,399 5,598 (1,399) (5,598)
Prairie Village Shops 11,229 3,289 13,157 -- 1,172
Shannon Valley Shopping Center 6,427 1,669 6,678 -- 1,252
Trailwood III Shops 783 223 893 -- 55
Trailwood Shops -- 458 1,831 -- 72
Valencia Place -- -- 2,245 -- --
Westwood Shops -- 113 453 -- 4
Brymar Building -- 329 1,317 -- 22
Corinth Executive Square -- 514 2,054 -- 490
Corinth Ofice Building 868 529 2,116 -- 52
Fairway North Building 4,500 753 3,013 -- 163
Fairway West Building 4,775 851 3,402 -- 226
Hartford Office Building -- 568 2,271 -- 138
Land - Kansas -- 28,275 121 (371) --
Nichols Building 920 490 1,959 -- 99
Oak Park Building -- 368 1,470 -- 159
Prairie Village Office Center -- 749 2,997 -- 159
OUIVIRA Business Park A -- 191 447 -- 21
QUIVIRA Business Park B -- 179 417 -- 14
QUIVIRA Business Park C -- 189 440 -- 8
QUIVIRA Business Park D -- 154 360 -- 9
QUIVIRA Business Park E -- 251 586 -- 8
QUIVIRA Business Park F -- 171 400 -- 28
QUIVIRA Business Park G -- 205 477 -- --
QUIVIRA Business Park H -- 175 407 -- --
QUIVIRA Business Park J -- 360 839 -- 37
QUIVIRA Business Park L -- 98 222 -- 6
QUIVIRA Business Park K -- 95 222 -- --
QUIVIRA Business Park SWB -- 257 600 -- 542
Kansas City, MO
48th & Penn (9) 418 3,765 -- 732
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ------------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Westpoint Business Park 1,339 1 1,340 -- N/A N/A
Westpoint Business Park-Wp 11 393 1,635 2,028 211 1988 5-40 yrs.
Westpoint Business Park-Wp 12 382 1,575 1,957 192 1988 5-40 yrs.
Westpoint Business Park-Wp 13 297 1,233 1,530 150 1988 5-40 yrs.
Westpoint Business Park-Fairchild 640 2,603 3,243 314 1990 5-40 yrs.
Westpoint Business Park-Warehouse5 178 926 1,104 224 1995 5-40 yrs.
Greenville, SC
385 Land 1,800 -- 1,800 -- N/A N/A
Nationsbank Plaza 642 11,216 11,858 820 1973 5-40 yrs.
Brookfield Plaza 1,489 8,765 10,254 840 1987 5-40 yrs.
Brookfield-CRS Sirrine 3,022 17,125 20,147 1,421 1990 5-40 yrs.
Brookfield-YMCA 33 205 238 26 1990 5-40 yrs.
385 Building 1 1,413 4,179 5,592 348 1998 5-40 yrs.
Patewood I 942 5,087 6,029 368 1985 5-40 yrs.
Patewood II 942 5,133 6,075 386 1987 5-40 yrs.
Patewood III 835 4,884 5,719 506 1989 5-40 yrs.
Patewood IV 1,210 6,860 8,070 569 1989 5-40 yrs.
Patewood V 1,677 9,568 11,245 789 1990 5-40 yrs.
Patewood VI 2,375 9,643 12,018 591 1999 5-40 yrs.
769 Pelham Road 705 2,788 3,493 132 1989 5-40 yrs.
Patewood Business Center 1,312 7,605 8,917 650 1983 5-40 yrs.
Jacksonville, FL
9A Land 3,915 -- 3,915 -- N/A N/A
Belfort Park I 1,405 4,503 5,908 280 1988 5-40 yrs.
Belfort Park II 883 5,479 6,362 363 1988 5-40 yrs.
Belfort Park III 688 4,810 5,498 369 1988 5-40 yrs.
Belfort Park VI 484 -- 484 -- N/A N/A
Belfort Park VII 1,560 -- 1,560 -- N/A N/A
CIGNA Building 405 1,806 2,211 113 1972 5-40 yrs.
Harry James Building 289 1,640 1,929 110 1982 5-40 yrs.
Independent Square 4,235 58,300 62,535 3,355 1975 5-40 yrs.
Three Oaks Plaza 1,732 14,871 16,603 921 1972 5-40 yrs.
Reflections 1,018 10,421 11,439 615 1985 5-40 yrs.
Southpoint Building 631 4,218 4,849 239 1980 5-40 yrs.
SWD Land Annex 1 5 6 1 N/A N/A
Highwoods Center 1,143 6,559 7,702 549 1991 5-40 yrs.
Life of the South Building 196 5,313 5,509 337 1964 5-40 yrs.
Tallahasse, FL
Blair Stone Building 1,550 34,158 35,708 1,855 1994 5-40 yrs.
215 South Monroe St. Building 1,954 18,350 20,304 850 1976 5-40 yrs.
Shawnee Mission, KS
Corinth Square North Shops 2,693 11,182 13,875 412 1962 5-40 yrs.
Corinth Shops South 1,043 4,224 5,267 159 1953 5-40 yrs.
Fairway Shops 673 2,873 3,546 125 1940 5-40 yrs.
Georgetown Marketplace -- -- -- -- 1974 5-40 yrs.
Prairie Village Shops 3,289 14,329 17,618 572 1948 5-40 yrs.
Shannon Valley Shopping Center 1,669 7,930 9,599 356 1988 5-40 yrs.
Trailwood III Shops 223 948 1,171 38 1986 5-40 yrs.
Trailwood Shops 458 1,903 2,361 73 1968 5-40 yrs.
Valencia Place -- 2,245 2,245 -- 1999 5-40 yrs.
Westwood Shops 113 457 570 17 1926 5-40 yrs.
Brymar Building 329 1,339 1,668 54 1968 5-40 yrs.
Corinth Executive Square 514 2,544 3,058 112 1973 5-40 yrs.
Corinth Ofice Building 529 2,168 2,697 79 1960 5-40 yrs.
Fairway North Building 753 3,176 3,929 142 1985 5-40 yrs.
Fairway West Building 851 3,628 4,479 168 1983 5-40 yrs.
Hartford Office Building 568 2,409 2,977 98 1978 5-40 yrs.
Land - Kansas 27,904 121 28,025 4 N/A N/A
Nichols Building 490 2,058 2,548 80 1978 5-40 yrs.
Oak Park Building 368 1,629 1,997 60 1976 5-40 yrs.
Prairie Village Office Center 749 3,156 3,905 129 1960 5-40 yrs.
OUIVIRA Business Park A 191 468 659 19 1975 5-40 yrs.
QUIVIRA Business Park B 179 431 610 17 1973 5-40 yrs.
QUIVIRA Business Park C 189 448 637 17 1973 5-40 yrs.
QUIVIRA Business Park D 154 369 523 13 1973 5-40 yrs.
QUIVIRA Business Park E 251 594 845 21 1973 5-40 yrs.
QUIVIRA Business Park F 171 428 599 15 1973 5-40 yrs.
QUIVIRA Business Park G 205 477 682 18 1973 5-40 yrs.
QUIVIRA Business Park H 175 407 582 25 1973 5-40 yrs.
QUIVIRA Business Park J 360 876 1,236 42 1973 5-40 yrs.
QUIVIRA Business Park L 98 228 326 11 1985 5-40 yrs.
QUIVIRA Business Park K 95 222 317 11 1985 5-40 yrs.
QUIVIRA Business Park SWB 257 1,142 1,399 52 1973 5-40 yrs.
Kansas City, MO
48th & Penn 418 4,497 4,915 227 1948 5-40 yrs.
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ----------------------------------- --------------- -------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balcony Retail (9) 889 8,002 -- 2,311
Brookside Shopping Center 3,898 2,002 8,602 154 717
Court of the Penguins (9) 566 5,091 -- 411
Colonial Shops -- 138 550 -- 76
Crestwood Shops -- 253 1,013 -- 52
Esplanade (9) 748 6,734 -- 863
Land Under Ground Leases Retail -- 9,789 114(18) (5,781) --
Halls Block (9) 275 2,478 -- 2,541
Kenilworth -- 113 452 -- 31
Macy's Block (9) 504 4,536 -- 333
Millcreek Retail (9) 602 5,422 -- 1,549
Nichols Block Retail (9) 600 5,402 -- 370
96th & Nall Shops -- 99 397 -- 18
Plaza Central (9) 405 3,649 -- 1,193
Plaza Savings South (9) 357 3,211 -- 1,147
Romanelli Annex Shops -- 24 97 -- --
Red Bridge Shops -- 1,091 4,364 -- 1,048
Romanelli Shops -- 219 875 -- 151
Seville Shops West (9) 300 2,696 -- 9,205
Seville Square -- -- 20,973 -- --
Swanson Block (9) 949 8,537 -- 898
Theater Block (9) 1,197 10,769 -- 3,496
Time Block Retail (9) 1,292 11,627 -- 3,063
Triangle (9) 308 2,771 -- 460
Cole Garden Apartments -- 22 122 (22) (122)
Corinth Gardens -- 283 1,603 -- 77
Coach House North 8,000 1,604 9,092 -- 182
Coach House South 20,000 3,707 21,008 -- 246
Coach Lamp -- 870 4,929 -- 158
Corinth Paddock -- 1,050 5,949 -- 171
Corinth Place 4,500 639 3,623 -- 53
Rental Houses -- -- -- -- --
Kenilworth 7,153 2,160 12,240 -- 342
Kirkwood Circle -- 3,000 -- -- --
Mission Valley 1,053 576 3,266 -- 76
Neptune 4,447 1,073 6,079 -- 151
Parklane -- 273 1,548 -- 23
Penn Wick Apartments -- 31 175 (31) (175)
Regency House 4,183 1,853 10,500 -- 1,124
St. Charles Apartments -- -- -- -- --
Sulgrave 7,768 2,621 14,855 -- 1,088
Tama Apartments -- 16 93 (16) (93)
Wornall Road Apartments -- 30 171 -- --
4900 Main Building -- -- 12,809 -- 165
63rd & Brookside Building -- 71 283 -- 7
Balcony Office (9) 65 585 -- 85
Bannister Business Center 1,106 306 713 -- 174
Challenger Inc. 19,000 -- -- -- --
Esplanade Block Office (9) 375 3,374 -- 261
Marley Continental Homes of KS -- 180 1,620 -- --
Millcreek Office (9) 79 717 -- 146
Land - Missouri -- 3,794 188 (434) --
Nichols Block Office (9) 74 668 -- 62
One Ward Parkway -- 666 2,663 -- 240
Plaza Land Company -- 50 -- (50) --
Park Plaza Building (9) 1,352 5,409 27 1,848
Parkway Building -- 395 1,578 -- 168
Romanelli Annex Office Building -- 73 294 -- 8
Red Bridge Professional Building -- 405 1,621 -- 133
Two Brush Creek Plaza -- 961 3,845 -- 175
Theatre Block Office (9) 242 2,179 -- --
Time Block Office (9) 199 1,792 -- 248
Memphis, TN
Atrium I & II -- 1,530 6,121 40 258
Centrum -- 1,013 5,488 -- 248
Colonnade -- 1,300 7,994 -- --
Hickory Hill Medical Plaza -- 398 2,256 -- 8
3400 Players Club Parkway (11) 1,005 5,515 -- --
International Place Phase II -- 4,847 27,469 -- 1,140
Kirby Centre -- 525 2,973 -- 114
International Place Phase III -- 2,566 -- -- --
Southwind Office Center "A" -- 996 5,643 -- 239
Southwind Office Center "B" -- 1,356 7,684 -- 312
Southwind Office Center "D" -- 744 6,232 -- --
Southwind Office Center "C" (11) 1,070 5,924 -- --
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ----------------------------------- -------- -------------- -------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balcony Retail 889 10,313 11,202 382 1925 5-40 yrs.
Brookside Shopping Center 2,156 9,319 11,475 338 1919 5-40 yrs.
Court of the Penguins 566 5,502 6,068 263 1945 5-40 yrs.
Colonial Shops 138 626 764 26 1907 5-40 yrs.
Crestwood Shops 253 1,065 1,318 41 1932 5-40 yrs.
Esplanade 748 7,597 8,345 324 1928 5-40 yrs.
Land Under Ground Leases Retail 4,008 114 4,122 4 N/A N/A
Halls Block 275 5,019 5,294 117 1964 5-40 yrs.
Kenilworth 113 483 596 18 1965 5-40 yrs.
Macy's Block 504 4,869 5,373 215 1926 5-40 yrs.
Millcreek Retail 602 6,971 7,573 296 1920 5-40 yrs.
Nichols Block Retail 600 5,772 6,372 256 1930 5-40 yrs.
96th & Nall Shops 99 415 514 16 1976 5-40 yrs.
Plaza Central 405 4,842 5,247 195 1958 5-40 yrs.
Plaza Savings South 357 4,358 4,715 155 1948 5-40 yrs.
Romanelli Annex Shops 24 97 121 4 1963 5-40 yrs.
Red Bridge Shops 1,091 5,412 6,503 171 1959 5-40 yrs.
Romanelli Shops 219 1,026 1,245 48 1925 5-40 yrs.
Seville Shops West 300 11,901 12,201 270 1999 5-40 yrs.
Seville Square -- 20,973 20,973 281 1999 5-40 yrs.
Swanson Block 949 9,435 10,384 406 1967 5-40 yrs.
Theater Block 1,197 14,265 15,462 523 1928 5-40 yrs.
Time Block Retail 1,292 14,690 15,982 559 1929 5-40 yrs.
Triangle 308 3,231 3,539 143 1925 5-40 yrs.
Cole Garden Apartments -- -- -- -- 1960 5-40 yrs.
Corinth Gardens 283 1,680 1,963 63 1961 5-40 yrs.
Coach House North 1,604 9,274 10,878 345 1986 5-40 yrs.
Coach House South 3,707 21,254 24,961 780 1984 5-40 yrs.
Coach Lamp 870 5,087 5,957 187 1961 5-40 yrs.
Corinth Paddock 1,050 6,120 7,170 227 1973 5-40 yrs.
Corinth Place 639 3,676 4,315 135 1987 5-40 yrs.
Rental Houses -- -- -- -- N/A 5-40 yrs.
Kenilworth 2,160 12,582 14,742 466 1965 5-40 yrs.
Kirkwood Circle 3,000 -- 3,000 -- N/A N/A
Mission Valley 576 3,342 3,918 123 1964 5-40 yrs.
Neptune 1,073 6,230 7,303 227 1988 5-40 yrs.
Parklane 273 1,571 1,844 58 1924 5-40 yrs.
Penn Wick Apartments -- -- -- -- 1965 5-40 yrs.
Regency House 1,853 11,624 13,477 479 1960 5-40 yrs.
St. Charles Apartments -- -- -- -- 1922 5-40 yrs.
Sulgrave 2,621 15,943 18,564 603 1967 5-40 yrs.
Tama Apartments -- -- -- -- 1965 5-40 yrs.
Wornall Road Apartments 30 171 201 6 1918 5-40 yrs.
4900 Main Building -- 12,974 12,974 506 1986 5-40 yrs.
63rd & Brookside Building 71 290 361 11 1919 5-40 yrs.
Balcony Office 65 670 735 22 1928 5-40 yrs.
Bannister Business Center 306 887 1,193 51 1985 5-40 yrs.
Challenger Inc. -- -- -- -- N/A N/A
Esplanade Block Office 375 3,635 4,010 129 1945 5-40 yrs.
Marley Continental Homes of KS 180 1,620 1,800 59 N/A 5-40 yrs.
Millcreek Office 79 863 942 28 1925 5-40 yrs.
Land - Missouri 3,360 188 3,548 7 N/A 5-40 yrs.
Nichols Block Office 74 730 804 32 1938 5-40 yrs.
One Ward Parkway 666 2,903 3,569 166 1980 5-40 yrs.
Plaza Land Company -- -- -- -- N/A N/A
Park Plaza Building 1,379 7,257 8,636 294 1983 5-40 yrs.
Parkway Building 395 1,746 2,141 95 1906-1910 5-40 yrs.
Romanelli Annex Office Building 73 302 375 11 1963 5-40 yrs.
Red Bridge Professional Building 405 1,754 2,159 76 1972 5-40 yrs.
Two Brush Creek Plaza 961 4,020 4,981 176 1983 5-40 yrs.
Theatre Block Office 242 2,179 2,421 80 1928 5-40 yrs.
Time Block Office 199 2,040 2,239 78 1945 5-40 yrs.
Memphis, TN
Atrium I & II 1,570 6,379 7,949 479 1984 5-40 yrs.
Centrum 1,013 5,736 6,749 355 1979 5-40 yrs.
Colonnade 1,300 7,994 9,294 574 1998 5-40 yrs.
Hickory Hill Medical Plaza 398 2,264 2,662 187 1988 5-40 yrs.
3400 Players Club Parkway 1,005 5,515 6,520 628 1997 5-40 yrs.
International Place Phase II 4,847 28,609 33,456 2,619 1988 5-40 yrs.
Kirby Centre 525 3,087 3,612 256 1984 5-40 yrs.
International Place Phase III 2,566 -- 2,566 -- N/A N/A
Southwind Office Center "A" 996 5,882 6,878 494 1991 5-40 yrs.
Southwind Office Center "B" 1,356 7,996 9,352 701 1990 5-40 yrs.
Southwind Office Center "D" 744 6,232 6,976 59 1999 5-40 yrs.
Southwind Office Center "C" 1,070 5,924 6,994 155 1998 5-40 yrs.
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
--------------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- ------------- -------- ------------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Norfolk, VA
Battlefield Business Center II -- 774 4,387 -- 146
Greenbriar Business Center -- 936 5,305 -- 56
Hampton Center Two -- 945 6,567 -- --
Riverside II -- 2 9,148 -- --
Riverside Building -- 1,495 5,963 (1,495) (5,963)
Nashville, TN
3322 West End -- 3,021 27,266 -- --
3401 Westend -- 6,103 23,343 84 2,104
5310 Maryland Way -- 1,923 7,360 20 152
Ayers Land -- 1,164 -- -- --
Southpointe -- 1,655 9,059 -- --
BNA Corporate Center 11,265 -- 22,588 -- 1,552
Caterpillar Financial Center -- -- 2,964 -- --
Century City Plaza I -- 903 3,612 -- 388
Cool Springs - Building II -- 10,225 -- -- --
Cool Springs I -- 1,983 13,854 -- --
Eastpark 1, 2, 3 3,801 3,137 11,842 (133) 716
Grassmere -- 1,779 --(19) (348) --
Grassmere I -- 1,251 7,091 350 1,062
Grassmere II -- 2,260 12,804 -- 371
Grassmere III -- 1,340 7,592 -- 5
Highwoods Plaza I -- 1,772 9,029 -- --
Highwoods Plaza II -- 1,448 6,948 -- 1,239
Harpeth on The Green II -- 1,419 5,677 1 392
Harpeth on the Green III -- 1,658 6,633 2 362
Harpeth on the Green IV -- 1,709 6,835 5 640
Harpeth on the Green V -- 662 5,771 -- --
Lakeview Ridge -- 2,179 7,545 29 179
Lakeview Ridge II -- 605 5,883 -- (41)
Lakeview Ridge III -- 1,073 9,708 -- --
Ridge Development -- 1,960 --(20) (1,960) --
The Sparrow Building -- 1,262 5,047 -- 150
Grassmere/Thousdale Land -- 760 -- -- --
Winners Circle -- 1,495 7,072 2 223
Westwood South -- 2,106 10,517 -- --
Orlando, FL
Sunport Center -- 1,505 9,777 -- 107
Oakridge Center -- 4,700 18,761 -- 805
Corporate Square -- 900 1,717 (900) (1,717)
Executive Point Towers -- 2,200 7,230 (2,200) (7,230)
Sandlake Southwest 3,439 1,025 4,049 -- 22
Lakeview Office Park -- 5,400 13,994 (5,400) (13,994)
2699 Lee Road Building -- 1,500 6,003 (1,500) (6,003)
Lake Mary Land -- 2,788 -- -- --
MetroWest Center -- 1,344 7,618 -- 197
Landmark I -- 6,785 28,243 -- 602
Landmark II -- 6,785 28,206 -- 127
C N A Maitland I -- 1,858 16,129 (1,858) (15,817)
Maitland Building B -- 1,115 8,121 -- --
C N A Maitland II -- 743 2,639 (743) (2,636)
Hard Rock Caf- -- 1,305 3,570 (1,305) (2,409)
Metro West Land -- 5,505 -- -- --
One Winter Park -- 1,000 3,652 (1,000) (3,652)
The Palladium -- 1,400 5,500 (1,400) (5,500)
201 Pine Street Building -- 4,400 29,836 -- 1,424
Capital Plaza -- -- -- -- 14
Capital Plaza III -- -- -- 2,970 --
Pine Street Parking -- 1,030 8,087 -- --
Premier Point North -- 800 3,037 (800) (3,037)
Premier Point South -- 600 3,404 (600) (3,404)
Interlachen Village 2,055 1,100 2,689 -- 47
Signature Plaza -- 4,300 30,294 2 2,348
Skyline Center -- 700 2,748 (700) (2,748)
Southwest Corporate Center -- 991 5,613 (991) (5,613)
Research Triangle, NC
Blue Ridge II -- 463 1,485 -- --
Blue Ridge I -- 722 4,538 -- 1,051
3404 North Duke Street -- 879 3,522 (879) (3,518)
Fairfield II -- 910 3,647 (910) (3,647)
3600 Glenwood Avenue -- -- 10,994 -- --
3645 Trust Drive - One North
Commerce Center -- 520 2,949 268 441
3737 Glenwood Ave. -- -- 15,889 -- --
4020 North Roxboro Road -- 675 2,708 (675) (2,708)
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- --------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norfolk, VA
Battlefield Business Center II 774 4,533 5,307 364 1987 5-40 yrs.
Greenbriar Business Center 936 5,361 6,297 448 1984 5-40 yrs.
Hampton Center Two 945 6,567 7,512 102 1999 5-40 yrs.
Riverside II 2 9,148 9,150 213 1999 5-40 yrs.
Riverside Building -- -- -- -- 1988 5-40 yrs.
Nashville, TN
3322 West End 3,021 27,266 30,287 143 1986 5-40 yrs.
3401 Westend 6,187 25,447 31,634 2,608 1982 5-40 yrs.
5310 Maryland Way 1,943 7,512 9,455 672 1994 5-40 yrs.
Ayers Land 1,164 -- 1,164 -- N/A N/A
Southpointe 1,655 9,059 10,714 655 1998 5-40 yrs.
BNA Corporate Center -- 24,140 24,140 2,338 1985 5-40 yrs.
Caterpillar Financial Center -- 2,964 2,964 -- 1999 5-40 yrs.
Century City Plaza I 903 4,000 4,903 465 1987 5-40 yrs.
Cool Springs - Building II 10,225 -- 10,225 -- N/A N/A
Cool Springs I 1,983 13,854 15,837 608 1999 5-40 yrs.
Eastpark 1, 2, 3 3,004 12,558 15,562 1,370 1978 5-40 yrs.
Grassmere 1,431 -- 1,431 -- N/A N/A
Grassmere I 1,601 8,153 9,754 708 1984 5-40 yrs.
Grassmere II 2,260 13,175 15,435 1,181 1985 5-40 yrs.
Grassmere III 1,340 7,597 8,937 631 1990 5-40 yrs.
Highwoods Plaza I 1,772 9,029 10,801 1,283 1996 5-40 yrs.
Highwoods Plaza II 1,448 8,187 9,635 1,034 1997 5-40 yrs.
Harpeth on The Green II 1,420 6,069 7,489 558 1984 5-40 yrs.
Harpeth on the Green III 1,660 6,995 8,655 605 1987 5-40 yrs.
Harpeth on the Green IV 1,714 7,475 9,189 684 1989 5-40 yrs.
Harpeth on the Green V 662 5,771 6,433 493 1998 5-40 yrs.
Lakeview Ridge 2,208 7,724 9,932 693 1986 5-40 yrs.
Lakeview Ridge II 605 5,842 6,447 450 1998 5-40 yrs.
Lakeview Ridge III 1,073 9,708 10,781 216 1999 5-40 yrs.
Ridge Development -- -- -- -- N/A N/A
The Sparrow Building 1,262 5,197 6,459 425 1982 5-40 yrs.
Grassmere/Thousdale Land 760 -- 760 -- N/A N/A
Winners Circle 1,497 7,295 8,792 411 1987 5-40 yrs.
Westwood South 2,106 10,517 12,623 112 1999 5-40 yrs.
Orlando, FL
Sunport Center 1,505 9,884 11,389 551 1990 5-40 yrs.
Oakridge Center 4,700 19,566 24,266 1,096 1966-1992 5-40 yrs.
Corporate Square -- -- -- -- 1971 5-40 yrs.
Executive Point Towers -- -- -- -- 1978 5-40 yrs.
Sandlake Southwest 1,025 4,071 5,096 157 1986 5-40 yrs.
Lakeview Office Park -- -- -- -- 1975 5-40 yrs.
2699 Lee Road Building -- -- -- -- 1974 5-40 yrs.
Lake Mary Land 2,788 -- 2,788 -- N/A N/A
MetroWest Center 1,344 7,815 9,159 677 1988 5-40 yrs.
Landmark I 6,785 28,845 35,630 1,427 1983 5-40 yrs.
Landmark II 6,785 28,333 35,118 1,357 1985 5-40 yrs.
C N A Maitland I -- 312 312 -- 1998 5-40 yrs.
Maitland Building B 1,115 8,121 9,236 58 1999 5-40 yrs.
C N A Maitland II -- 3 3 -- 1998 5-40 yrs.
Hard Rock Caf- -- 1,161 1,161 -- 1998 5-40 yrs.
Metro West Land 5,505 -- 5,505 -- N/A N/A
One Winter Park -- -- -- -- 1982 5-40 yrs.
The Palladium -- -- -- -- 1988 5-40 yrs.
201 Pine Street Building 4,400 31,260 35,660 1,863 1980 5-40 yrs.
Capital Plaza -- 14 14 -- N/A 5-40 yrs.
Capital Plaza III 2,970 -- 2,970 -- 1999 5-40 yrs.
Pine Street Parking 1,030 8,087 9,117 141 1999 5-40 yrs.
Premier Point North -- -- -- -- 1983 5-40 yrs.
Premier Point South -- -- -- -- 1983 5-40 yrs.
Interlachen Village 1,100 2,736 3,836 163 1987 5-40 yrs.
Signature Plaza 4,302 32,642 36,944 2,046 1986 5-40 yrs.
Skyline Center -- -- -- -- 1985 5-40 yrs.
Southwest Corporate Center -- -- -- -- 1984 5-40 yrs.
Research Triangle, NC
Blue Ridge II 463 1,485 1,948 482 1988 5-40 yrs.
Blue Ridge I 722 5,589 6,311 907 1982 5-40 yrs.
3404 North Duke Street -- 4 4 -- 1985 5-40 yrs.
Fairfield II -- -- -- -- 1989 5-40 yrs.
3600 Glenwood Avenue -- 10,994 10,994 767 1986 5-40 yrs.
3645 Trust Drive - One North
Commerce Center 788 3,390 4,178 271 1984 5-40 yrs.
3737 Glenwood Ave. -- 15,889 15,889 95 1999 5-40 yrs.
4020 North Roxboro Road -- -- -- -- 1989 5-40 yrs.
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
-------------------------- ----------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ------------------------------------ ------------- ------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
4101 North Roxboro Road -- 1,059 4,243 (1,059) (4,223)
Fairfield I -- 805 3,227 (805) (3,227)
4101 Research Commons -- 1,349 6,928 -- --
4201 Research Commons -- 1,204 7,715 -- 2,423
4301 Research Commons -- 900 7,425 -- 708
4401 Research Commons -- 1,249 8,929 -- 4,973
4501 Research Commons -- 785 4,448 -- 1,235
4800 North Park -- 2,678 17,673 -- 332
4900 North Park 1,389 770 1,989 -- 275
5000 North Park (11) 1,010 4,697 -- 1,134
5200 Green's Dairy - One North
Commerce Center -- 169 959 -- 205
5220 Green's Dairy - One North
Commerce Center -- 382 2,165 -- 107
5301 Departure Drive -- 882 5,000 -- 6
4000 Aerial Center -- 541 2,163 (541) (2,163)
Amica -- 289 1,517 -- 80
Arrowwood -- 955 3,406 -- 633
Aspen -- 560 2,088 -- 453
Birchwood -- 201 907 -- 53
BTI -- -- 15,504 -- 3,897
BTI Houses -- 250 250 -- --
Capital Center -- 851 --(15) (474) --
Cedar East -- 563 2,491 -- 330
Cedar West -- 563 2,475 -- 623
Clintrials Land Parcel 2 -- 657 -- -- --
Clintrials Land Parcel 3 -- 548 -- -- --
Clintrials Research -- 2,497 12,798 (2,497) (12,798)
Colony Corporate Center -- 613 3,296 -- 696
Concourse -- 986 12,069 -- 1,779
Cape Fear -- 131 -- -- 2,627
Creekstone Crossing -- 728 3,841 -- 100
Cotton -- 460 1,844 (460) (1,844)
Catawba -- 125 1,635 -- 293
Cottonwood -- 609 3,253 -- 8
Cypress -- 567 1,729 -- 288
Dogwood -- 766 2,777 -- 23
EPA Annex -- 2,601 10,920 -- 109
Expressway Warehouse -- 242 -- 4 1,929
Global Software (11) 465 7,471 -- --
Hawthorn -- 904 3,782 -- 238
Highwoods Health Club -- 142 524 -- 2,516
Holiday Inn Reservations Center -- 867 2,735 -- 136
Holly -- 300 1,144 -- 45
Healthsource -- 1,294 10,593 10 1,696
Highwoods Tower One (11) 203 16,914 -- 547
Highwoods Centre -- 532 7,902 -- --
Ironwood -- 319 1,276 -- 364
Kaiser -- 133 3,625 -- 759
Laurel -- 884 2,524 -- 449
Lake Plaza East -- 856 4,893 -- 696
Highwoods Office Center North -- 1,103 49(16) (746) --
Highwoods Office Center South -- 2,518 -- -- --
Leatherwood -- 213 851 -- 445
Martin Land -- -- -- 3,361 --
A4 Health Systems -- 717 3,418 -- 1,300
Creekstone Park -- 796 --(17) (647) --
Northpark I -- 405 -- 93 3,782
North Park - Land -- 962 -- 510 --
Phase I - One North Commerce
Center -- 768 4,353 -- 330
\`W' Building - One North Commerce
Center -- 1,163 6,592 -- 1,484
Overlook -- 398 10,401 -- --
Pamlico/Roanoke -- 269 -- 20 11,087
Phoenix -- 394 2,019 (394) (2,019)
Raleigh Corp Center Lot D -- -- -- 2,039 --
Red Oak at Highwoods -- 389 6,086 -- --
Rexwoods Center I (4) 775 -- 103 3,701
Rexwoods II -- 355 -- 7 1,851
Rexwoods III -- 886 -- 34 2,920
Rexwoods IV -- 586 -- -- 3,640
Rexwoods V -- 1,301 5,979 -- --
Riverbirch (11) 448 -- 21 4,506
Situs I (11) 693 2,917 (1) 1,480
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ------------------------------------ -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
4101 North Roxboro Road -- 20 20 -- 1984 5-40 yrs.
Fairfield I -- -- -- -- 1987 5-40 yrs.
4101 Research Commons 1,349 6,928 8,277 49 1999 5-40 yrs.
4201 Research Commons 1,204 10,138 11,342 2,601 1991 5-40 yrs.
4301 Research Commons 900 8,133 9,033 959 1989 5-40 yrs.
4401 Research Commons 1,249 13,902 15,151 3,817 1987 5-40 yrs.
4501 Research Commons 785 5,683 6,468 1,008 1985 5-40 yrs.
4800 North Park 2,678 18,005 20,683 2,555 1985 5-40 yrs.
4900 North Park 770 2,264 3,034 387 1984 5-40 yrs.
5000 North Park 1,010 5,831 6,841 1,186 1980 5-40 yrs.
5200 Green's Dairy - One North
Commerce Center 169 1,164 1,333 93 1984 5-40 yrs.
5220 Green's Dairy - One North
Commerce Center 382 2,272 2,654 211 1984 5-40 yrs.
5301 Departure Drive 882 5,006 5,888 416 1984 5-40 yrs.
4000 Aerial Center -- -- -- -- 1992 5-40 yrs.
Amica 289 1,597 1,886 282 1983 5-40 yrs.
Arrowwood 955 4,039 4,994 684 1979 5-40 yrs.
Aspen 560 2,541 3,101 437 1980 5-40 yrs.
Birchwood 201 960 1,161 159 1983 5-40 yrs.
BTI -- 19,401 19,401 786 1995 5-40 yrs.
BTI Houses 250 250 500 8 N/A 5-40 yrs.
Capital Center 377 -- 377 -- N/A N/A
Cedar East 563 2,821 3,384 488 1981 5-40 yrs.
Cedar West 563 3,098 3,661 631 1981 5-40 yrs.
Clintrials Land Parcel 2 657 -- 657 -- N/A N/A
Clintrials Land Parcel 3 548 -- 548 -- N/A N/A
Clintrials Research -- -- -- -- 1998 5-40 yrs.
Colony Corporate Center 613 3,992 4,605 700 1985 5-40 yrs.
Concourse 986 13,848 14,834 1,981 1986 5-40 yrs.
Cape Fear 131 2,627 2,758 1,624 1979 5-40 yrs.
Creekstone Crossing 728 3,941 4,669 475 1990 5-40 yrs.
Cotton -- -- -- -- 1972 5-40 yrs.
Catawba 125 1,928 2,053 1,156 1980 5-40 yrs.
Cottonwood 609 3,261 3,870 465 1983 5-40 yrs.
Cypress 567 2,017 2,584 347 1980 5-40 yrs.
Dogwood 766 2,800 3,566 390 1983 5-40 yrs.
EPA Annex 2,601 11,029 13,630 1,354 1966 5-40 yrs.
Expressway Warehouse 246 1,929 2,175 465 1990 5-40 yrs.
Global Software 465 7,471 7,936 1,340 1996 5-40 yrs.
Hawthorn 904 4,020 4,924 1,916 1987 5-40 yrs.
Highwoods Health Club 142 3,040 3,182 173 1998 5-40 yrs.
Holiday Inn Reservations Center 867 2,871 3,738 414 1984 5-40 yrs.
Holly 300 1,189 1,489 196 1984 5-40 yrs.
Healthsource 1,304 12,289 13,593 1,283 1996 5-40 yrs.
Highwoods Tower One 203 17,461 17,664 3,989 1991 5-40 yrs.
Highwoods Centre 532 7,902 8,434 289 1998 5-40 yrs.
Ironwood 319 1,640 1,959 344 1978 5-40 yrs.
Kaiser 133 4,384 4,517 1,512 1988 5-40 yrs.
Laurel 884 2,973 3,857 409 1982 5-40 yrs.
Lake Plaza East 856 5,589 6,445 1,137 1984 5-40 yrs.
Highwoods Office Center North 357 49 406 15 N/A N/A
Highwoods Office Center South 2,518 -- 2,518 -- N/A N/A
Leatherwood 213 1,296 1,509 283 1979 5-40 yrs.
Martin Land 3,361 -- 3,361 -- N/A N/A
A4 Health Systems 717 4,718 5,435 624 1996 5-40 yrs.
Creekstone Park 149 -- 149 -- N/A N/A
Northpark I 498 3,782 4,280 343 1997 5-40 yrs.
North Park - Land 1,472 -- 1,472 -- N/A N/A
Phase I - One North Commerce
Center 768 4,683 5,451 442 1981 5-40 yrs.
\`W' Building - One North Commerce
Center 1,163 8,076 9,239 838 1983 5-40 yrs.
Overlook 398 10,401 10,799 173 1999 5-40 yrs.
Pamlico/Roanoke 289 11,087 11,376 2,973 1980 5-40 yrs.
Phoenix -- -- -- -- 1990 5-40 yrs.
Raleigh Corp Center Lot D 2,039 -- 2,039 -- N/A N/A
Red Oak at Highwoods 389 6,086 6,475 172 1999 5-40 yrs.
Rexwoods Center I 878 3,701 4,579 1,031 1990 5-40 yrs.
Rexwoods II 362 1,851 2,213 293 1993 5-40 yrs.
Rexwoods III 920 2,920 3,840 631 1992 5-40 yrs.
Rexwoods IV 586 3,640 4,226 791 1995 5-40 yrs.
Rexwoods V 1,301 5,979 7,280 476 1998 5-40 yrs.
Riverbirch 469 4,506 4,975 1,312 1987 5-40 yrs.
Situs I 692 4,397 5,089 893 1996 5-40 yrs.
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ----------------------------------------- -------------- -------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Situs II -- 718 5,950 -- --
Six Forks Center I -- 666 2,663 -- 485
Six Forks Center II -- 1,086 4,345 -- 462
Six Forks Center III (11) 862 4,411 -- 425
Smoketree Tower -- 2,353 11,802 -- 4,580
South Square I (4) 606 3,785 -- 832
South Square II -- 525 4,710 -- 289
Sycamore (11) 255 5,830 -- --
Building 2A - Triangle Business Center (4) 377 4,004 -- 858
Building 2B - Triangle Business Center (4) 118 1,225 -- 213
Building 3 - Triangle Business Center (4) 409 5,349 -- 660
Building 7 - Triangle Business Center (4) 414 6,301 -- 670
Weston 1,544 -- -- --
Willow Oak (11) 458 4,685 -- 1,834
Richmond, VA
Innsbrook Centre -- 914 6,768 -- --
Highwoods Distribution Center 735 -- -- 5,575 --
Airport Center I -- 708 4,374 -- 998
Airport Center 2 -- 362 2,896 -- 215
Capital One Building I -- 1,278 10,690 -- --
Capital One Building II -- 477 3,946 -- --
Capital One Building III -- 1,278 11,515 -- --
Capital One Parking Deck -- -- 2,288 -- --
1309 Cary Street -- 171 685 -- 99
4900 Cox -- 1,324 5,305 -- 165
Technology Park 1 -- 541 2,166 -- 182
East Shore I -- -- 1,254 -- --
East Shore II -- 907 6,662 -- --
East Shore III -- -- 2,220 -- --
Grove Park II -- 902 -- -- --
Grove Park -- 349 2,685 364 3,069
Highwoods Distribution Center -- 517 5,714 -- --
Highwoods One (11) 1,846 8,613 -- 1,953
Richfood Holdings Building -- 785 5,170 -- 1,375
End of Cox Road Land -- 966 --(21) (966) --
North Shore Commons -- 71 -- -- --
Highwoods Five -- 806 4,948 -- 979
Sadler & Cox Land 239 -- -- 1,682 --
Highwoods Common -- 547 4,342 2 --
Liberty Mutual Building 3,263 1,205 4,819 -- 618
Waterfront Plaza (5) 585 2,347 -- 670
Mercer Plaza -- 1,556 12,350 -- --
Markel-American -- 1,372 8,667 -- 934
North Park Building -- 2,163 8,659 -- 440
Hamilton Beach Building (5) 1,086 4,344 -- 496
One Shockoe Plaza -- -- 19,324 -- --
Westshore I -- 358 1,431 -- 30
Westshore II -- 545 2,181 -- 36
Westshore III -- 961 3,601 -- 1,254
Stony Point I -- 1,384 11,445 -- 989
Stony Point II -- 1,561 10,949 -- --
Stony Point III -- 2,546 -- -- --
Technology Park 2 -- 264 1,058 -- 49
Virginia Center Technology Park -- 1,438 5,858 (1,438) (5,858)
Vantage Place-A -- 203 811 -- 150
Vantage Place-B -- 233 931 -- 141
Vantage Place-C -- 235 940 -- 86
Vantage Place-D -- 218 873 -- 187
Vantage Point 1,089 4,354 -- 633
South Florida
2828 Coral Way Building -- 1,100 4,303 (1,100) (4,303)
The Atrium at Coral Gables -- 3,000 16,398 (3,000) (16,398)
Atrium West -- 1,300 5,564 (1,300) (5,564)
Avion -- 800 4,307 (800) (4,307)
Centrum Plaza -- 1,000 3,545 (1,000) (3,545)
Comeau Building -- 460 3,683 (460) (3,683)
Corporate Square -- 1,750 3,385 (1,750) (3,385)
Dadeland Towers North -- 3,700 18,571 (3,700) (18,571)
Debartolo Land -- 1,727 -- -- --
Highwoods Court at Doral -- 3,423 13,692 (3,423) (13,692)
The 1800 Eller Drive Building -- -- 9,724 -- 491
Emerald Hills Plaza I -- 1,450 5,830 (1,450) (5,830)
Emerald Hills Plaza II -- 1,450 7,030 (1,450) (7,030)
Gulf Atlantic Center -- -- 11,237 -- (11,237)
Horizon One -- 998 6,070 (998) (6,070)
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ----------------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Situs II 718 5,950 6,668 345 1998 5-40 yrs.
Six Forks Center I 666 3,148 3,814 379 1982 5-40 yrs.
Six Forks Center II 1,086 4,807 5,893 579 1983 5-40 yrs.
Six Forks Center III 862 4,836 5,698 700 1987 5-40 yrs.
Smoketree Tower 2,353 16,382 18,735 2,813 1984 5-40 yrs.
South Square I 606 4,617 5,223 717 1988 5-40 yrs.
South Square II 525 4,999 5,524 715 1989 5-40 yrs.
Sycamore 255 5,830 6,085 664 1997 5-40 yrs.
Building 2A - Triangle Business Center 377 4,862 5,239 1,113 1984 5-40 yrs.
Building 2B - Triangle Business Center 118 1,438 1,556 284 1984 5-40 yrs.
Building 3 - Triangle Business Center 409 6,009 6,418 1,337 1988 5-40 yrs.
Building 7 - Triangle Business Center 414 6,971 7,385 1,135 1986 5-40 yrs.
Weston 1,544 -- 1,544 -- N/A N/A
Willow Oak 458 6,519 6,977 1,610 1995 5-40 yrs.
Richmond, VA
Innsbrook Centre 914 6,768 7,682 7 1989 5-40 yrs.
Highwoods Distribution Center 5,575 -- 5,575 -- N/A N/A
Airport Center I 708 5,372 6,080 494 1997 5-40 yrs.
Airport Center 2 362 3,111 3,473 134 1998 5-40 yrs.
Capital One Building I 1,278 10,690 11,968 131 1999 5-40 yrs.
Capital One Building II 477 3,946 4,423 44 1999 5-40 yrs.
Capital One Building III 1,278 11,515 12,793 49 1999 5-40 yrs.
Capital One Parking Deck -- 2,288 2,288 20 1999 5-40 yrs.
1309 Cary Street 171 784 955 71 1987 5-40 yrs.
4900 Cox 1,324 5,470 6,794 581 1991 5-40 yrs.
Technology Park 1 541 2,348 2,889 265 1991 5-40 yrs.
East Shore I -- 1,254 1,254 -- N/A N/A
East Shore II 907 6,662 7,569 139 1999 5-40 yrs.
East Shore III -- 2,220 2,220 -- 1999 5-40 yrs.
Grove Park II 902 -- 902 -- N/A N/A
Grove Park 713 5,754 6,467 487 1997 5-40 yrs.
Highwoods Distribution Center 517 5,714 6,231 98 1999 5-40 yrs.
Highwoods One 1,846 10,566 12,412 1,501 1996 5-40 yrs.
Richfood Holdings Building 785 6,545 7,330 540 1997 5-40 yrs.
End of Cox Road Land -- -- -- -- N/A N/A
North Shore Commons 71 -- 71 -- N/A N/A
Highwoods Five 806 5,927 6,733 201 1998 5-40 yrs.
Sadler & Cox Land 1,682 -- 1,682 -- N/A N/A
Highwoods Common 549 4,342 4,891 48 1999 5-40 yrs.
Liberty Mutual Building 1,205 5,437 6,642 465 1990 5-40 yrs.
Waterfront Plaza 585 3,017 3,602 372 1988 5-40 yrs.
Mercer Plaza 1,556 12,350 13,906 13 1984 5-40 yrs.
Markel-American 1,372 9,601 10,973 435 1998 5-40 yrs.
North Park Building 2,163 9,099 11,262 845 1989 5-40 yrs.
Hamilton Beach Building 1,086 4,840 5,926 502 1986 5-40 yrs.
One Shockoe Plaza -- 19,324 19,324 1,510 1996 5-40 yrs.
Westshore I 358 1,461 1,819 144 1995 5-40 yrs.
Westshore II 545 2,217 2,762 210 1995 5-40 yrs.
Westshore III 961 4,855 5,816 535 1997 5-40 yrs.
Stony Point I 1,384 12,434 13,818 698 1990 5-40 yrs.
Stony Point II 1,561 10,949 12,510 128 1999 5-40 yrs.
Stony Point III 2,546 -- 2,546 -- N/A N/A
Technology Park 2 264 1,107 1,371 127 1991 5-40 yrs.
Virginia Center Technology Park -- -- -- -- 1985 5-40 yrs.
Vantage Place-A 203 961 1,164 141 1987 5-40 yrs.
Vantage Place-B 233 1,072 1,305 128 1988 5-40 yrs.
Vantage Place-C 235 1,026 1,261 134 1987 5-40 yrs.
Vantage Place-D 218 1,060 1,278 165 1988 5-40 yrs.
Vantage Point 1,089 4,987 6,076 588 1990 5-40 yrs.
South Florida
2828 Coral Way Building -- -- -- -- 1985 5-40 yrs.
The Atrium at Coral Gables -- -- -- -- 1984 5-40 yrs.
Atrium West -- -- -- -- 1983 5-40 yrs.
Avion -- -- -- -- 1985 5-40 yrs.
Centrum Plaza -- -- -- -- 1988 5-40 yrs.
Comeau Building -- -- -- -- 1926 5-40 yrs.
Corporate Square -- -- -- -- 1981 5-40 yrs.
Dadeland Towers North -- -- -- -- 1972 5-40 yrs.
Debartolo Land 1,727 -- 1,727 -- N/A N/A
Highwoods Court at Doral -- -- -- -- 1987 5-40 yrs.
The 1800 Eller Drive Building -- 10,215 10,215 573 1983 5-40 yrs.
Emerald Hills Plaza I -- -- -- -- 1979 5-40 yrs.
Emerald Hills Plaza II -- -- -- -- 1979 5-40 yrs.
Gulf Atlantic Center -- -- -- -- 1986 5-40 yrs.
Horizon One -- -- -- -- 1985 5-40 yrs.
</TABLE>
F-38
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- --------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- -------------- -------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Highwoods Park H1 -- 215 542 (215) (542)
Highwoods Park H2 -- 532 1,838 (532) (1,838)
Highwoods Park A -- 462 1,680 (462) (1,680)
Highwoods Park B -- 388 1,362 (388) (1,362)
Highwoods Park C -- 1,121 3,962 (1,121) (3,962)
Highwoods Park D -- 1,123 3,865 (1,123) (3,865)
Highwoods Park E -- 1,142 3,981 (1,142) (3,981)
Highwoods Park F -- 382 1,284 (382) (1,284)
Highwoods Park G -- 346 2,155 (346) (2,155)
Highwoods Park J -- 326 2,380 (326) (2,380)
Highwoods Park L -- 6,375 -- (6,375) --
Highwoods Park M -- 714 4,133 (714) (4,133)
Highwoods Park N -- -- 114 -- (114)
Highwoods Park P -- -- 96 -- (96)
Palm Beach Gardens Office Park -- 1,000 4,510 (1,000) (4,510)
Pine Island Commons -- 1,750 4,175 (1,750) (4,175)
Sheraton Design Center -- 1,000 4,040 (1,000) (4,040)
Sunset Station Plaza -- 660 7,721 (660) (7,721)
Venture Corporate Center I -- 1,867 7,458 (1,867) (7,458)
Venture Corporate Center II -- 1,867 8,837 (1,867) (8,837)
Venture Corporate Center III -- 1,867 8,838 (1,867) (8,838)
Tampa, FL
5400 Gray Street -- 350 295 -- 5
Anchor Glass -- 1,281 11,034 -- --
Atrium -- 1,639 9,286 (287) 1,753
7201 - 7243B Bryan Dairy -- 352 2,398 (352) (2,398)
7245 - 7279 Bryan Dairy -- 352 2,396 (352) (2,396)
Benjamin Center #7 -- 296 1,678 (296) (1,678)
Benjamin Center #9 -- 300 1,699 (300) (1,699)
Brandywine I -- 667 1,904 (667) (1,904)
Brandywine II -- 483 965 (483) (965)
Bayshore Place 6,316 2,248 10,323 -- 162
Bay View -- 1,304 5,964 -- 118
Bay Vista Garden Center (8) 447 4,777 -- 11
Bay Vista Garden Center II (8) 1,328 6,981 134 400
Bay Vista Office Center (8) 935 4,480 -- 169
Bay Vista Retail Center (8) 283 1,135 -- 23
Countryside Place -- 843 3,731 -- 114
Clearwater Point -- 317 1,531 -- 38
Cross Bayou -- 468 2,997 (468) (2,997)
Crossroads Office Center -- 561 3,342 (561) (3,342)
Clearwater Tower -- 1,601 5,955 (1,601) (5,955)
Cypress Center Land -- 1,410 -- -- --
Cypress Commons -- 1,211 11,488 -- --
Cypress Center I Cigna -- 3,171 12,635 -- --
Cypress Center III -- 1,190 7,690 -- --
Cypress West 2,085 615 4,988 -- 216
Brookwood Day Care Center -- 61 347 -- 24
Expo Building -- 171 969 -- 21
Interstate Corporate Center -- 1,412 5,647 (1,412) (5,647)
Feathersound II 2,261 800 7,282 -- 355
Fireman's Fund Building -- 500 4,107 -- 95
Fireman's fund Land -- 1,000 -- -- --
Grand Plaza (Office) -- 1,100 7,676 (1,100) (7,676)
Grand Plaza (Retail) -- 840 10,647 (840) (10,647)
Federated -- 6,028 -- -- --
Horizon Office Building (2) -- 6,114 -- 144
Highwoods Preserve I -- -- 2,268 -- --
Highwoods Preserve III -- -- 1,524 -- --
Highwoods Preserve Land 3,300 3,743 -- -- --
IBP 8302 Laurel Fair Circle -- 63 595 (63) (595)
IBP 8306 Laurel Fair Circle -- 102 968 (102) (968)
IBP 8308 Laurel Fair Circle -- 118 1,087 (118) (1,087)
IBP 4510 Oakfair Blvd -- 118 1,110 (118) (1,110)
IBP 4514 Oakfair Blvd -- 71 366 (71) (366)
IBP 4520 Oakfair Blvd -- 173 1,621 (173) (1,621)
IBP 4524 Oakfair Blvd -- 141 1,329 (141) (1,329)
IBP Land -- 3,781 -- (3,781) --
Idlewild -- 623 3,859 (623) (3,859)
Lakepointe II Office Building (2) 2,000 20,376 -- --
Lakeside (2) -- 7,272 -- 76
Lakepointe I (2) 2,100 31,390 -- 458
Lakeside Technology Center -- 1,325 8,084 (1,325) (8,084)
Mariner Square -- 650 2,821 (650) (2,821)
Marathon I -- 215 1,059 (215) (1,059)
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- --------------------------------- -------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Highwoods Park H1 -- -- -- -- 1984 5-40 yrs.
Highwoods Park H2 -- -- -- -- 1984 5-40 yrs.
Highwoods Park A -- -- -- -- 1984 5-40 yrs.
Highwoods Park B -- -- -- -- 1984 5-40 yrs.
Highwoods Park C -- -- -- -- 1984 5-40 yrs.
Highwoods Park D -- -- -- -- 1984 5-40 yrs.
Highwoods Park E -- -- -- -- 1984 5-40 yrs.
Highwoods Park F -- -- -- -- 1984 5-40 yrs.
Highwoods Park G -- -- -- -- 1984 5-40 yrs.
Highwoods Park J -- -- -- -- 1984 5-40 yrs.
Highwoods Park L -- -- -- -- N/A N/A
Highwoods Park M -- -- -- -- 1984 5-40 yrs.
Highwoods Park N -- -- -- -- 1984 5-40 yrs.
Highwoods Park P -- -- -- -- 1984 5-40 yrs.
Palm Beach Gardens Office Park -- -- -- -- 1984 5-40 yrs.
Pine Island Commons -- -- -- -- 1985 5-40 yrs.
Sheraton Design Center -- -- -- -- 1982 5-40 yrs.
Sunset Station Plaza -- -- -- -- 1984 5-40 yrs.
Venture Corporate Center I -- -- -- -- 1982 5-40 yrs.
Venture Corporate Center II -- -- -- -- 1982 5-40 yrs.
Venture Corporate Center III -- -- -- -- 1982 5-40 yrs.
Tampa, FL
5400 Gray Street 350 300 650 17 1973 5-40 yrs.
Anchor Glass 1,281 11,034 12,315 548 1988 5-40 yrs.
Atrium 1,352 11,039 12,391 790 1989 5-40 yrs.
7201 - 7243B Bryan Dairy -- -- -- -- 1988 5-40 yrs.
7245 - 7279 Bryan Dairy -- -- -- -- 1987 5-40 yrs.
Benjamin Center #7 -- -- -- -- 1991 5-40 yrs.
Benjamin Center #9 -- -- -- -- 1989 5-40 yrs.
Brandywine I -- -- -- -- 1984 5-40 yrs.
Brandywine II -- -- -- -- 1984 5-40 yrs.
Bayshore Place 2,248 10,485 12,733 428 1990 5-40 yrs.
Bay View 1,304 6,082 7,386 301 1982 5-40 yrs.
Bay Vista Garden Center 447 4,788 5,235 226 1982 5-40 yrs.
Bay Vista Garden Center II 1,462 7,381 8,843 466 1997 5-40 yrs.
Bay Vista Office Center 935 4,649 5,584 300 1982 5-40 yrs.
Bay Vista Retail Center 283 1,158 1,441 58 1987 5-40 yrs.
Countryside Place 843 3,845 4,688 185 1988 5-40 yrs.
Clearwater Point 317 1,569 1,886 75 1981 5-40 yrs.
Cross Bayou -- -- -- -- 1982 5-40 yrs.
Crossroads Office Center -- -- -- -- 1981 5-40 yrs.
Clearwater Tower -- -- -- -- 1990 5-40 yrs.
Cypress Center Land 1,410 -- 1,410 -- N/A N/A
Cypress Commons 1,211 11,488 12,699 352 1985 5-40 yrs.
Cypress Center I Cigna 3,171 12,635 15,806 460 1982 5-40 yrs.
Cypress Center III 1,190 7,690 8,880 111 1983 5-40 yrs.
Cypress West 615 5,204 5,819 312 1985 5-40 yrs.
Brookwood Day Care Center 61 371 432 32 1986 5-40 yrs.
Expo Building 171 990 1,161 84 1981 5-40 yrs.
Interstate Corporate Center -- -- -- -- 1981 5-40 yrs.
Feathersound II 800 7,637 8,437 469 1986 5-40 yrs.
Fireman's Fund Building 500 4,202 4,702 249 1982 5-40 yrs.
Fireman's fund Land 1,000 -- 1,000 -- N/A N/A
Grand Plaza (Office) -- -- -- -- 1985 5-40 yrs.
Grand Plaza (Retail) -- -- -- -- 1985 5-40 yrs.
Federated 6,028 -- 6,028 -- N/A N/A
Horizon Office Building -- 6,258 6,258 359 1980 5-40 yrs.
Highwoods Preserve I -- 2,268 2,268 -- 1999 5-40 yrs.
Highwoods Preserve III -- 1,524 1,524 -- 1999 5-40 yrs.
Highwoods Preserve Land 3,743 -- 3,743 -- N/A N/A
IBP 8302 Laurel Fair Circle -- -- -- -- 1987 5-40 yrs.
IBP 8306 Laurel Fair Circle -- -- -- -- 1987 5-40 yrs.
IBP 8308 Laurel Fair Circle -- -- -- -- 1987 5-40 yrs.
IBP 4510 Oakfair Blvd -- -- -- -- 1987 5-40 yrs.
IBP 4514 Oakfair Blvd -- -- -- -- 1987 5-40 yrs.
IBP 4520 Oakfair Blvd -- -- -- -- 1987 5-40 yrs.
IBP 4524 Oakfair Blvd -- -- -- -- 1987 5-40 yrs.
IBP Land -- -- -- -- N/A N/A
Idlewild -- -- -- -- 1981 5-40 yrs.
Lakepointe II Office Building 2,000 20,376 22,376 78 1999 5-40 yrs.
Lakeside -- 7,348 7,348 406 1978 5-40 yrs.
Lakepointe I 2,100 31,848 33,948 1,777 1986 5-40 yrs.
Lakeside Technology Center -- -- -- -- 1984 5-40 yrs.
Mariner Square -- -- -- -- 1973 5-40 yrs.
Marathon I -- -- -- -- 1997 5-40 yrs.
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------------------- ----------------------------
1999 Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ----------------------------------- ------------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Marathon II -- 215 1,049 (215) (1,049)
Northside Square Office Building (7) 601 3,601 -- 99
Northside Square Retail Building (7) 800 2,808 -- 43
Parkside (2) -- 9,193 -- 254
Sabal Pavilion - Phase I -- 660 8,633 -- --
Sabal Pavilion - Phase II -- 661 -- -- --
Pavillion Office Building (2) -- 16,022 -- 278
Pavilion Parking Garage -- -- 5,541 -- --
Park Place -- 1,508 -- -- --
USF&G -- 1,366 7,742 -- 1,370
Registry I -- 744 4,216 -- 283
Registry II -- 908 5,147 -- 219
Registry Square -- 344 1,951 -- 101
Rocky Point Land -- 3,484 -- -- --
Sabal Business Center I -- 375 2,127 -- 124
Sabal Business Center II -- 342 1,935 -- 134
Sabal Business Center III -- 290 1,642 -- 41
Sabal Business Center IV -- 819 4,638 -- 39
Sabal Business Center V -- 1,026 5,813 -- 77
Sabal Business Center VI -- 1,609 9,116 -- 196
Sabal Business Center VII -- 1,519 8,605 -- 32
Sabal Lake Building -- 572 3,241 -- 147
Sabal Industrial Park Land -- 301 -- -- --
Sabal Park Plaza -- 611 3,460 -- 379
Sabal Tech Center -- 548 3,107 -- 92
Summit Executive Centre -- 579 2,749 -- 1
Spectrum (2) 1,450 14,173 -- 268
Starkey Road Center -- 383 2,163 (383) (2,163)
Turtle Creek 4900 Creekside Dr -- 188 1,353 (188) (1,353)
Turtle Creek 4902 Creekside Dr -- 72 514 (72) (514)
Turtle Creek 4904 Creekside Dr -- 41 298 (41) (298)
Turtle Creek 4906 Creekside Dr -- 75 541 (75) (541)
Turtle Creek 4908 Creekside Dr -- 124 885 (124) (885)
Turtle Creek 4910 Creekside Dr -- 171 1,223 (171) (1,223)
Turtle Creek 4911 Creekside Dr -- 200 1,434 (200) (1,434)
Turtle Creek 4912 Creekside Dr -- 29 211 (29) (211)
Turtle Creek 4914 Creekside Dr -- 65 464 (65) (464)
Telecom Technology Center -- 1,250 11,224 (1,250) (11,224)
Tower Place -- 3,194 18,098 -- 753
Westshore Square 2,893 1,130 5,155 -- 176
REO Building -- 796 4,484 -- 165
Ft. Myers, FL
Sunrise Office Center -- 422 3,478 (422) (3,503)
----- ------ ------ -------
766,672 3,444,293 (122,885) (344,145)
======= ========= ======== ========
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
-------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total Depreciation Construction is Computed
- ----------------------------------- ---------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marathon II -- -- -- -- 1987 5-40 yrs.
Northside Square Office Building 601 3,700 4,301 184 1986 5-40 yrs.
Northside Square Retail Building 800 2,851 3,651 141 1986 5-40 yrs.
Parkside -- 9,447 9,447 524 1979 5-40 yrs.
Sabal Pavilion - Phase I 660 8,633 9,293 231 1998 5-40 yrs.
Sabal Pavilion - Phase II 661 -- 661 -- N/A N/A
Pavillion Office Building -- 16,300 16,300 904 1982 5-40 yrs.
Pavilion Parking Garage -- 5,541 5,541 28 1999 5-40 yrs.
Park Place 1,508 -- 1,508 -- N/A N/A
USF&G 1,366 9,112 10,478 1,002 1988 5-40 yrs.
Registry I 744 4,499 5,243 407 1985 5-40 yrs.
Registry II 908 5,366 6,274 504 1987 5-40 yrs.
Registry Square 344 2,052 2,396 169 1988 5-40 yrs.
Rocky Point Land 3,484 -- 3,484 -- N/A N/A
Sabal Business Center I 375 2,251 2,626 178 1982 5-40 yrs.
Sabal Business Center II 342 2,069 2,411 192 1984 5-40 yrs.
Sabal Business Center III 290 1,683 1,973 140 1984 5-40 yrs.
Sabal Business Center IV 819 4,677 5,496 385 1984 5-40 yrs.
Sabal Business Center V 1,026 5,890 6,916 487 1988 5-40 yrs.
Sabal Business Center VI 1,609 9,312 10,921 765 1988 5-40 yrs.
Sabal Business Center VII 1,519 8,637 10,156 718 1990 5-40 yrs.
Sabal Lake Building 572 3,388 3,960 322 1986 5-40 yrs.
Sabal Industrial Park Land 301 -- 301 -- N/A N/A
Sabal Park Plaza 611 3,839 4,450 529 1987 5-40 yrs.
Sabal Tech Center 548 3,199 3,747 258 1989 5-40 yrs.
Summit Executive Centre 579 2,750 3,329 130 1988 5-40 yrs.
Spectrum 1,450 14,441 15,891 799 1984 5-40 yrs.
Starkey Road Center -- -- -- -- 1980 5-40 yrs.
Turtle Creek 4900 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4902 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4904 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4906 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4908 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4910 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4911 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4912 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Turtle Creek 4914 Creekside Dr -- -- -- -- 1985 5-40 yrs.
Telecom Technology Center -- -- -- -- 1991 5-40 yrs.
Tower Place 3,194 18,851 22,045 1,644 1988 5-40 yrs.
Westshore Square 1,130 5,331 6,461 249 1976 5-40 yrs.
REO Building 796 4,649 5,445 261 1983 5-40 yrs.
Ft. Myers, FL
Sunrise Office Center -- (25) (25) -- 1974 5-40 yrs.
----- ------ ------ -----
643,787 3,100,148 3,743,935 237,959
======= ========= ========= =======
</TABLE>
- --------
(1) These assets are pledged as collateral for a $5,485,000 first mortgage
loan.
(2) These assets are pledged as collateral for a $42,167,000 first mortgage
loan.
(3) These assets are pledged as collateral for an $46,238,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $29,914,000 first mortgage
loan.
(5) These assets are pledged as collateral for a $4,681,000 first mortgage
loan.
(6) These assets are pledged as collateral for a $8,261,000 first mortgage
loan.
(7) These assets are pledged as collateral for a $1,634,000 first mortgage
loan.
(8) These assets are pledged as collateral for a $3,105,000 first mortgage
loan.
(9) These assets are pledged as collateral for a $69,063,000 first mortgage
loan.
(10) These assets are pledged as collateral for a $14,039,000 first mortgage
loan.
(11) These assets are pledged as collateral for a $188,051,000 first mortgage
loan.
(12) Reflects land transferred to Hewlett Packard property, Inacom property,
Two AirPark East property, AirPark East-Simplex property And Two airpark
East.
(13) Reflects land transferred to Concourse Center 1 and Concourse Center 2
Land in progress and Land Held for Development.
F-40
<PAGE>
(14) Reflects land sale.
(15) Reflects land transferred to Situs 1 and Sitsus 2.
(16) Reflects land transferred to Red Oak at Highwoods.
(17) Reflects land transfers to Highwoods Centre and Sycamore.
(18) Transferred to Land In Progress Account.
(19) Reflects land transfer to Grassmere1.
(20) Reflects transfer of land to Lakeview Ridge II and Lakeview Ridge III,
and sale of 3.35 acres of land.
(21) Reflects transfer of Land to Highwoods Common.
(22) Transferred Land to Newpoint Place.
(23) Sold 9.61 acres in 1999.
The aggregate cost for Federal Income tax purposes was approximately
3,119,035,172.
F-41
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTE TO SCHEDULE III
As of December 31, 1999, 1998, and 1997
(in thousands)
A summary of activity for Real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Real Estate:
Balance at beginning of year ........................ $3,992,428 $2,589,531 $1,376,638
Additions:
Acquisitions, Development and Improvements ......... 515,947 1,428,472 1,216,249
Cost of real estate sold ............................ (764,440) (25,575) (3,356)
---------- ---------- ----------
Balance at close of year (a) .......................... 3,743,935 3,992,428 2,589,531
========== ========== ==========
Accumulated Depreciation:
Balance at beginning of year ........................ $ 167,225 $ 85,602 $ 42,004
Depreciation expense ................................ 99,386 83,158 43,732
Real estate sold .................................... (28,652) (1,535) (134)
---------- ---------- ----------
Balance at close of year (b) .......................... $ 237,959 $ 167,225 $ 85,602
========== ========== ==========
</TABLE>
- ----------
(a) Reconciliation of total cost to balance sheet caption at December 31, 1999,
1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Total per schedule III .............................. $3,743,935 $3,992,428 $2,589,531
Constuction in progress exclusive of land included in
schedule III ...................................... 186,925 189,465 95,387
Furniture, fixtures and equipment ................... 7,917 7,665 3,339
Property held for sale .............................. (51,603) (129,167) --
---------- ---------- ----------
Total real estate assets at cost .................... $3,887,174 $4,060,391 $2,688,257
========== ========== ==========
</TABLE>
(b) Reconciliation of total Accumulated Depreciation to balance sheet caption
at December 31, 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Total per Schedule III ............................................ $237,959 $167,225 $85,602
Accumulated Depreciation -- furniture, fixtures and equipment...... 2,799 3,953 1,444
Property held for sale ............................................ (2,643) (2,670) --
-------- -------- -------
Total accumulated depreciation .................................... $238,115 $168,508 $87,046
======== ======== =======
</TABLE>
F-42
EXHIBIT 10.21
HIGHWOODS PROPERTIES, INC.
1999 SHAREHOLDER VALUE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS
The name of the plan is the Highwoods Properties, Inc. 1999 Shareholder
Value Plan (the "Plan"). The purpose of the Plan is to further align the
interests of the officers of Highwoods Properties, Inc. (the "Company") and its
Subsidiaries upon whose judgement, initiative and efforts the Company largely
depends for the successful conduct of its business with those of the Company and
its shareholders. The Plan provides that those officers selected by the
Committee shall be allowed to participate in a long term incentive plan which
rewards them only upon the Company's achieving shareholder returns at or above
that of the Company's peers, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean the written agreement, substantially in the form
of Exhibit B attached hereto, evidencing an Award hereunder between the Company
and the recipient of such Award.
"AWARD" or "AWARDS" means a grant of an SVP Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means and shall be limited to a vote of the Board resolving
that the participant should be dismissed as a result of (i) any material breach
by the participant of any agreement to which the participant and the Company are
parties, (ii) any act (other than retirement) or omission to act by the
participant which may have a material and adverse effect on the business of the
Company or any Subsidiary or on the participant's ability to perform services
for the Company or any Subsidiary, including, without limitation, the commission
of any crime (other than ordinary traffic violations), or (iii) any material
misconduct or neglect of duties by the participant in connection with the
business or affairs of the Company or any Subsidiary.
"CHANGE OF CONTROL" is defined in Section 10.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Board or any Committee of the Board referred to
in Section 2.
"DISABILITY" means disability as set forth in Section 22(e)(3) of the
Code.
"EFFECTIVE DATE" means January 1, 1999.
1
<PAGE>
"FAIR MARKET VALUE" means the last reported sale price at which a share
of common stock in a given company is traded on any given date or, if no such
shares are traded on such date, on the next most recent date on which such
shares were traded, as reflected on the New York Stock Exchange or, if
applicable, any other national stock exchange on which such shares are traded.
"NON-EMPLOYEE DIRECTOR" means a director who is qualified as such under
Rule 16b-3(b)(3) promulgated under the Act or any successor definition under the
Act.
"PEER GROUP" shall mean that list of companies as determined from time
to time by the Committee and as listed on Exhibit C attached hereto. The
component members of the Peer Group may be changed from time to time in the
reasonable discretion of the Committee.
"PERFORMANCE MEASURES" shall mean the criteria and objectives,
established by the Committee, which shall be satisfied or met during the
applicable Plan Period as a condition to the holder's receipt of an SVP Award.
Such criteria and objectives shall include the attainment by a Share of a
specified Shareholder Return (including dividends). The Committee may, in its
reasonable discretion, amend or adjust the Performance Measures or other terms
and conditions of an outstanding award in recognition of unusual or nonrecurring
events affecting the Company or its financial statements or changes in law or
accounting principles. If the Committee consists solely of "outside directors"
(within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder) and the Committee desires that compensation payable
pursuant to any award subject to Performance Measures shall be "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code, the Performance Measures (i) shall be established by the Committee no
later than the end of the first quarter of the Plan Period, as applicable (or
such other time permitted pursuant to Treasury Regulations promulgated under
Section 162(m) of the Code or otherwise permitted by the Internal Revenue
Service) and (ii) shall satisfy all other applicable requirements imposed under
Treasury Regulations promulgated under Section 162(m) of the Code, including the
requirement that such Performance Measures be stated in terms of an objective
formula or standard.
"PLAN PERIOD" shall mean any period designated by the Committee for
which the Performance Measures shall be calculated, but generally, shall refer
to the three (3) year period beginning on each January 1.
"SHARE" or "SHARES" means one or more, respectively, of the Company's
shares of common stock, par value $.01 per share, subject to adjustments
pursuant to Section 3.
2
<PAGE>
"SHAREHOLDER RETURN" shall mean as to the common stock of any
applicable company the percentage determined by dividing (x) the fair Market
Value of a share of such stock at the end of the Plan Period plus all dividends
or distributions paid with respect to such share during the Plan Period and
assuming reinvestment in such shares of all such dividends or distributions,
adjusted to give effect to Section 3 of the Plan, by (y) the Fair Market Value
of a share of stock of the applicable company on its last trading day
immediately preceding the first day of the Plan Period.
"SHAREHOLDER VALUE PLAN AWARD" OR "SVP AWARD" shall mean a right stated
as a grant of SVP Units to receive cash or other consideration as provided
hereby, contingent upon the attainment of specified Shareholder Returns of the
Company as compared to Shareholder Returns of the Peer Group within the Plan
Period.
"SUBSIDIARY" means Highwoods Realty Limited Partnership and any
corporation or other entity (other than the Company) in any unbroken chain of
corporations or other entities, beginning with the Company, if each of the
corporations or entities (other than the last corporation or entity in the
unbroken chain) owns stock or other interests possessing 50% or more of the
economic interest or the total combined voting power of all classes of stock or
other interests in one of the other corporations or entities in the chain.
"SVP UNIT(S)" means the units described in this Plan and in an
Agreement and designated as being granted pursuant to an SVP Award.
SECTION 2. ADMINISTRATION OF PLAN: COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS
(a) COMMITTEE. The Plan shall be administered by the Executive
Compensation Committee of the Board, or any other committee of not less than two
Non-Employee Directors performing similar functions, as appointed by the Board
from time to time. Only Non-Employee Directors may vote with respect to
transactions involving an Award.
(b) POWERS OF COMMITTEE. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select participants to whom Awards may be granted from
time to time;
(ii) to determine the time or times of a grant of an Award;
(iii) to determine and modify the terms and conditions,
including restrictions, not inconsistent with the terms of the Plan, of
any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards;
(iv) to accelerate the vesting of all or any portion of any
Award;
(v) to extend the period in which an Award may be settled;
3
<PAGE>
(vi) to determine whether, to what extent, and under what
circumstances amounts payable with respect to an Award shall be
deferred, whether automatically or at the election of the participant,
and whether and to what extent the Company shall pay or credit amounts
constituting dividends or deemed dividends on such deferrals; and
(vii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Awards (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants
SECTION 3. MERGERS; SUBSTITUTIONS
STOCK DIVIDENDS, MERGERS, ETC. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or similar dividend affecting either the Company or a company
included in the Peer Group, the terms of the Plan shall be appropriately
adjusted by the Committee. The decision of the Committee regarding any such
adjustment shall be final, binding and conclusive.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers of the
Company and its Subsidiaries who are responsible for or contribute to the
management, growth, or profitability of the Company and its Subsidiaries and
whom are selected from time to time by the Committee, in its sole discretion.
SECTION 5. SHAREHOLDER VALUE PLAN AWARDS
(a) SHAREHOLDER VALUE PLAN AWARDS. The Committee may, in its
discretion, grant SVP Awards to such eligible persons as may be selected by the
Committee.
(b) TERMS OF SVP AWARDS. SVP Awards shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall in its
discretion deem advisable:
(i) GRANT OF SVP AWARDS. An SVP Award may be granted by the
Committee. The Plan Period and Performance Measure of an SVP Award also
shall be as designated by the Committee.
4
<PAGE>
(ii) VESTING AND FORFEITURE. The Agreement relating to an SVP
Award shall provide, in the manner determined by the Committee in its
discretion and subject to the provisions of this Plan, for the vesting
of such award if specified Performance Measure(s) are satisfied or met
during the specified Plan Period, and for the forfeiture of such award
if specified Performance Measure(s) are not satisfied or met during the
specified Plan Period.
(iii) VALUATION OF SVP AWARDS.
(a) At the date of grant of an SVP Award, each SVP
Unit shall have a stated value of $1,000.
(b) The settlement value of an SVP Unit (the "Value")
shall be based upon the relative percentage of Shareholder
Return for a Share compared to the Shareholder Return of the
shares in the Peer Group. The Value shall be determined as
follows:
If the Company's Shareholder Return for the
Plan Period divided by the Shareholder Return of the
Peer Group (such result being termed the "Index
Ratio") as of the measurement date equals or exceeds
1.00, then the Value of an SVP Unit will be equal to
$1,000 times the sum of .5 plus .025 for each
percentage point that the Index Ratio (expressed in
percentage points) exceeds 100. In no event, however,
shall the Value of an SVP exceed $3,000. If the Index
Ratio is less than 1.00, then an SVP Unit shall have
a Value equal to $0.
An example of the computation of the Value of an SVP
Unit is attached at Exhibit A.
(iv) SETTLEMENT OF VESTED SVP AWARDS. Except as provided at
paragraph 5(c)(i) below for certain terminations of employment
requiring a cash settlement, vested SVP Awards shall be settled, at the
election of the participant, in (x) cash, (y) Shares at 90% of the
20-day trailing average as of the end of the applicable Plan Period, or
(z) a reduction in the exercise price of any stock option granted to
the participant and unexercised as of the Settlement Date. The
Settlement Date shall be established by the Company so long as such
Settlement Date occurs no later than ninety (90) days following the
expiration of the applicable Plan Period. The participant's election
allowed under this paragraph as to method of settlement shall be the
last such election filed no later than one (1) year prior to the end of
the Plan Period. Except to the extent otherwise provided in the
Agreement relating to an SVP Award, in the event of a Change of Control
the Plan Period shall expire and the Performance Measure shall be
computed through such date and the applicable SVP Award shall forthwith
be settled on the first business day immediately following such Change
of Control.
(c) TERMINATION OF EMPLOYMENT OR SERVICE.
5
<PAGE>
(i) DISABILITY, DEATH AND INVOLUNTARY TERMINATION WITHOUT
CAUSE. Except to the extent otherwise set forth in
the Agreement relating to an SVP Award, if the
employment of a participant is terminated by reason
of Disability, death or involuntary termination by
the Company without Cause, the Plan Period with
respect to any SVP Award held by such participant
shall terminate, the Performance Measure shall be
computed through such date, the Value shall be
determined and pro rated to reflect the portion of
the Plan Period completed prior to the date of
termination of employment and the applicable SVP
Award shall be settled in cash as soon as practicable
following the termination but not later then the
tenth day thereafter.
(ii) OTHER TERMINATION. Except to the extent otherwise set
forth in the Agreement relating to an SVP Award, if
the participant's employment with the Company
terminates for any reason other than Disability,
death, or involuntary termination by the Company
without Cause, then the Plan Period for such SVP
Award shall be deemed to end on the date of such
termination, no Performance Measure shall be
recognized or deemed attained, satisfied or met, and
the holder's SVP Award shall be forfeited to and
canceled by the Company.
SECTION 6. TAX WITHHOLDING
PAYMENT BY PARTICIPANT. Each participant shall, not later than the
date as of which the Value of an Award or amounts received hereunder first
becomes includable in the gross income of the participant for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purposes approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 8. AMENDMENTS AND TERMINATION
6
<PAGE>
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law without the consent of any participant. No
amendment, however, may impair the rights of a holder of an outstanding Award
without the consent of such holder.
SECTION 9. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised
and any payments of consideration not received by a participant, a participant
shall have no rights greater than those of a general creditor of the Company
unless the Committee shall otherwise expressly determine in connection with any
Award or Awards. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the Company's obligations to
deliver Shares or make payments with respect to Awards hereunder, provided that
the existence of such trusts or other arrangements is consistent with the
provisions of the foregoing sentence.
SECTION 10. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
10:
(a) The Plan Period for SVP Awards will expire, the Performance
Measures will be computed through the date of such Change of Control, the Value
shall be determined and pro rated to reflect the portion of the Plan Period
completed prior to the date of the Change of Control and the applicable SVP
Award shall be settled on the date of such Change in Control.
(b) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(i) any "PERSON," as such term is used in Section 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, any
trustee, fiduciary or other person or entity holding securities under
any employee benefit plan of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing
40% or more of either (A) the combined voting power of the Company's
then outstanding securities having the right to vote in an election of
the Company's Board of Directors ("Voting Securities") or (B) the then
outstanding Shares (in either such case other than as a result of
acquisition of securities directly from the Company); or
(ii) persons who, as of May 1, 1999, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to May 1, 1999 whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
7
<PAGE>
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% of the
voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by an
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Shares or other voting securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 40% or more
of the Shares then outstanding or (y) the proportionate voting power represented
by the voting securities beneficially owned by any person to 40% or more of the
combined voting power of all then outstanding voting securities; PROVIDED,
HOWEVER, that if any person referred to in clause (x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional Shares or other
voting securities (other than pursuant to a stock split, stock dividend, or
similar transaction), then a "Change of Control" shall be deemed to have
occurred for purposes of the foregoing clause (i).
SECTION 11. EFFECTIVE DATE OF PLAN
This Plan became effective on January 1, 1999.
SECTION 12. GOVERNING LAW
This Plan shall be governed by North Carolina law except to the extent such law
is preempted by federal law.
8
<PAGE>
SHAREHOLDER VALUE PLAN
DETERMINATION OF SETTLEMENT VALUE - EXAMPLE
EXHIBIT A
1) FAIR MARKET VALUE AT 1/1/99:
HIGHWOODS $ 25.00
PEER GROUP (TOTAL) $1,200.00
2) DIVIDENDS PER SHARE DURING PLAN PERIOD:
HIGHWOODS $ 8.00
PEER GROUP (TOTAL) $ 234.00
3) FAIR MARKET VALUE AT END OF PLAN PERIOD:
HIGHWOODS $ 43.00
PEER GROUP $1,920.00
4) SHAREHOLDER RETURN:
HIGHWOODS:
DIVIDENDS $ 8.00
RETURN ON DIVIDENDS* .75
FMV-ENDING 43.00
---------
51.75
(divided by) = 2.07
FMV- BEGINNING 25.00
PEER GROUP:
DIVIDENDS $ 243.00
RETURN ON DIVIDENDS* 18.05
FMV- ENDING 1,920.00
--------
2,181.05
(divided by) = 1.82
FMV- BEGINNING 1,200.00
5) INDEX RATIO:
HIGHWOODS SHAREHOLDER RETURN 2.07
(divided by) = 1.14
PEER GROUP SHAREHOLDER RETURN 1.82
9
<PAGE>
6) VALUE OF AN SVP UNIT:
SINCE THE INDEX RATIO EXCEEDS 1.00, THE VALUE OF AN SVP
UNIT IS EQUAL TO $1,000, THE STATED VALUE OF A UNIT, TIMES THE SUM OF .5 + (.025
TIMES THE INDEX RATIO IN PERCENTAGE POINTS LESS 100), OR
STATED VALUE OF AN SVP UNIT $1,000
.5 + (.025) (114-100) = .850
--------
VALUE $ 850
=======
10
<PAGE>
EXHIBIT C
PEER GROUP
11
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 333-39247, 333-51671-01, 333-51759 and 333-61913, and Form S-8
Nos. 333-12117, 333-29759, 333-29763 and 333-55901) and related Prospectuses of
Highwoods Properties, Inc. and in the Registration Statement (Form S-3 No.
333-51671) and related Prospectus of Highwoods Realty Limited Partnership of our
report dated February 18, 2000 with respect to the consolidated financial
statements and schedule of Highwoods Properties, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,769
<SECURITIES> 0
<RECEIVABLES> 82,915
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 88,604
<PP&E> 3,887,174
<DEPRECIATION> 238,115
<TOTAL-ASSETS> 3,972,079
<CURRENT-LIABILITIES> 106,601
<BONDS> 1,719,117
0
384,997
<COMMON> 0
<OTHER-SE> 1,761,364
<TOTAL-LIABILITY-AND-EQUITY> 3,972,079
<SALES> 562,888
<TOTAL-REVENUES> 579,874
<CGS> 173,676
<TOTAL-COSTS> 285,715
<OTHER-EXPENSES> 23,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,385
<INCOME-PRETAX> 166,926
<INCOME-TAX> 0
<INCOME-CONTINUING> 166,926
<DISCONTINUED> 0
<EXTRAORDINARY> (7,341)
<CHANGES> 0
<NET-INCOME> 127,005
<EPS-BASIC> 1.81
<EPS-DILUTED> 1.81
</TABLE>
