-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KjlOHK8ea6MtK3T4+1Q7acS/nnJfLPpCxbqU/UwLwH0lZsFwFiju6YhAHHIFhlRn tf3tXop/rphbP+W4TgqvQg== 0000950168-01-000659.txt : 20010402 0000950168-01-000659.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950168-01-000659 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGHWOODS PROPERTIES INC CENTRAL INDEX KEY: 0000921082 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561871668 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13100 FILM NUMBER: 1588241 BUSINESS ADDRESS: STREET 1: 3100 SMOKETREE CT STREET 2: STE 600 CITY: RALEIGH STATE: NC ZIP: 27604 BUSINESS PHONE: 9198724924 MAIL ADDRESS: STREET 1: 3100 SMOKETREE COURT STREET 2: STE 600 CITY: RALEIGH STATE: NC ZIP: 27604 10-K405 1 0001.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2000 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 1-13100 HIGHWOODS PROPERTIES, INC. (Exact name of registrant as specified in its charter) Maryland 56-1871668 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 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:
Name of Each Exchange on Title of Each Class Which Registered - ------------------------------------------------------------------ ------------------------- Common stock, $.01 par value...................................... New York Stock Exchange 8% Series B Cumulative Redeemable Preferred Shares ............... New York Stock Exchange Depositary Shares Each Representing a 1/10 Fractional Interest in an 8% Series D Cumulative Redeemable Preferred Share ............. New York Stock Exchange
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 market value of the shares of common stock held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on February 23, 2001 was $1,332,510,407. As of February 23, 2001, there were 56,384,105 shares of common stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement in connection with its Annual Meeting of Shareholders to be held May 15, 2001 are incorporated by reference in Part III Items 10, 11, 12 and 13. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HIGHWOODS PROPERTIES, INC. TABLE OF CONTENTS
Item No. Page No. - ---------- --------- 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 Common Stock and Related Stockholder 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 ................ 28 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
2 PART I We refer to (1) Highwoods Properties, Inc. as the "Company," (2) Highwoods Realty 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 Company is a self-administered and self-managed equity REIT that began operations through a predecessor in 1978. Since the Company's initial public offering in 1994, we have evolved into one of the largest owners and operators of suburban office, industrial and retail properties in the southeastern and midwestern United States. At December 31, 2000, we: o owned 493 in-service office, industrial and retail properties, encompassing approximately 36.2 million rentable square feet and 1,885 apartment units; o owned an interest (50% or less) in 65 in-service office and industrial properties, encompassing approximately 6.2 million rentable square feet and 418 apartment units; o owned 1,317 acres (and have agreed to purchase an additional 97 acres over the next two years) of undeveloped land suitable for future development; and o were developing an additional 33 properties, which will encompass approximately 3.9 million rentable square feet (including seven properties encompassing 1.1 million rentable square feet that we are developing with our joint venture partners). 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, 2000, the Company owned 88.0% 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. 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 the Company's initial public offering in 1994, we have significantly reduced our dependence on any particular market, property type or tenant. We initially owned only a limited number of office properties in North Carolina, most of which were in the Research Triangle. Today, with our various joint venture partners, our portfolio includes office, industrial, retail and multi-family properties, development projects and development land throughout 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 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. 3 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. Our development and acquisition activities also benefit from our local market presence and knowledge. Our property-level officers have significant 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, development projects and development land to strategic joint ventures formed with selected partners. 4 Recent Developments The following table summarizes our acquisition, disposition and joint venture activity during 2000 ($ in thousands): Acquisition Activity
Building Date Rentable Initial Property Market Type (1) Acquired Square Feet Cost - ------------------------- ----------- ---------- ---------- ------------- ---------- One Harbour Place Tampa O 08/01/00 208,000 $27,200 Virginia Mutual Richmond O 08/25/00 58,000 7,050 1700 Century Circle Atlanta O 11/17/00 27,000 2,450 6060 Poplar Memphis O 12/21/00 110,000 10,312 Ramparts Nashville O 12/21/00 134,000 14,777 6000 Poplar Memphis O 12/29/00 132,000 13,418 ------- ------- Total 669,000 $75,207 ======= =======
Disposition Activity
Building Date Rentable Sales Property Market Type (1) Sold Square Feet Price - ------------------------------------- -------------------------- ---------- ---------- ------------- ----------- Hampton 5-9 Piedmont Triad I 01/31/00 315,000 $ 5,400 2616 Phoenix Drive Piedmont Triad I 02/01/00 32,000 800 Holly Building Research Triangle O 02/11/00 20,000 2,500 Bannister Business Center Kansas City I 03/01/00 32,000 1,900 Red Bridge Professional Building Kansas City O 03/08/00 47,000 2,800 Crestwood Shops Kansas City R 03/21/00 23,000 1,900 Kenilworth Shops Kansas City R 03/31/00 11,000 1,100 Fulton Corporate Center Atlanta I 04/01/00 101,000 2,300 Oak Park Building Kansas City O 05/01/00 32,000 2,700 Pomona/Dundas/Spring Garden Piedmont Triad I 05/04/00 290,000 13,900 Colony Corporate Centre Research Triangle O 06/15/00 52,000 5,300 Battlefield Business Center II Hampton Roads I 06/22/00 98,000 5,900 Highwoods Centre Hampton Roads O 06/22/00 100,000 8,800 Birchwood Research Triangle O 06/27/00 13,000 2,000 Quivira Business Park Kansas City I 06/29/00 299,000 11,100 5301 Departure Drive Research Triangle I 06/30/00 85,000 6,100 Jacksonville Portfolio 1 Jacksonville O 06/30/00 924,000 68,600 1077 Fred Drive Atlanta I 07/07/00 106,000 1,600 Grassmere Nashville I 07/07/00 336,000 23,500 Jacksonville Portfolio 2 Jacksonville/Tallahassee O 07/12/00 1,074,000 100,300 Hartford Office Building Kansas City O 07/14/00 49,000 3,200 Westwood Shops Kansas City R 07/19/00 5,000 800 Trailwoods & 96th & Nall Kansas City R 07/21/00 72,000 6,000 Romanelli Kansas City R 08/10/00 25,000 1,900 Ridgefield I Asheville I 08/28/00 61,000 5,300 Triangle Business Center Research Triangle O/I 09/29/00 394,000 27,700 A4 Health Systems Research Triangle O 10/25/00 55,000 6,400 Ridgefield II Asheville O 12/29/00 64,000 6,000 Ridgefield III Asheville O 12/29/00 56,000 6,000 Expressway Warehouse Research Triangle I 12/29/00 60,000 2,265 --------- -------- Total 4,831,000 $334,065 ========= ========
- ---------- (1) O = Office I = Industrial R = Retail 5 Joint Venture Activity
Rentable Building Date Square Sales Name Market Type (1) Contributed Feet Price - ------------------------ ---------- ---------- ------------- ------------ ----------- Highwoods DLF 97/26 DLF 99/32 Various O 05/09/00 816,000 $117,000 MG-HIW, LLC Various O 12/19/00 2,581,000 350,000 --------- -------- Total 3,397,000 $467,000 ========= ========
Development Activity The following wholly owned development projects were placed in service during 2000 ($ in thousands): Placed In Service
Month Building Placed Number of Rentable Cost Name Market Type (1) in Service Properties Square Feet to Date - ------------------------------ ------------------- ---------- ------------ ------------ ------------- ----------- Southwind Office Center D Memphis O 01/00 1 64,000 $7,018 Airpark South Warehouse IV Piedmont Triad I 01/00 1 86,000 2,952 Highwoods Preserve I Tampa O 01/00 1 208,000 28,923 Parkway Plaza 11 Charlotte O 01/00 1 32,000 2,766 Parkway Plaza 12 Charlotte O 01/00 1 22,000 1,929 Westwood South Nashville O 02/00 1 127,000 14,131 Eastshore III Richmond O 02/00 1 80,000 8,519 Lakefront Plaza One Hampton Roads O 03/00 1 76,000 8,297 Caterpillar Financial Nashville O 03/00 1 312,000 52,110 Air Park South Warehouse III Piedmont Triad I 03/00 1 120,000 3,139 Highwoods Preserve II Tampa O 03/00 1 34,000 1,738 Highwoods Preserve III Tampa O 03/00 1 178,000 25,104 Eastshore I Richmond O 03/00 1 69,000 7,693 Lakeview Ridge III Nashville O 04/00 1 134,000 13,230 HIW Distribution Center Richmond I 04/00 1 166,000 6,835 Highwoods Center II @ Tradeport Atlanta O 06/00 1 54,000 5,147 Seville Square Kansas City R 06/00 1 99,000 21,379 Stony Point II Richmond O 06/00 1 141,000 14,490 ALO Piedmont Triad I 06/00 1 27,000 1,171 Bluegrass Valley I Atlanta I 06/00 1 136,000 5,307 Parkway Plaza 14 Charlotte O 07/00 1 90,000 7,614 Newpoint II Atlanta I 07/00 1 131,000 6,262 Incharge Institute Orlando O 08/00 1 32,000 3,522 Lakepoint II Tampa O 08/00 1 225,000 31,092 3737 Glenwood Ave. Research Triangle O 08/00 1 108,000 19,024 Highwoods Preserve IV Tampa O 09/00 1 211,000 30,968 Highwoods VIII Richmond O 09/00 1 60,000 7,201 Jones Apparel Expansion Piedmont Triad I 10/00 1 209,000 5,614 ECPI Piedmont Triad O 11/00 1 31,000 3,204 Mallard Creek V Charlotte O 11/00 1 119,000 12,203 Valencia Place Retail Kansas City R 11/00 1 72,000 14,328 - ------- ------ Total 31 3,453,000 $372,910 == ========= ========
- ---------- (1) O = Office I = Industrial R = Retail 6 As of December 31, 2000, we were developing 23 suburban office properties and three industrial properties totaling 2.9 million rentable square feet of office and industrial space. The following table summarizes these development projects. In addition to the properties described in this table, we are developing with our joint venture partners seven additional properties totaling 1.1 million rentable square feet. At December 31, 2000, these seven development projects had an aggregate budgeted cost of $140.1 million and were 61.0% pre-leased. In-Process
Rentable Estimated Cost at Pre-Leasing Estimated Estimated Name Market Square Feet Cost 12/31/00 Percentage (1) Completion Stabilization (2) - ------------------------ ------------------- ------------- ----------- ---------- ---------------- ------------ ------------------ ($ in thousands) Office: Highwoods Preserve V Tampa 185,000 $ 27,633 $12,817 100% 3Q01 3Q01 Met Life Building at Brookfield Greenville 118,000 13,220 1,704 67 3Q01 4Q01 380 Park Place Tampa 82,000 9,675 4,961 64 1Q01 4Q01 Romac Tampa 128,000 18,582 2,375 100 4Q01 4Q01 Maplewood Research Triangle 36,000 3,901 2,308 100 1Q01 1Q02 ParkWest One Research Triangle 46,000 4,364 574 26 1Q01 1Q02 ParkWest Two Research Triangle 48,000 4,544 583 100 1Q01 1Q02 Situs III Research Triangle 39,000 4,543 1,804 94 1Q01 1Q02 International Place 3 Memphis 214,000 34,272 3,037 100 2Q02 2Q02 Cool Springs II Nashville 205,000 22,718 13,661 19 2Q01 2Q02 Highwoods Tower II Research Triangle 167,000 25,134 15,415 74 1Q01 2Q02 CentreGreen Two Research Triangle 97,000 11,596 4,025 58 2Q01 2Q02 Hickory Trace Nashville 52,000 5,933 1,164 -- 3Q01 3Q02 CentreGreen Four Research Triangle 100,000 11,764 1,800 -- 3Q01 3Q02 North Shore Commons Richmond 116,000 13,084 6,063 58 2Q01 3Q02 Stony Point III Richmond 106,000 11,425 2,572 45 2Q01 3Q02 Highwoods Park at Jefferson Village Piedmont Triad 101,000 9,839 1,917 -- 4Q01 4Q02 GlenLake I Research Triangle 158,000 19,089 1,435 -- 4Q01 4Q02 ------- -------- ------- --- In-Process Office Total or Weighted Average 1,998,000 $251,316 $78,215 56% ========= ======== ======= === Industrial: Holden Road Piedmont Triad 64,000 $ 2,014 $ 1,134 40% 1Q01 3Q01 Tradeport Place IV Atlanta 122,000 4,447 1,612 -- 3Q01 3Q02 --------- -------- ------- --- In-Process Industrial Total or Weighted Average 186,000 $ 6,461 $ 2,746 14% ========= ======== ======= === Total or Weighted Average of all In-Process Development Projects 2,184,000 $257,777 $80,961 53% ========= ======== ======= ===
- ---------- (1) Includes the effect of letters of intent. (2) We generally consider a development project to be stabilized upon the earlier of the first date such project is at least 95% occupied or one year from the date of completion. 7 Completed-Not Stabilized
Percent Rentable Estimated Cost at leased/ Estimated Estimated Name Market Square Feet Cost 12/31/00 Pre-leased (1) Completion Stabilization (2) - --------------------- ------------------- ------------- ----------- ---------- ---------------- ------------ ------------------ ($ in thousands) Office: Valencia Place Kansas City 250,000 $ 40,586 $ 40,022 91% 1Q00 1Q01 Deerfield III Atlanta 54,000 5,276 3,494 100 4Q00 3Q01 CentreGreen One Research Triangle 97,000 11,246 10,362 97 3Q00 3Q01 Shadow Creek Memphis 80,000 8,989 6,720 82 4Q00 4Q01 Highwoods Plaza Tampa 66,000 7,505 6,011 29 4Q00 4Q01 ------- -------- -------- --- Completed-Not Stabilized Office Total or Weighted Average 547,000 $ 73,602 $ 66,609 84% ======= ======== ======== === Industrial: Tradeport Place III Atlanta 122,000 $ 4,780 $ 4,633 90% 4Q00 4Q01 ------- -------- -------- --- Completed-Not Stabilized Industrial Total or Weighted Average 122,000 $ 4,780 $ 4,633 90% ======= ======== ======== === Total or Weighted Average of all Completed-Not Stabilized Development Projects 669,000 $ 78,382 $ 71,242 85% ======= ======== ======== === Total or Weighted Average of all Development Projects 2,853,000 $336,159 $152,203 60% ========= ======== ======== ===
- ---------- (1) Includes the effect of letters of intent. (2) We generally consider a development project to be stabilized upon the earlier of the first date such project is at least 95% occupied or one year from the date of completion. 8 Development Analysis
Rentable Estimated Pre-Leasing Square Feet Cost Percentage (1) ------------- ----------------- --------------- ($ in thousands) Summary By Estimated Stabilization Date First Quarter 2001 250,000 $ 40,586 91% Second Quarter 2001 -- -- -- Third Quarter 2001 400,000 46,169 90 Fourth Quarter 2001 596,000 62,751 76 First Quarter 2002 169,000 17,352 78 Second Quarter 2002 683,000 93,720 63 Third Quarter 2002 496,000 46,653 23 Fourth Quarter 2002 259,000 28,928 -- ------- -------- -- Total or Weighted Average 2,853,000 $336,159 60% ========= ======== == Summary by Market: Atlanta 298,000 $ 14,503 55% Greenville 118,000 13,220 67 Kansas City 250,000 40,586 91 Memphis 294,000 43,261 95 Nashville 257,000 28,651 15 Piedmont Triad 165,000 11,853 16 Research Triangle 788,000 96,181 52 Richmond 222,000 24,509 52 Tampa 461,000 63,395 83 --------- -------- -- Total or Weighted Average 2,853,000 $336,159 60% ========= ======== == Build-to-Suit 527,000 $ 80,487 100% Multi-tenant 2,326,000 255,672 51 --------- -------- --- Total or Weighted Average 2,853,000 $336,159 60% ========= ======== ===
Average Rentable Average Square Estimated Average Feet Cost Pre-Leasing (1) ---------- ----------------- ---------------- ($ in thousands) Average Per Property Type: Office 110,652 $14,127 62% Industrial 102,667 3,747 44 ------- ------- -- Weighted Average 109,731 $12,929 60% ======= ======= ==
- ---------- (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, 2000, the Company employed 542 persons, as compared to 536 at December 31, 1999. 9 ITEM 2. PROPERTIES General As of December 31, 2000, we owned 493 in-service office, industrial and retail properties, encompassing approximately 36.2 million rentable square feet, and 1,885 apartment units. The following table sets forth information about our wholly owned in-service properties at December 31, 2000:
Percentage of December 2000 Rental Revenue Rentable -------------------------------------------------------- Square Feet (1) Occupancy (2) Office Industrial Retail Multi-Family Total ---------------- --------------- -------- ------------ -------- -------------- ---------- Piedmont Triad ............ 8,334,000 96% 6.6% 4.7% -- -- 11.3% Atlanta ................... 6,143,000 94 10.1 3.4 -- -- 13.5 Tampa ..................... 4,053,000 95 13.4 0.3 -- -- 13.7 Research Triangle ......... 3,741,000 94 12.7 0.1 -- -- 12.8 Nashville ................. 2,789,000 94 10.0 -- -- -- 10.0 Richmond .................. 2,698,000 96 7.5 0.4 -- -- 7.9 Kansas City ............... 2,617,000 93 4.3 -- 6.8% 4.0% 15.1 Charlotte ................. 2,157,000 92 4.8 0.6 -- -- 5.4 Greenville ................ 1,220,000 93 3.2 0.2 -- -- 3.4 Memphis ................... 1,086,000 93 3.4 -- -- -- 3.4 Orlando ................... 662,000 95 1.4 -- -- -- 1.4 Columbia .................. 426,000 77 1.2 -- -- -- 1.2 Other ..................... 257,000 99 0.9 -- -- -- 0.9 --------- -- ---- --- --- --- ----- Total ..................... 36,183,000 94% 79.5% 9.7% 6.8% 4.0% 100.0% ========== == ==== === === === =====
- ---------- (1) Excludes Kansas City's basement space and apartment units. (2) Excludes Kansas City's apartment occupancy percentage of 95%. 10 The following table sets forth certain information about our wholly owned in-service and development properties as of December 31, 2000 and 1999:
December 31, 2000 December 31, 1999 ---------------------------- --------------------------- Percent Percent Rentable Leased/ Rentable Leased/ Square Feet Pre-Leased Square Feet Pre-Leased ------------- ------------ ------------- ----------- In-Service Office ............................. 24,177,000 94% 26,072,000 94% Industrial ......................... 10,357,000 95 11,325,000 94 Retail ............................. 1,649,000 94 1,579,000 94 ---------- -- ---------- -- Total or Weighted Average ......... 36,183,000 94% 38,976,000 94% ========== == ========== == Development Completed -- Not Stabilized Office ............................. 547,000 84% 1,826,000 72% Industrial ......................... 122,000 90 503,000 77 Retail ............................. -- -- 99,000 97 ---------- -- ---------- -- Total or Weighted Average ......... 669,000 85% 2,428,000 74% ========== == ========== == In Process Office ............................. 1,998,000 56% 2,089,000 87% Industrial ......................... 186,000 14 162,000 100 Retail ............................. -- -- 81,000 83 ---------- ---- ---------- --- Total or Weighted Average ......... 2,184,000 53% 2,332,000 88% ========== ==== ========== === Total Office ............................. 26,722,000 29,987,000 Industrial ......................... 10,665,000 11,990,000 Retail ............................. 1,649,000 1,759,000 ---------- ---------- Total ............................. 39,036,000 43,736,000 ========== ==========
Tenants The following table sets forth information concerning the 20 largest tenants of our wholly owned in-service properties as of December 31, 2000:
Percent of Total Number Annualized Annualized Tenant of Leases Rental Revenue (1) Rental Revenue - ---------------------------------------- ----------- -------------------- ----------------- ($ in thousands) Intermedia Communications .............. 12 $ 12,979 2.9% Federal Government ..................... 55 11,448 2.6 Capital One Services, Inc. ............. 8 10,664 2.4 Bell South ............................. 51 10,010 2.2 AT&T ................................... 8 9,084 2.0 Caterpillar Financial Services ......... 3 8,055 1.8 IBM .................................... 9 7,978 1.8 Price Waterhouse Coopers ............... 7 6,522 1.5 US Air ................................. 7 5,778 1.3 Nortel Networks Corporation ............ 3 5,211 1.2 Sara Lee ............................... 9 4,807 1.1 Sprint ................................. 11 4,386 1.0 Lockton Companies, Inc. ................ 1 2,927 0.7 International Paper .................... 9 2,753 0.6 Barclays American Mortgage ............. 2 2,736 0.6 Bank of America ........................ 18 2,575 0.6 Carlton, Fields, Ward Et al ............ 2 2,454 0.5 General Electric ....................... 13 2,440 0.5 Voicestream Wireless ................... 3 2,390 0.5 BTI .................................... 4 2,335 0.5 -- -------- ---- Total .............................. 235 $117,532 26.3% === ======== ====
- ---------- (1) Annualized Rental Revenue is December 2000 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12. 11 The following tables set forth certain information about leasing activities at our wholly owned in-service properties (excluding apartment units) for the years ended December 31, 2000, 1999 and 1998.
2000 -------------------------------------------- Office Industrial Retail -------------- -------------- -------------- Net Effective Rents Related to Re-Leased Space: Number of lease transactions (signed leases) ............ 801 174 71 Rentable square footage leased .......................... 4,166,054 2,373,244 162,866 Average per rentable square foot over the lease term: Base rent .............................................. $ 17.05 $ 4.64 $ 21.99 Tenant improvements .................................... (1.20) (0.24) (1.41) Leasing commissions .................................... (0.50) (0.12) (0.60) Rent concessions ....................................... (0.03) (0.00) (0.00) ----------- ---------- ---------- Effective rent ......................................... $ 15.32 $ 4.28 $ 19.98 Expense stop (1) ....................................... (4.76) (0.23) (0.03) ----------- ---------- ---------- Equivalent effective net rent .......................... $ 10.56 $ 4.05 $ 19.95 =========== ========== ========== Average term in years ................................... 5 4 7 =========== ========== ========== Rental Rate Trends: Average final rate with expense pass-throughs ........... $ 15.56 $ 4.16 $ 15.71 Average first year cash rental rate ..................... $ 16.33 $ 4.46 $ 19.89 ----------- ---------- ---------- Percentage increase ..................................... 4.90% 7.20% 26.60% =========== ========== ========== Capital Expenditures Related to Re-leased Space: Tenant Improvements: Total dollars committed under signed leases ............ $24,215,684 $2,279,129 $2,252,002 Rentable square feet ................................... 4,166,054 2,373,244 162,866 ----------- ---------- ---------- Per rentable square foot ............................... $ 5.81 $ 0.96 $ 13.83 =========== ========== ========== Leasing Commissions: Total dollars committed under signed leases ............ $ 9,398,696 $1,203,586 $ 530,437 Rentable square feet ................................... 4,166,054 2,373,244 162,866 ----------- ---------- ---------- Per rentable square foot ............................... $ 2.26 $ 0.51 $ 3.26 =========== ========== ========== Total: Total dollars committed under signed leases ............ $33,614,380 $3,482,715 $2,782,439 Rentable square feet ................................... 4,166,054 2,373,244 162,866 ----------- ---------- ---------- Per rentable square foot ............................... $ 8.07 $ 1.47 $ 17.08 =========== ========== ========== 1999 1998 -------------------------------------------- -------------- Office Industrial Retail Office -------------- -------------- -------------- -------------- Net Effective Rents Related to Re-Leased Space: Number of lease transactions (signed leases) ............ 1,051 249 101 1,042 Rentable square footage leased .......................... 5,086,408 2,786,017 378,304 5,004,005 Average per rentable square foot over the lease term: Base rent .............................................. $ 15.58 $ 5.35 $ 17.24 $ 16.00 Tenant improvements .................................... (.82) (.28) (1.02) (0.81) Leasing commissions .................................... (.39) (.13) (.44) (0.35) Rent concessions ....................................... (.03) (.01) (.01) (0.03) ----------- ---------- ---------- ----------- Effective rent ......................................... $ 14.34 $ 4.93 $ 15.77 $ 14.81 Expense stop (1) ....................................... (4.19) (.28) (.07) (4.25) ----------- ---------- ---------- ----------- Equivalent effective net rent .......................... $ 10.15 $ 4.65 $ 15.70 $ 10.56 =========== ========== ========== =========== Average term in years ................................... 5 4 6 5 =========== ========== ========== =========== Rental Rate Trends: Average final rate with expense pass-throughs ........... $ 15.13 $ 5.05 $ 12.21 $ 14.12 Average first year cash rental rate ..................... $ 15.68 $ 5.24 $ 16.28 $ 15.12 ----------- ---------- ---------- ----------- Percentage increase ..................................... 3.64% 3.76% 33.33% 7.08% =========== ========== ========== =========== Capital Expenditures Related to Re-leased Space: Tenant Improvements: Total dollars committed under signed leases ............ $21,748,441 $3,621,621 $4,589,543 $19,144,349 Rentable square feet ................................... 5,086,408 2,786,017 378,304 5,004,005 ----------- ---------- ---------- ----------- Per rentable square foot ............................... $ 4.28 $ 1.30 $ 12.13 $ 3.83 =========== ========== ========== =========== Leasing Commissions: Total dollars committed under signed leases ............ $ 8,990,333 $1,336,828 $1,069,227 $ 8,348,495 Rentable square feet ................................... 5,086,408 2,786,017 378,304 5,004,005 ----------- ---------- ---------- ----------- Per rentable square foot ............................... $ 1.77 $ .48 $ 2.83 $ 1.67 =========== ========== ========== =========== Total: Total dollars committed under signed leases ............ $30,738,774 $4,958,449 $5,658,770 $27,492,844 Rentable square feet ................................... 5,086,408 2,786,017 378,304 5,004,005 ----------- ---------- ---------- ----------- Per rentable square foot ............................... $ 6.04 $ 1.78 $ 14.96 $ 5.49 =========== ========== ========== =========== 1998 -------------------------- Industrial Retail -------------- ----------- Net Effective Rents Related to Re-Leased Space: Number of lease transactions (signed leases) ............ 207 26 Rentable square footage leased .......................... 1,400,108 66,964 Average per rentable square foot over the lease term: Base rent .............................................. $ 5.81 $ 14.81 Tenant improvements .................................... (0.26) (0.82) Leasing commissions .................................... (0.12) (0.58) Rent concessions ....................................... -- (0.26) ---------- -------- Effective rent ......................................... $ 5.43 $ 13.15 Expense stop (1) ....................................... (0.37) (0.84) ---------- -------- Equivalent effective net rent .......................... $ 5.06 $ 12.31 ========== ======== Average term in years ................................... 3 6 ========== ======== Rental Rate Trends: Average final rate with expense pass-throughs ........... $ 5.39 $ 10.35 Average first year cash rental rate ..................... $ 5.58 $ 12.41 ---------- -------- Percentage increase ..................................... 3.53% 19.90% ========== ======== Capital Expenditures Related to Re-leased Space: Tenant Improvements: Total dollars committed under signed leases ............ $1,226,526 $340,620 Rentable square feet ................................... 1,400,108 66,964 ---------- -------- Per rentable square foot ............................... $ 0.88 $ 5.09 ========== ======== Leasing Commissions: Total dollars committed under signed leases ............ $ 558,840 $222,315 Rentable square feet ................................... 1,400,108 66,964 ---------- -------- Per rentable square foot ............................... $ 0.40 $ 3.32 ========== ======== Total: Total dollars committed under signed leases ............ $1,785,367 $562,935 Rentable square feet ................................... 1,400,108 66,964 ---------- -------- Per rentable square foot ............................... $ 1.28 $ 8.41 ========== ========
- ------- (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 The following tables set forth scheduled lease expirations for executed leases at our wholly owned in-service properties (excluding apartment units) as of December 31, 2000, assuming no tenant exercises renewal options. Office Properties:
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 Leases - -------------- ----------- ----------------- ----------------- --------------- ------------- -------------- (in thousands) 2001 692 2,702,635 12.2% $ 45,507 $ 16.84 12.3% 2002 530 2,771,026 12.5 44,791 16.16 12.1 2003 525 3,462,759 15.5 59,465 17.17 16.0 2004 341 2,694,725 12.1 47,035 17.45 12.7 2005 393 3,011,191 13.5 49,929 16.58 13.5 2006 88 1,881,955 8.5 31,096 16.52 8.4 2007 43 1,040,198 4.7 16,196 15.57 4.4 2008 44 1,221,905 5.5 17,609 14.41 4.7 2009 18 714,403 3.2 11,267 15.77 3.0 2010 41 1,431,499 6.4 24,234 16.93 6.5 Thereafter 66 1,307,399 5.9 23,883 18.27 6.4 --- --------- ----- -------- -------- ----- 2,781 22,239,695 100.0% $371,012 $ 16.68 100.0% ===== ========== ===== ======== ======== =====
Industrial Properties:
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 Leases - -------------- ----------- ----------------- ----------------- --------------- ------------- -------------- (in thousands) 2001 126 1,665,614 16.7% $ 7,845 $ 4.71 17.2% 2002 107 1,695,379 17.0 7,445 4.39 16.3 2003 84 1,352,681 13.5 6,622 4.90 14.5 2004 57 2,119,192 21.2 8,765 4.14 19.2 2005 44 769,896 7.7 4,019 5.22 8.7 2006 11 356,062 3.6 2,294 6.44 5.0 2007 13 1,081,566 10.8 3,698 3.42 8.1 2008 4 196,045 2.0 1,306 6.66 2.9 2009 6 268,813 2.7 1,808 6.73 4.0 2010 4 182,746 1.8 897 4.91 2.0 Thereafter 10 295,453 3.0 968 3.28 2.1 --- --------- ----- ------- ------- ----- 466 9,983,447 100.0% $45,667 $ 4.57 100.0% === ========= ===== ======= ======= =====
- ---------- (1) Annual Rents Under Expiring Leases are December 2000 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12. 13 Retail Properties:
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 Leases - ----------------- ----------- ----------------- ----------------- --------------- ------------- -------------- (in thousands) 2001 60 188,894 12.1% $ 3,300 $ 17.47 10.4% 2002 34 74,376 4.8 1,406 18.90 4.4 2003 44 110,790 7.1 2,392 21.59 7.5 2004 36 213,861 13.7 2,670 12.48 8.4 2005 38 88,207 5.7 2,420 27.44 7.6 2006 24 89,285 5.7 2,098 23.50 6.6 2007 17 72,560 4.7 1,421 19.58 4.5 2008 16 108,901 7.0 3,582 32.89 11.3 2009 21 169,286 10.9 3,185 18.81 10.0 2010 15 79,314 5.1 2,367 29.84 7.5 Thereafter 22 363,723 23.2 6,878 18.91 21.8 -- ------- ----- ------- -------- ----- 327 1,559,197 100.0% $31,719 $ 20.34 100.0% === ========= ===== ======= ======== =====
Total:
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 Leases - ----------------- ----------- ----------------- ----------------- --------------- ------------- -------------- (in thousands) 2001 878 4,557,143 13.5% $ 56,652 $ 12.43 12.6% 2002 671 4,540,781 13.4 53,642 11.81 12.0 2003 653 4,926,230 14.6 68,479 13.90 15.3 2004 434 5,027,778 14.9 58,470 11.63 13.0 2005 475 3,869,294 11.5 56,368 14.57 12.6 2006 123 2,327,302 6.9 35,488 15.25 7.9 2007 73 2,194,324 6.5 21,315 9.71 4.8 2008 64 1,526,851 4.5 22,497 14.73 5.0 2009 45 1,152,502 3.4 16,260 14.11 3.6 2010 60 1,693,559 5.0 27,498 16.24 6.1 Thereafter 98 1,966,575 5.8 31,729 16.13 7.1 --- --------- ----- -------- -------- ----- 3,574 33,782,339 100.0% $448,398 $ 13.27 100.0% ===== ========== ===== ======== ======== =====
- ---------- (1) Annual Rents Under Expiring Leases are December 2000 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12. 14 Development Land We estimate that we can develop approximately 13.5 million square feet of office, industrial and retail space on our wholly owned development land. All of this development land is zoned and available for office, industrial or retail development, substantially all of which has utility infrastructure already in place. We believe in our future development activities that our commercially zoned and unencumbered land in existing business parks gives us an advantage 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 Company, 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 asserts claims against J.C. Nichols and certain named directors and officers of J.C. Nichols for breach of fiduciary duty to J.C. Nichols' stockholders and to members of the J.C. Nichols Company Employee Stock Ownership Trust, as well as claims under Section 14(a) of the Securities Exchange Act of 1934 and Sections 11 and 12(2) of the Securities Act of 1933 variously against J.C. Nichols, the named directors and officers of J.C. Nichols and the Company. By order dated June 18, 1999, the court granted in part and denied in part our motion to dismiss, and the court thereafter certified the proposed class of plaintiffs with respect to the remaining claims. By order dated August 28, 2000, the court granted in part and denied in part defendants' summary judgment motion. Defendants sought reconsideration of the court's ruling with respect to certain of the securities claims as to which the court denied their summary judgment motion, and by order dated January 11, 2001, the court granted in part that reconsideration motion. On the eve of the trial of this matter, the parties settled all their remaining claims. The terms of that settlement are now being documented. We do not believe the settlement will have a material adverse effect on our business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 15 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to our executive officers:
Name Age Position and Background - ---------------------- ----- ---------------------------------------------------------------------------- Ronald P. Gibson 56 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. Edward J. Fritsch 42 Director, Executive Vice President, Chief Operating Officer and Secretary. Mr. Fritsch joined us in 1982 and was a partner of our predecessor. John L. Turner 54 Director, Vice Chairman of the Board of Directors and Chief Investment Officer. Mr. Turner co-founded the predecessor of Forsyth Properties in 1975. Gene H. Anderson 55 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 F. Beale 47 Senior Vice President. Mr. Beale is responsible for our operations in Florida. Prior to joining us in 2000, Mr. Beale was vice president of Koger Equity, Inc. Michael E. Harris 51 Senior Vice President. Mr. Harris is responsible for our operations in Tennessee, Missouri, Kansas and Charlotte. 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 44 Senior Vice President. Mr. Jackson is responsible for our operations in Virginia and the Research Triangle and Piedmont Triad divisions of North Carolina. Prior to joining us in 1998, Mr. Jackson was senior vice president of Compass Development and Construction Services. Carman J. Liuzzo 40 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 51 Vice President and General Counsel. Prior to joining us in 1997, Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information and Dividends The Common Stock has been traded on the New York Stock Exchange ("NYSE") under the symbol "HIW" since the Company's initial public offering. The following table sets forth the quarterly high and low stock prices per share reported on the NYSE for the quarters indicated and the distributions paid per share during such quarter.
2000 1999 -------------------------------------- ------------------------------------- Quarter Ended: High Low Distribution High Low Distribution - ------------------------ ----------- ----------- -------------- ----------- ----------- ------------- March 31 ............. $23.50 $20.25 $.555 $25.69 $22.25 $.54 June 30 .............. 25.94 21.31 .555 27.69 22.75 .54 September 30 ......... 27.19 23.50 .57 26.88 22.25 .555 December 31 .......... 24.94 21.25 .57 25.63 20.25 .555
- ---------- On February 23, 2001, the last reported stock price of the Common Stock on the NYSE was $24.03 per share and the Company had 1,381 stockholders of record. The Company intends to continue to pay regular quarterly distributions to holders of shares of Common Stock and holders of Common Units. Although the Company intends to maintain its current distribution rate, future distributions by the Company will be at the discretion of the Board of Directors and will depend on the actual funds from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and such other factors as the Board of Directors deems relevant. During 2000, the Company's distributions totaled $133,446,000, none of which represented return of capital for financial statement purposes. The minimum distribution per share of Common Stock required to maintain REIT status was approximately $2.20 per share in 2000 and $1.92 per share in 1999. The Company has instituted a Dividend Reinvestment and Stock Purchase Plan under which holders of Common Stock may elect to automatically reinvest their distributions in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The Company may issue additional shares of Common Stock or repurchase Common Stock in the open market for purposes of financing its obligations under the Dividend Reinvestment and 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 85% of the market value of the Common Stock, calculated as the lower of the average closing price on the NYSE 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 $7,500 per quarter. During 2000, employees purchased 55,593 shares of Common Stock under the Employee Stock Purchase Plan. Sales of Unregistered Securities During 2000, the Company issued an aggregate of 9,911 shares of Common Stock in connection with the merger of Eakin & Smith, Inc. into the Company on April 1, 1996. The shares were issued to principals of Eakin & Smith, pursuant to an exemption from the registration requirements of the Securities Act of 1933. Each of the principals is an accredited investor. We exercised reasonable care to assure that the principals were not purchasing the shares with a view to their distribution. 17 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and operating information for the Company as of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 ($ in thousands, except per share amounts):
Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, 2000 1999 1998 1997 1996 -------------- -------------- -------------- -------------- ------------- Operating Data: Total revenue .................... $ 566,431 $ 584,935 $ 512,471 $ 274,470 $ 137,926 Rental property operating expenses (1) .................... 159,767 174,075 154,323 76,743 35,313 General and administrative ....... 21,864 22,345 20,776 10,216 5,666 Interest expense ................. 112,827 117,134 97,011 47,394 26,610 Depreciation and amortization .................... 119,443 112,347 91,705 47,533 22,095 ----------- ----------- ----------- ----------- ----------- Income before cost of unsuccessful transactions, gain on disposition of assets, minority interest and extraordinary item .......... 152,530 159,034 148,656 92,584 48,242 Cost of unsuccessful transactions .................... -- (1,500) -- -- -- Gain on disposition of assets 4,659 8,679 1,716 -- -- ----------- ----------- ----------- ----------- ----------- Income before minority interest and extraordinary item ............................ 157,189 166,213 150,372 92,584 48,242 Minority interest ................ (18,991) (20,779) (24,335) (15,106) (6,782) ----------- ----------- ----------- ----------- ----------- Income before extraordinary item .............. 138,198 145,434 126,037 77,478 41,460 Extraordinary item-loss on early extinguishment of debt ............................ (4,711) (7,341) (387) (5,799) (2,140) ----------- ----------- ----------- ----------- ----------- Net income ....................... 133,487 138,093 125,650 71,679 39,320 Dividends on preferred stock ........................... (32,580) (32,580) (30,092) (13,117) -- ----------- ----------- ----------- ----------- ----------- Net income available for common shareholders ............. $ 100,907 $ 105,513 $ 95,558 $ 58,562 $ 39,320 =========== =========== =========== =========== =========== Net income per common share -- basic .................. $ 1.70 $ 1.72 $ 1.74 $ 1.51 $ 1.51 =========== =========== =========== =========== =========== Net income per common share -- diluted ................ $ 1.70 $ 1.71 $ 1.74 $ 1.50 $ 1.50 =========== =========== =========== =========== =========== Balance Sheet Data (at end of period): Net real estate assets ........... $ 3,128,259 $ 3,673,338 $ 3,924,192 $ 2,614,654 $ 1,377,874 Total assets ..................... 3,701,602 4,016,197 4,314,333 2,722,306 1,443,440 Total mortgages and notes payable ......................... 1,587,019 1,766,177 2,008,716 978,558 555,876 Other Data: Number of in-service properties ...................... 493 563 658 481 292 Total rentable square feet ....... 36,183,000 38,976,000 44,642,000 30,721,000 17,455,000
- ---------- (1) Rental property operating expenses include salaries, real estate taxes, insurance, repairs and maintenance, property management, security and utilities. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K contains certain forward-looking statements with respect to our operations, industry, financial condition and liquidity. These statements reflect our assessment of a number of risks and uncertainties. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth in this Annual Report. An additional statement made pursuant to the Private Securities Litigation Reform Act of 1995 and summarizing certain of the principal risks and uncertainties inherent in our business is included under the caption " -- Disclosure Regarding Forward-Looking Statements." You are encouraged to read this section carefully. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. Overview We are a self-administered and self-managed equity REIT that began operations through a predecessor in 1978. Since the Company's initial public offering in 1994, we have evolved into one of the largest owners and operators of suburban office, industrial and retail properties in the southeastern and midwestern United States. 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. Results of Operations Comparison of 2000 to 1999. Revenues from rental operations decreased $23.4 million, or 4.1%, from $566.8 million for the year ended December 31, 1999 to $543.4 million for the year ended December 31, 2000. The decrease was primarily a result of the disposition and contribution of 6.9 million square feet of wholly owned office, industrial and retail properties offset in part by the acquisition of 669,000 square feet of additional wholly owned office space and the completion of 3.5 million square feet of wholly-owned development activity in 2000. Our in-service wholly owned portfolio decreased from 39.0 million square feet at December 31, 1999 to 36.2 million square feet at December 31, 2000. Same property revenues, which are the revenues of the 443 in-service properties and 1,885 apartment units wholly owned on January 1, 1999, increased 2.7% for the year ended December 31, 2000, compared to the year ended December 31, 1999. During the year ended December 31, 2000, 1,046 leases representing 6.3 million square feet of office, industrial and retail space were executed at an average rate per square foot which was 5.9% higher than the average rate per square foot on the expired leases. Interest and other income increased $2.3 million, or 13.6%, from $16.9 million for the year ended December 31, 1999 to $19.2 million for the year ended December 31, 2000. The increase was a result of an increase in interest income related to a $30.0 million note receivable that was recorded as a result of certain property dispositions in June 1999 and an increase in development fee income in 2000 related to the DLF II Joint Venture. Rental operating expenses decreased $14.3 million, or 8.2%, from $174.1 million for the year ended December 31, 1999 to $159.8 million for the year ended December 31, 2000. The decrease was primarily a result of the disposition and contribution of 6.9 million square feet of wholly owned office, industrial and retail properties offset in part by the acquisition of 669,000 square feet of additional wholly owned office space and the completion of 3.5 million square feet of wholly owned development activity in 2000. Rental operating expenses as a percentage of related revenues decreased from 30.7% for the year ended December 31, 1999 to 29.4% for the year ended December 31, 2000. Depreciation and amortization for the years ended December 31, 2000 and 1999 totaled $119.4 million and $112.3 million, respectively. The increase of $7.1 million, or 6.3%, was due to an increase 19 in depreciation of leasing commissions and tenant improvements, partly offset by a decrease in depreciation on buildings that resulted from the disposition activity during 1999 and 2000. Interest expense decreased $4.3 million, or 3.7%, from $117.1 million for the year ended December 31, 1999 to $112.8 million for the year ended December 31, 2000. The decrease was primarily attributable to the decrease in the outstanding debt for the entire year of 2000. Interest expense for the years ended December 31, 2000 and 1999 included $2.5 million and $2.8 million, respectively, of amortization of deferred financing costs and the costs related to our interest rate hedge contracts. General and administrative expenses as a percentage of total revenues was 3.8% in 1999 and 3.9% in 2000. Income before minority interest and extraordinary item equaled $157.2 million and $166.2 million for the years ended December 31, 2000 and 1999, respectively. The Company's net income allocated to minority interest totaled $19.0 million and $20.8 million for the years ended December 31, 2000 and 1999, respectively. The Company recorded $32.6 million in preferred stock dividends for each of the years ended December 31, 2000 and 1999. Comparison of 1999 to 1998. Revenues from rental operations increased $66.6 million, or 13.3%, from $500.2 million for the year ended December 31, 1998 to $566.8 million for the year ended December 31, 1999. The increase was 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 wholly 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 in 1999 (including the removal of certain properties from our consolidated financial statements as a result of the reorganization of the Des Moines partnerships). Same property revenues, which are the revenues of the 403 in-service properties wholly owned on January 1, 1998, increased 3.0% for the year ended December 31, 1999 compared to the year ended December 31, 1998. During the year ended December 31, 1999, 1,401 leases representing 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 $5.1 million, or 43.2%, from $11.8 million for the year ended December 31, 1998 to $16.9 million for the year ended December 31, 1999. The increase was a result of higher cash balances during the year ended December 31, 1999 and additional income generated from management fees and development fees. Rental operating expenses increased $19.8 million, or 12.8%, from $154.3 million for the year ended December 31, 1998 to $174.1 million for the year ended December 31, 1999. The increase was 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 wholly 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 in 1999 (including the removal of certain properties from our consolidated financial statements as a result of the reorganization of the Des Moines partnerships). Rental operating expenses as a percentage of related revenues remained consistent at 31.0% in 1998 and 1999. Depreciation and amortization for the years ended December 31, 1999 and 1998 totaled $112.3 million and $91.7 million, respectively. The increase of $20.6 million, or 22.5%, was due to an average increase in depreciable assets and deferred leasing costs. Interest expense increased $20.1 million, or 20.7%, from $97.0 million in 1998 to $117.1 million in 1999. The increase was attributable to an average increase in outstanding debt related to our acquisition and development activities. The weighted average interest rates on outstanding debt 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 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 3.8% in 1999. 20 Income before minority interest and extraordinary item equaled $166.2 million and $150.4 million for the years ended December 31, 1999 and 1998, respectively. The Company's net income allocated to minority interest totaled $20.8 million and $24.3 million for 1999 and 1998, respectively. The Company incurred extraordinary losses in 1999 and 1998 of $7.3 million and $387,000, respectively, related to the early extinguishment of debt. The Company recorded $32.6 million and $30.1 million in preferred stock dividends for the years ended December 31, 1999 and 1998, respectively. Liquidity and Capital Resources Statement of Cash Flows. For the year ended December 31, 2000, the Company generated $256.4 million in cash flows from operating activities and $286.2 million from investing activities (primarily as a result of the dispositions of assets, offset in part by additions to assets). These combined cash flows of $542.6 million were used in 2000 to fund financing activities of $472.3 million, primarily consisting of repayments of unsecured debt, the repurchase of Common Stock and Common Units and the payment of distributions. Capitalization. The Company's total indebtedness at December 31, 2000 was $1.6 billion and was comprised of $635.7 million of secured indebtedness with a weighted average interest rate of 7.9% and $951.3 million 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, 2000 were either fixed rate obligations or variable rate obligations covered by interest rate hedge contracts. Approximately $37.0 million of floating rate notes were not covered by interest rate hedge contracts on December 31, 2000. Based on the Company's total market capitalization of $3.6 billion at December 31, 2000 (at the December 31, 2000 stock price of $24.875 and assuming the redemption for shares of Common Stock of the 7.8 million Common Units of minority interest in the Operating Partnership), the Company's debt represented approximately 43.8% of its total market capitalization. On December 14, 2000, the Company obtained a new $300.0 million revolving loan (the "Revolving Loan") from a group of ten lender banks. The Revolving Loan matures in December 2003 and replaces our previous $450.0 million revolving credit facility. The Revolving Loan carries an interest rate based upon our senior unsecured credit ratings. As a result, interest would currently accrue on borrowings under the Revolving Loan at an average rate of LIBOR plus 85 basis points. The Revolving Loan also includes a $150.0 million competitive bid sub-facility. At December 31, 2000, the Company had not borrowed any funds under the new Revolving Loan. The terms of the Revolving Loan require the Company to pay an annual facility fee equal to .20% of the aggregate amount of the Revolving Loan and require compliance with certain financial covenants. At December 31, 2000, the Company was in compliance with these covenants. To meet in part our long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Borrowings under the Revolving Loan bear interest at variable rates. Our long-term debt, which consists of long-term financings and the issuance of debt securities, typically bears interest at fixed rates. In addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. 21 The following table sets forth information regarding our interest rate hedge contracts as of December 31, 2000 ($ in thousands): Notional Maturity Fixed Fair Market Type of Hedge Amount Date Reference Rate Rate Value - ---------------- ------ ------- ----------------------- ----- ---------- Swap $ 19,839 6/10/02 1-Month LIBOR + 0.75% 6.95% $(125) Collar $ 80,000 10/01/01 1-Month LIBOR 5.60-6.25% $ (2) Cap $ 8,434 6/15/01 1-Month LIBOR 7.75% $ --
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 receipts from counterparties under interest rate hedge contracts were $206,894 during 2000 and were recorded as decreases 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 our revolving loan. Our short-term (within the next 12 months) liquidity needs also include, among other things, the funding of approximately $161.7 million of our existing development activity. See "Business -- Development Activity." We expect to fund our short-term liquidity needs through a combination of: o borrowings under our Revolving Loan; 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, development projects and development land 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 securities by the Company and the Operating Partnership as well as (3) the sources 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 22 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, the Company's ability to make the expected distributions to stockholders discussed below and satisfy other cash requirements may be adversely affected. Distributions to Stockholders. As of December 31, 2000, to maintain qualification as a REIT, the Company must distribute to stockholders at least 95% of REIT taxable income. Effective January 1, 2001, the Company must distribute to stockholders at least 90% of REIT taxable income to maintain qualification as a REIT. The Company expects to use its cash flow from operating activities for distributions to stockholders and for payment of recurring, non-incremental revenue-generating expenditures. The following factors will affect cash flows from operating activities and, accordingly, influence the decisions of the Board of Directors regarding distributions: (1) debt service requirements after taking into account the repayment and restructuring of certain indebtedness; (2) scheduled increases in base rents of existing leases; (3) changes in rents attributable to the renewal of existing leases or replacement leases; (4) changes in occupancy rates at existing properties and procurement of leases for newly acquired or developed properties; and (5) operating expenses and capital replacement needs. Recent Developments Stock Repurchase. Since we commenced our share repurchase program in December 1999, the Company has repurchased 8.0 million shares of Common Stock and Common Units at a weighted average price of $23.95 per share/unit for an aggregate purchase price of approximately $190.8 million. Disposition Activity. Since December 31, 2000, we have sold 76,000 square feet of office properties and 277 apartment units for gross proceeds of $46.8 million. In addition, we currently have 182,000 rentable square feet of wholly owned properties and 1,395 apartment units under contract for sale in various transactions totaling $114.5 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 2001. 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 $12.8 million of the remaining net proceeds from disposition activity as of December 31, 2000 and up to $152.4 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 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 23 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, the 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. In June, 2000, FASB issued Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of FASB Statement No. 133. Statement No. 133, as amended by Statement No. 138, 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, changes in the fair value of derivatives will either be offset against the change in fair value of 24 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. We will adopt SFAS No. 133/138, Accounting for Derivative Instruments and Hedging Activities on January 1, 2001. This new accounting standard requires companies to carry all derivative instruments, including certain embedded derivatives, in the statement of financial condition at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. We use only qualifying hedges that are designated specifically to reduce exposure to interest rate risk by locking in the expected future cash payments on certain liabilities. This is typically accomplished using an interest rate swap, collar or cap. For financial reporting purposes, the gain or loss on the effective portion of the interest rate hedge is recorded as a component of equity, which becomes reclassified into earnings along with payments on the hedged liability. Upon adoption of SFAS No. 133/138 in January 2001, we will record a net transition adjustment of $555,962 in unrealized loss (income statement) and a net transition adjustment of $125,000 in accumulated other comprehensive income (equity) at that time. Adoption of the standard results in us recognizing $127,000 of derivative instrument liabilities. Adoption of SFAS No. 133/138 also results in a reclassification of approximately $10.6 million of deferred financing costs from past cashflow hedging relationships from other assets to other comprehensive income. As in the past, these amounts will be recognized as additional interest expense when the related cash flow payments on the debt are made. In general, the amount of volatility will vary with the level of derivative activities during any period. The fair market value of our derivatives is discussed under " -- Liquidity and Capital Resources." Effective January 1, 2000, we adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 does not change existing rules on revenue recognition. Rather, the SAB explains how existing revenue recognition guidance should be applied for transactions not specifically addressed by existing rules. The adoption of SAB 101 did not have a material impact on our net income or financial position. 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. 25 FFO equals net income (computed in accordance with GAAP) 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. 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. 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. 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. FFO and cash available for distribution for the years ended December 31, 2000, 1999 and 1998 are summarized in the following table (in thousands):
Year Ended December 31, ----------------------------------------- 2000 1999 1998 ------------ ------------ ----------- FFO: Income before minority interest and extraordinary item ........... $ 157,189 $ 166,213 $150,372 Add/(Deduct): Dividends to preferred shareholders ............................ (32,580) (32,580) (30,092) Cost of unsuccessful transactions .............................. -- 1,500 146 Severance costs and other division closing expenses ............ -- 1,813 -- Gain on disposition of land and depreciable assets, net of income taxes .................................................. (4,659) (8,679) (1,716) Gain on disposition of land .................................... 6,449 -- -- Depreciation and amortization .................................. 119,443 112,347 91,705 Depreciation on unconsolidated subsidiaries .................... 5,581 3,618 974 --------- --------- -------- FFO ........................................................... 251,423 244,232 211,389 Cash Available for Distribution: Add/(Deduct): Rental income from straight-line rents ......................... (14,892) (14,983) (13,385) Amortization of deferred financing costs ....................... 2,512 2,823 2,598 Non-incremental revenue generating capital expenditures: Building improvements paid .................................... (10,566) (10,056) (9,029) Second generation tenant improvements paid .................... (22,287) (25,043) (20,115) Second generation lease commissions paid ...................... (13,033) (13,653) (13,055) --------- --------- -------- Cash available for distribution ............................. $ 193,157 $ 183,320 $158,403 ========= ========= ======== Weighted average shares/units outstanding (1) -- diluted ......... 67,715 70,757 65,621 ========= ========= ======== Dividend payout ratios: FFO ............................................................ 60.6% 64.3% 65.2% ========= ========= ======== Cash available for distribution ................................ 78.9% 85.7% 87.0% ========= ========= ========
- ---------- (1) Assumes redemption of Common Units for shares of Common Stock. Minority interest Common Unit holders and the stockholders of the Company share equally on a per Common Unit and per share basis; therefore, the per share information is unaffected by conversion. 26 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, 91.7% 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: 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. 27 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, 2000, the Company had approximately $37.0 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 during the 12 months ended December 31, 2001, our interest expense would be increased or decreased approximately $370,000. Interest Rate Hedge Contracts. For a discussion of our interest rate hedge contracts in effect at December 31, 2000, see "Management's Discussion and Analysis of Financial Condition and Results of 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, 2000 would increase by approximately $552,000. If interest rates decrease by 100 basis points, the aggregate fair market value of these interest rate hedge contracts as of December 31, 2000 would decrease by approximately $761,000. 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. 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section under the heading "Election of Directors" of the Proxy Statement for the Annual Meeting of Stockholders to be held May 15, 2001 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 section under the heading "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is incorporated herein by reference. 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 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
Ex. FN Description - ----------- ----------- ------------------------------------------------------------------------ 2.1 (1) Operating Agreement of MG-HIW, LLC, entered into as of December 1, 2000, by and among Miller Global HIW 20, LLC and the Operating Partnership 3.1 (2) Amended and Restated Articles of Incorporation of the Company 3.2 (3) Amended and Restated Bylaws of the Company 4.1 (3) Specimen of certificate representing shares of Common Stock 4.2 (4) Indenture among the Operating Partnership, the Company and First Union National Bank of North Carolina dated as of December 1, 1996 4.3 (5) Specimen of certificate representing 8 5/8% Series A Cumulative Redeemable Preferred Shares 4.4 (6) Specimen of certificate representing 8% Series B Cumulative Redeemable Preferred Shares 4.5 (7) Specimen of certificate representing 8% Series D Cumulative Redeemable Preferred Shares 4.6 (7) Specimen of Depositary Receipt evidencing the Depositary Shares each representing 1/10 of an 8% Series D Cumulative Redeemable Preferred Share 4.7 (7) Deposit Agreement, dated April 23, 1998, between the Company and First Union National Bank, as preferred share depositary 4.8 (8) Rights Agreement, dated as of October 6, 1997, between the Company and First Union National Bank, as rights agent 4.9 (9) Agreement to furnish certain instruments defining the rights of long-term debt holders 10.1 (3) Amended and Restated Agreement of Limited Partnership of the Operating Partnership 10.2 (5) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series A Preferred Units 10.3 (6) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series B Preferred Units 10.4 (7) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series D Preferred Units 10.5 (10) 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 (11) 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 (12) Amended and Restated 1994 Stock Option Plan 10.8 (9) 1997 Performance Award Plan 10.9 (13) Form of Executive Supplemental Employment Agreement between the Company and Named Executive Officers
30
Ex. FN Description - ------------ ---------- ------------------------------------------------------------------- 10.10 (14) Form of warrants to purchase Common Stock of the Company issued to John L. Turner, William T. Wilson III and John E. Reece II 10.11 (15) Form of warrants to purchase Common Stock of the Company issued to W. Brian Reames, John W. Eakin and Thomas S. Smith 10.12 (16) 1999 Shareholder Value Plan 10.13 (1) Credit Agreement among Highwoods Realty Limited Partnership, Highwoods Properties, Inc., the Subsidiaries named therein and the Lenders named therein, dated as of December 13, 2000 21 (13) Schedule of subsidiaries of the Company 23 Consent of Ernst & Young LLP
- ---------- (1) Filed as part of the Company's Current Report on Form 8-K dated December 14, 2000 and incorporated herein by reference. (2) 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. (3) Filed as part of Registration Statement 33-76952 with the SEC and incorporated herein by reference. (4) Filed as part of the Operating Partnership's Current Report on Form 8-K dated December 2, 1996 and incorporated herein by reference. (5) Filed as part of the Company's Current Report on Form 8-K dated February 12, 1997 and incorporated herein by reference. (6) Filed as part of the Company's Current Report on Form 8-K dated September 25, 1997 and incorporated herein by reference. (7) Filed as part of the Company's Current Report on Form 8-K dated April 20, 1998 and incorporated herein by reference. (8) Filed as part of the Company's Current Report on Form 8-K dated October 4, 1997 and incorporated herein by reference. (9) 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. (10) 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. (11) 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. (12) Filed as part of the Company's proxy statement on Schedule 14A relating to the 1997 Annual Meeting of Stockholders. (13) 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. (14) Filed as part of Registration Statement 33-88364 with the SEC and incorporated herein by reference. (15) Filed as part of the Company's Current Report on Form 8-K dated April 1, 1996 and incorporated herein by reference. (16) Filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference. The Company will provide copies of any exhibit, upon written request, at a cost of $.05 per page. 31 (b) Reports on Form 8-K On December 20, 2000, the Company filed a current report on Form 8-K, dated December 14, 2000, reporting under Items 2 and 5 of the Form that it had formed a joint venture with Miller Global Properties, LLC and executed a new credit facility with a group of 10 lender banks. On January 25, 2001, the Company filed a current report on Form 8-K, dated January 25, 2001, reporting under Item 5 of the Form that it had repurchased a certain number of shares of common stock pursuant to its previously announced share repurchase program. 32 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 16, 2001. HIGHWOODS PROPERTIES, INC. 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.
Signature Title Date - -------------------------------------- ----------------------------- --------------- /s/ O. TEMPLE SLOAN, JR. Chairman of the Board of March 16, 2001 --------------------------------- Directors O. Temple Sloan, Jr. /s/ RONALD P. GIBSON President, Chief Executive March 16, 2001 --------------------------------- Officer and Director Ronald P. Gibson /s/ EDWARD J. FRITSCH Executive Vice President, March 16, 2001 --------------------------------- Chief Operating Officer, Edward J. Fritsch Secretary and Director /s/ JOHN L. TURNER Vice Chairman of the Board March 16, 2001 --------------------------------- and Chief Investment John L. Turner Officer /s/ GENE H. ANDERSON Senior Vice President and March 16, 2001 --------------------------------- Director Gene H. Anderson /s/ THOMAS W. ADLER Director March 16, 2001 --------------------------------- Thomas W. Adler /s/ KAY N. CALLISON Director March 16, 2001 --------------------------------- Kay N. Callison /s/ WILLIAM E. GRAHAM, JR. Director March 16, 2001 --------------------------------- William E. Graham, Jr. /s/ LAWRENCE S. KAPLAN Director March 16, 2001 --------------------------------- Lawrence S. Kaplan /s/ L. GLENN ORR, JR. Director March 16, 2001 --------------------------------- L. Glenn Orr, Jr. /s/ WILLARD H. SMITH JR. Director March 16, 2001 --------------------------------- Willard H. Smith Jr. /s/ CARMAN J. LIUZZO Vice President and Chief March 16, 2001 --------------------------------- Financial Officer (Principal Carman J. Liuzzo Financial Officer and Principal Accounting Officer) and Treasurer
33 (THIS PAGE INTENTIONALLY LEFT BLANK) INDEX TO FINANCIAL STATEMENTS
Page ----- Highwoods Properties, Inc. Report of Independent Auditors ......................................................... F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 ........................... F-3 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 . F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 ......................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 .............................................................................. F-6 Notes to Consolidated Financial Statements ............................................. F-8 Schedule III -- Real Estate and Accumulated Depreciation ............................... F-32
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 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS HIGHWOODS PROPERTIES, INC. We have audited the accompanying consolidated balance sheets of Highwoods Properties, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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 Company'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 Properties, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 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. /S/ ERNST & YOUNG LLP Raleigh, North Carolina February 19, 2001 F-2 HIGHWOODS PROPERTIES, INC. Consolidated Balance Sheets ($ in thousands, except per share amounts)
December 31, ------------------------------ 2000 1999 -------------- ------------- Assets Real estate assets, at cost: Land and improvements ................................................ $ 421,270 $ 491,273 Buildings and tenant improvements .................................... 2,742,946 3,056,962 Development in process ............................................... 87,622 186,925 Land held for development ............................................ 145,598 168,396 Furniture, fixtures and equipment .................................... 11,433 7,917 ---------- ---------- 3,408,869 3,911,473 Less -- accumulated depreciation ..................................... (280,610) (238,135) ---------- ---------- Net real estate assets ............................................... 3,128,259 3,673,338 Property held for sale ............................................... 127,824 48,960 Cash and cash equivalents .............................................. 104,780 34,496 Restricted cash ........................................................ 2,192 1,842 Accounts receivable, net of allowance of $825 and $800 at December 31, 2000 and 1999, respectively .......................................... 24,003 22,847 Advances to related parties ............................................ 27,560 15,096 Notes receivable ....................................................... 80,918 58,241 Accrued straight-line rents receivable ................................. 39,295 35,951 Investment in unconsolidated affiliates ................................ 78,423 38,977 Other assets: Deferred leasing costs ............................................... 83,269 66,783 Deferred financing costs ............................................. 43,110 40,125 Prepaid expenses and other ........................................... 11,878 15,614 ---------- ---------- 138,257 122,522 Less -- accumulated amortization ..................................... (49,909) (36,073) ---------- ---------- Other assets, net ................................................... 88,348 86,449 ---------- ---------- Total Assets ........................................................... $3,701,602 $4,016,197 ========== ========== Liabilities and Stockholders' Equity Mortgages and notes payable ............................................ $1,587,019 $1,766,117 Accounts payable, accrued expenses and other liabilities ............... 109,824 111,945 ---------- ---------- Total Liabilities .................................................... 1,696,843 1,878,062 Minority interest ...................................................... 213,214 245,665 Stockholders' equity: Preferred stock, $.01 par value, authorized 50,000,000 shares; 8 5/8% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 125,000 shares issued and outstanding at December 31, 2000 and 1999 ........................................... 125,000 125,000 8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 6,900,000 shares issued and outstanding at December 31, 2000 and 1999 ........................................... 172,500 172,500 8% Series D Cumulative Redeemable Preferred Shares (liquidation preference $250 per share), 400,000 shares issued and outstanding at December 31, 2000 and 1999, respectively ............................. 100,000 100,000 Common stock, $.01 par value, 200,000,000 authorized shares; 58,124,205 and 60,918,613 shares issued and outstanding at December 31, 2000 and December 31, 1999, respectively ...................................... 581 609 Additional paid-in capital ............................................. 1,506,161 1,572,031 Distributions in excess of net earnings ................................ (110,209) (77,670) Deferred compensation -- restricted stock .............................. (2,488) -- ---------- ---------- Total Stockholders' Equity ........................................... 1,791,545 1,892,470 ---------- ---------- Total Liabilities and Stockholders' Equity ............................. $3,701,602 $4,016,197 ========== ==========
See accompanying notes to consolidated financial statements. F-3 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Income (in thousands, except per share amounts) For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ------------ ------------ ----------- Revenue: Rental property ...................................................... $ 543,383 $ 566,816 $ 500,222 Equity in earnings of unconsolidated affiliates ...................... 3,863 1,185 430 Interest and other income ............................................ 19,185 16,934 11,819 --------- --------- --------- Total revenue .......................................................... 566,431 584,935 512,471 Operating expenses: Rental property ...................................................... 159,767 174,075 154,323 Depreciation and amortization ........................................ 119,443 112,347 91,705 Interest expense: Contractual ......................................................... 110,315 114,311 94,413 Amortization of deferred financing costs ............................ 2,512 2,823 2,598 --------- --------- --------- 112,827 117,134 97,011 General and administrative ........................................... 21,864 22,345 20,776 --------- --------- --------- Income before cost of unsuccessful transactions, gain on disposition of assets, minority interest and extraordinary item.... 152,530 159,034 148,656 Cost of unsuccessful transactions ................................... -- (1,500) -- Gain on disposition of assets ....................................... 4,659 8,679 1,716 --------- --------- --------- Income before minority interest and extraordinary item .............. 157,189 166,213 150,372 Minority interest ...................................................... (18,991) (20,779) (24,335) --------- --------- --------- Income before extraordinary item .................................... 138,198 145,434 126,037 Extraordinary item -- loss on early extinguishment of debt .............................................................. (4,711) (7,341) (387) --------- --------- --------- Net income .......................................................... 133,487 138,093 125,650 Dividends on preferred shares .......................................... (32,580) (32,580) (30,092) --------- --------- --------- Net income available for common shareholders ......................... $ 100,907 $ 105,513 $ 95,558 ========= ========= ========= Net income per common share -- basic: Income before extraordinary item ..................................... $ 1.78 $ 1.84 $ 1.75 Extraordinary item -- loss on early extinguishment of debt ........... (.08) (.12) (.01) --------- --------- --------- Net income ........................................................... $ 1.70 $ 1.72 $ 1.74 ========= ========= ========= Weighted average common shares outstanding -- basic .................. 59,175 61,443 54,791 ========= ========= ========= Net income per common share -- diluted: Income before extraordinary item ..................................... $ 1.78 $ 1.83 $ 1.74 Extraordinary item -- loss on early extinguishment of debt ........... (.08) (.12) -- --------- --------- --------- Net income ........................................................... $ 1.70 $ 1.71 $ 1.74 ========= ========= ========= Weighted average common shares outstanding -- diluted ................ 59,347 61,529 55,076 ========= ========= =========
See accompanying notes to consolidated financial statements. F-4 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Stockholders' Equity (in thousands, except for number of common shares) For the Years Ended December 31, 2000, 1999 and 1998
Number of Common Common Series A Series B Shares Stock Preferred Preferred -------------- ---------- ----------- ----------- Balance at December 31, 1997 ............... 46,838,600 $468 $125,000 $172,500 Issuance of Common Stock .................... 12,036,711 120 -- -- Series D Preferred Shares offering ........................ -- -- -- -- Common Stock dividends ....................... -- -- -- -- Preferred Stock dividends ....................... -- -- -- -- Net income ........................ -- -- -- -- Shares issued upon redemption of Common Units .................... 989,948 11 -- -- ---------- ----- -------- -------- Balance at December 31, 1998 ............... 59,865,259 599 125,000 172,500 Issuance of Common Stock .................... 1,191,462 12 -- -- Common Stock dividends ............ -- -- -- -- Preferred Stock dividends ......... -- -- -- -- Net Income ........................ -- -- -- -- Shares issued upon redemption of Common units .................... 1,258,316 12 -- -- Forward Equity Transaction ..................... -- -- -- -- Retirement of Common Stock .................... (246,424) (2) -- -- Purchase of Treasury Stock .................. (1,150,000) (12) -- -- ---------- ------ -------- -------- Balance at December 31, 1999 ............... 60,918,613 609 125,000 172,500 Issuance of Common Stock .................... 81,733 -- -- -- Common Stock dividends ............ -- -- -- -- Preferred Stock dividends ....................... -- -- -- -- Issuance of Restricted Stock ................ 104,945 1 -- -- Amortization of Deferred Compensation .................... -- -- -- -- Purchase of Treasury Stock .................. (2,981,086) (29) -- -- Net Income ........................ -- -- -- -- ---------- ------ -------- -------- Balance at December 31, 2000 ............... 58,124,205 $581 $125,000 $172,500 ========== ====== ======== ======== Retained Earnings (Distributions Additional Deferred in Excess Series D Paid-In Compen- of Net Preferred Capital sation Earnings) Total ----------- -------------- ------------ --------------- ------------- Balance at December 31, 1997 ............... $ -- $1,132,100 $ -- $ (28,627) $1,401,441 Issuance of Common Stock .................... -- 385,951 -- -- 386,071 Series D Preferred Shares offering ........................ 100,000 (3,192) -- -- 96,808 Common Stock dividends ....................... -- -- -- (115,623) (115,623) Preferred Stock dividends ....................... -- -- -- (30,092) (30,092) Net income ........................ -- -- -- 125,650 125,650 Shares issued upon redemption of Common Units .................... -- 31,733 -- -- 31,744 -------- ---------- ------- --------- ---------- Balance at December 31, 1998 ............... 100,000 1,546,592 -- (48,692) 1,895,999 Issuance of Common Stock .................... -- 23,079 -- -- 23,091 Common Stock dividends ............ -- -- -- (134,341) (134,341) Preferred Stock dividends ......... -- -- -- (32,580) (32,580) Net Income ........................ -- -- -- 138,093 138,093 Shares issued upon redemption of Common units .................... -- 40,606 -- -- 40,618 Forward Equity Transaction ..................... -- (12,783) -- -- (12,783) Retirement of Common Stock .................... -- -- -- (150) (152) Purchase of Treasury Stock .................. -- (25,463) -- -- (25,475) -------- ---------- ------- --------- ---------- Balance at December 31, 1999 ............... 100,000 1,572,031 -- (77,670) 1,892,470 Issuance of Common Stock .................... -- 749 -- -- 749 Common Stock dividends ............ -- -- -- (133,446) (133,446) Preferred Stock dividends ....................... -- -- -- (32,580) (32,580) Issuance of Restricted Stock ................ -- 2,557 (3,049) -- (491) Amortization of Deferred Compensation .................... -- -- 561 -- 561 Purchase of Treasury Stock .................. -- (69,176) -- -- (69,205) Net Income ........................ -- -- -- 133,487 133,487 -------- ---------- ------- --------- ---------- Balance at December 31, 2000 ............... $100,000 $1,506,161 $(2,488) $(110,209) $1,791,545 ======== ========== ======= ========= ==========
See accompanying notes to consolidated financial statements. F-5 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Cash Flows (in thousands) For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ------------- ------------- --------------- Operating activities: Net income ........................................................ $ 133,487 $ 138,093 $ 125,650 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ..................................................... 108,119 101,534 85,046 Amortization ..................................................... 13,836 13,636 9,257 Amortization of deferred compensation ............................ 561 -- -- Equity in earnings of unconsolidated affiliates .................. (3,863) (1,185) (430) Loss on early extinguishment of debt ............................. 4,711 7,341 387 Minority interest ................................................ 18,991 20,779 24,335 Gain on disposition of land and depreciable assets ............... (4,659) (8,679) (1,716) Changes in operating assets and liabilities: Accounts receivable .............................................. (1,156) 5,039 (7,168) Prepaid expenses and other assets ................................ 3,386 742 393 Accrued straight-line rents receivable ........................... (14,892) (14,983) (13,385) Accounts payable, accrued expenses and other liabilities ......... (2,121) (29,700) 41,410 ---------- ---------- ------------ Net cash provided by operating activities ..................... 256,400 232,617 263,779 ---------- ---------- ------------ Investing activities: Proceeds from disposition of real estate assets ................... 729,945 696,379 26,347 Additions to real estate assets ................................... (423,245) (511,056) (943,446) Advances to subsidiaries .......................................... (12,464) (4,676) (1,348) Distributions from unconsolidated affiliates ...................... 3,030 1,685 -- Investments in notes receivable ................................... (15,557) (18,016) (11,049) Other investing activities ........................................ 4,503 (3,953) (110,929) ---------- ---------- ------------ Net cash provided by/(used in) investing activities ........... 286,212 160,363 (1,040,425) ---------- ---------- ------------ Financing activities: Distributions paid on common stock and common units ............... (151,890) (154,088) (136,891) Dividends paid on preferred stock ................................. (32,580) (32,580) (30,092) Net proceeds from sale of preferred stock ......................... -- -- 96,808 Net proceeds from the sale of common stock ........................ 74 17,551 198,439 Repurchase of Common Stock and Units .............................. (101,138) (25,475) -- Payment of prepayment penalties ................................... (4,711) (7,341) (387) Borrowings on revolving loans ..................................... 546,000 529,500 956,500 Repayment of revolving loans ...................................... (775,000) (725,000) (846,500) Borrowings on mortgages and notes payable ......................... 218,162 332,693 745,356 Repayment of mortgages and notes payable .......................... (168,260) (321,261) (170,304) Net payment of deferred financing costs ........................... (2,985) (3,928) (14,984) ---------- ---------- ------------ Net cash (used in)/provided by financing activities ........... (472,328) (389,929) 797,945 ---------- ---------- ------------ Net increase in cash and cash equivalents ......................... 70,284 3,051 21,299 Cash and cash equivalents at beginning of the period .............. 34,496 31,445 10,146 ---------- ---------- ------------ Cash and cash equivalents at end of the period .................... $ 104,780 $ 34,496 $ 31,445 ========== ========== ============ Supplemental disclosure of cash flow information: Cash paid for interest ............................................ $ 134,976 $ 150,364 $ 95,468 ========== ========== ============
See accompanying notes to consolidated financial statements. F-6 HIGHWOODS PROPERTIES, INC. Consolidated Statements of Cash Flows -- Continued (in thousands) For the Years Ended December 31, 2000, 1999 and 1998 Supplemental disclosure of non-cash investing and financing activities: The following summarizes the net assets contributed by holders of common partnership interests ("Common Units") in Highwoods Realty Limited Partnership (the "Operating Partnership") other than Highwoods Properties, Inc. (the "Company") or acquired subject to mortgage notes payable:
2000 1999 1998 ------------- ------------- ----------- Assets: Net real estate assets ........................................... $ (56,055) $ (78,012) $478,224 Cash and cash equivalents ........................................ -- (4,719) 55,064 Accounts receivable and other .................................... -- (2,975) 6,634 Investment in unconsolidated affiliates .......................... 48,054 13,830 18,218 Notes receivable ................................................. 6,372 32,695 29,176 --------- --------- -------- Total Assets ................................................... $ (1,629) $ (39,181) $587,316 ========= ========= ======== Liabilities: Mortgages and notes payable ...................................... -- (58,531) 345,106 Accounts payable, accrued expenses and other liabilities ......... -- 7,604 34,044 --------- --------- -------- Total Liabilities .............................................. -- (50,927) 379,150 --------- --------- -------- Net Assets .................................................... $ (1,629) $ 11,746 $208,166 ========= ========= ========
See accompanying notes to consolidated financial statements. F-7 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of the Company Highwoods Properties, Inc. (the "Company") is a self-administered and self-managed real estate investment trust ("REIT") which operates in the southeastern and midwestern United States. The Company's wholly owned assets include: 493 in-service office, industrial and retail properties; 1,885 apartment units; 1,317 acres of undeveloped land suitable for future development; and an additional 26 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, Highwoods Realty Limited Partnership (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. At December 31, 2000, the Company owned 88.0% 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. 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 Company and the Operating Partnership and its majority-owned affiliates. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The Company is a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Minority interest represents the limited partnership interest in the Operating Partnership owned by Common Unit holders other than the Company. Per share information is calculated using the weighted average number of common shares outstanding. The extraordinary loss represents the payment of prepayment penalties and the writeoff 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 five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized over the life of the respective leases, using the straight-line method. Real estate assets are stated at the lower of cost or fair value, if impaired. F-8 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued The Company evaluates its real estate assets upon the 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, 2000, none of the Company's assets were considered impaired. As of December 31, 2000, the Company had 258,000 square feet of properties and 1,672 apartment units under contract for sale in various transactions totaling $161.3 million. These real estate assets have a carrying value of $127.8 million and have been classified as assets held for sale in the accompanying financial statements. Cash Equivalents The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Restricted Cash The Company is required by certain mortgage notes to escrow real estate taxes with the mortgagor. At December 31, 2000 and 1999, those balances were $737,602 and $1,683,282, respectively. Investments in Unconsolidated Affiliates Investments in unconsolidated affiliates are accounted for using the equity method and reflect the Company'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. Income Taxes The Company is a REIT for federal income tax purposes. A corporate REIT is a legal entity that holds real estate assets, and through distributions to stockholders, is permitted to reduce or avoid the payment of Federal income taxes at the corporate level. As of December 31, 2000, to maintain qualification as a REIT, the Company must distribute to stockholders at least 95% of REIT taxable income. Effective January 1, 2001, the Company must distribute to stockholders at least 90% of REIT taxable income to maintain qualification as a REIT. No provision has been made for income taxes because the Company qualified as a REIT, distributed the necessary amount of taxable income and, therefore, incurred no income tax expense during the period. F-9 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued Concentration of Credit Risk Management of the Company performs ongoing credit evaluations of its tenants. As of December 31, 2000, the wholly owned in-service properties (excluding apartment units) were leased to 2,712 tenants in 14 geographic locations. The Company's tenants engage in a wide variety of businesses. There is no dependence upon any single tenant. Interest Rate Risk Management The Company may enter into interest rate hedge contracts such as swaps, caps and collars in order to mitigate its interest rate risk on financial instruments. The Company 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 applicable debt instrument. Payments to or from counterparties are recorded as adjustments to interest expense. The Company 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 Company 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 Company could be required to pay the full rate under its $300.0 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 Company would not realize a material loss as of December 31, 2000, in the event of non-performance by any one counterparty. Additionally, the Company limits the amount of credit exposure with any one institution. 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 the shares at the date of grant. As described in Note 9, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. F-10 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued 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 Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("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 stockholders' equity exclusive of transactions with owners such as capital contributions and dividends. The Company did not report any comprehensive income items in any of the years presented. Segment Reporting Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("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. 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, the 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. In June 2000, FASB issued Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of FASB Statement No. 133. Statement No. 133, as amended by Statement No. 138, requires the Company 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 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 the Company's derivatives is discussed in Note 3. The Company will adopt SFAS No. 133/138, Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001. This new accounting standard requires companies to carry all derivative instruments, including certain embedded derivatives, in the statement of financial condition at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. The Company uses only qualifying hedges that are designated specifically to reduce exposure to interest rate risk by locking in the expected future cash payments on certain liabilities. This is typically accomplished using an interest rate swap, collar or cap. For financial reporting purposes, the gain or loss on the effective portion of the interest rate hedge is recorded as a component of equity, which becomes reclassified into earnings along with payments on the hedged liability. In connection with the adoption of SFAS No. 133/138 in January 2001, the Company recorded a net transition adjustment of $555,962 in unrealized loss (income statement) and a net transition adjustment of $125,000 in accumulated other comprehensive income (equity). Adoption of the standard has also resulted in the Company recognizing $127,000 of derivative instrument liabilities. Adoption of SFAS F-11 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued No. 133/138 also results in a reclassification of approximately $10.6 million of deferred financing costs from past cashflow hedging relationships from other assets to other comprehensive income. As in the past, these amounts will be recognized as additional interest expense when the related cash flow payments on the debt are made. In general, the amount of volatility will vary with the level of derivative activities during any period. Effective January 1, 2000, the Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 did not change existing rules on revenue recognition. Rather, it explains how existing revenue recognition guidance should be applied for transactions not specifically addressed by existing rules. The adoption of SAB 101 did not have a material impact on the Company's net income or financial position. Reclassifications Certain amounts in the December 31, 1999 and 1998 Financial Statements have been reclassified to conform to the December 31, 2000 presentation. These reclassifications had no material effect on net income or stockholders' equity as previously reported. 2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES On March 15, 1999, the Company closed a transaction with Schweiz-Deutschland-USA Dreilander Beteiligung Objekt DLF 98/29-Walker Fink-KG ("DLF"), pursuant to which the Company 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 $71.0 million from third-party lenders. The Company 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 Company receives customary management fees and leasing commissions. 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 Company 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 Company's consolidated financial statements. On June 2, 1999, the Company 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. Accordingly, the Company has adopted the equity method of accounting for its investment in each of the Des Moines properties as a result of such reorganization. The impact of the reorganization was immaterial to the consolidated financial statements of the Company. On May 9, 2000, the Company closed a transaction with Dreilander-Fonds 97/26 and 99/32 ("DLF II") pursuant to which the Company sold or contributed five in-service office properties encompassing 570,000 rentable square feet and a 246,000-square-foot development project valued at approximately $110.0 million to a newly created limited partnership (the "DLF II Joint Venture"). DLF II contributed $24.0 million in cash for a 40.0% ownership interest in the DLF II Joint Venture and the DLF II Joint Venture borrowed approximately $50.0 million from a third-party lender. The Company initially retained the remaining 60.0% interest in the DLF II Joint Venture, received net cash proceeds of approximately $74.0 million and is the sole and exclusive manager and leasing agent of the DLF II Joint Venture's properties, for which the Company receives customary management fees and leasing commissions. During F-12 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES -- Continued 2000, DLF II contributed an additional $8.2 million in cash to the DLF II Joint Venture, which increased its ownership percentage to 53.0%. The Company has adopted the equity method of accounting for this joint venture. On December 19, 2000, the Company formed various joint ventures with Denver-based Miller Global Properties, LLC ("Miller Global"). In the first joint venture, the Company sold or contributed 19 in-service office properties encompassing approximately 2.5 million rentable square feet valued at approximately $335.0 million to a newly created limited liability company. As part of the formation of the first joint venture, Miller Global contributed approximately $85.0 million in cash for an 80% ownership interest and the joint venture borrowed approximately $238.8 million from a third-party lender. The Company retained a 20.0% ownership interest and received net cash proceeds of approximately $307.0 million. The Company has also agreed to contribute two additional development properties valued at approximately $10.3 million for a 20.0% ownership interest during the first part of 2001. The joint venture expects to borrow up to $7.2 million in connection with these two projects that will be funded by the existing third party lender. In the remaining joint ventures, the Company contributed approximately $7.5 million of development land to various newly created limited liability companies. These joint ventures expect to develop four properties encompassing 435,000 rentable square feet with a budgeted cost of approximately $61.0 million. The Company and Miller Global each own 50.0% of these joint ventures. In addition, the Company is the sole and exclusive manager and leasing agent for the properties in all of these joint ventures and receives customary management fees and leasing commissions. The Company has adopted the equity method of accounting for all of these joint ventures. As a result of these transactions, the Company had investments accounted for under the equity method of accounting which consisted of the following at December 31, 2000 and 1999:
2000 1999 Percent owned Percent owned --------------- -------------- Dallas County Partners ............................. 50.00% 50.00% Dallas County Partners II .......................... 50.00 50.00 Dallas County Partners III ......................... 50.00 50.00 Fountain Three ..................................... 50.00 50.00 Kessinger/Hunter, L.C. ............................. 30.00 30.00 4600 Madison Associates, L.P. ...................... 12.50 12.50 Schweiz-Deutschland-USA DreilanderBeteiligung Objekt DLF 98/29-Walker Fink-KG .......................... 22.81 22.81 Dreilander-Fonds 97/26 and 99/32 ................... 47.00 -- RRHWoods, LC ....................................... 50.00 50.00 Highwoods-Markel Assoc., LLC ....................... 50.00 50.00 MG-HIW, LLC ........................................ 20.00 -- MG-HIW Peachtree Corners III, LLC .................. 50.00 -- MH-HIW Rocky Point, LLC ............................ 50.00 -- MG-HIW Metrowest I, LLC ............................ 50.00 -- MG-HIW Metrowest II, LLC ........................... 50.00 --
Selected aggregate financial data for unconsolidated affiliates for 2000 and 1999 is presented below:
2000 1999 ----------- ----------- (in thousands) Total assets ....................................... $858,935 $374,566 Total liabilities .................................. $569,360 $266,832 Net income ......................................... $ 11,753 $ 5,473
F-13 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. MORTGAGES AND NOTES PAYABLE Mortgages and notes payable consisted of the following at December 31, 2000 and 1999:
2000 1999 ------------- ------------ (in thousands) Mortgage notes payable: 9.0% mortgage note due 2005 ................... $ 37,697 $ 38,400 8.1% mortgage note due 2005 ................... 29,328 29,914 8.2% mortgage note due 2007 ................... 71,183 42,167 7.8% mortgage note due 2009 ................... 92,840 94,024 7.9% mortgage note due 2009 ................... 92,861 94,027 7.8% mortgage note due 2010 ................... 136,836 -- 8.0% mortgage notes due 2013 .................. -- 59,064 6.0% to 10.5% mortgage notes due between 2000 and 2022 ................................ 129,736 185,080 Industrial Revenue Bonds due 2015 ............. 37,000 37,000 Variable rate mortgage note due 2001 .......... 8,199 -- Variable rate mortgage notes due 2021 ......... -- 1,889 ---------- ---------- 635,680 581,565 ---------- ---------- Unsecured indebtedness: 6.75% notes due 2003 .......................... $ 100,000 $ 100,000 8.0% notes due 2003 ........................... 146,500 150,000 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 ................... 19,839 20,552 Revolving loan due 2001 and 2003 .............. -- 229,000 ---------- ---------- 951,339 1,184,552 ---------- ---------- Total ........................... $1,587,019 $1,766,117 ========== ==========
Secured Indebtedness Mortgage notes payable were secured by real estate assets with an aggregate carrying value of $1.0 billion at December 31, 2000. Unsecured Indebtedness On June 24, 1997, the Operating Partnership sold $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the "Put Option Notes"). The Put Option Notes bear an interest rate of 7.19%. 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%. Under certain circumstances, the MOPPRS could become subject to early maturity on January 31, 2003. On December 14, 2000, the Company obtained its new $300.0 million revolving loan (the "Revolving Loan") from a group of 10 lender banks. The Revolving Loan matures in December 2003 and replaces the Company's previous $450.0 million revolving credit facility. The Revolving Loan carries an interest rate based upon the Company's senior unsecured credit ratings. As a result, interest would currently accrue on borrowings under the Revolving Loan at an average rate of LIBOR plus 85 basis points. The F-14 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. MORTGAGES AND NOTES PAYABLE -- Continued Revolving Loan also includes a $150.0 million competitive bid sub-facility. At December 31, 2000, the Company had not borrowed any funds under the Revolving Loan. The terms of the Revolving Loan require the Company to pay an annual facility fee equal to .20% of the aggregate amount of the Revolving Loan and require compliance with certain financial covenants. At December 31, 2000, the Company was in compliance with these covenants. Interest Rate Hedge Contracts To meet in part its long-term liquidity requirements, the Company borrows funds at a combination of fixed and variable rates. Borrowings under the Revolving Loan bear interest at variable rates. The Company's long-term debt, which consists of long-term financings and the issuance of debt securities, typically bears interest at fixed rates. In addition, the Company has assumed fixed rate and variable rate debt in connection with acquiring properties. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve these objectives, from time to time the Company enters into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate its interest rate risk with respect to various debt instruments. The Company does not hold or issue these derivative contracts for trading or speculative purposes. The following table sets forth information regarding the Company's interest rate hedge contracts as of December 31, 2000 ($ in thousands):
Notional Maturity Fixed Fair Market Type of Hedge Amount Date Reference Rate Rate Value - --------------- ---------- ---------- ----------------------- -------------- ------------ Swap $19,839 6/10/02 1-Month LIBOR + 0.75% 6.95% $ (125) Collar $80,000 10/01/01 1-Month LIBOR 5.60 - 6.25% $ (2) Cap $ 8,434 6/15/01 1-Month LIBOR 7.75% $ --
The interest rate on all of the Company's variable rate debt is adjusted at one- and three-month intervals, subject to settlements under these contracts. Net receipts/(payments) made to counterparties under interest rate hedge contracts were ($206,894), $304,720 and $48,000 in 2000, 1999 and 1998, respectively, and were recorded as (decreases)/increases to interest expense. In addition, the Company is exposed to certain losses in the event of non-performance by the counterparties under the interest rate hedge contracts. The Company 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 Company could be required to pay the full rates on its debt, even if such rates were in excess of the rates in the contracts. F-15 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. MORTGAGES AND NOTES PAYABLE -- Continued Other Information The aggregate maturities of the mortgage and notes payable at December 31, 2000 are as follows:
Year of Maturity Principal Amount - -------------------------------- ----------------- (in thousands) 2001 ......................... $ 19,226 2002 ......................... 58,455 2003 ......................... 262,031 2004 ......................... 13,957 2005 ......................... 80,944 Thereafter ................... 1,152,406 ---------- $1,587,019 ==========
Total interest capitalized was approximately $23,669,000, $29,147,000 and $17,968,000 in 2000, 1999 and 1998, respectively. 4. EMPLOYEE BENEFIT PLANS Management Compensation Program The Company's executive officers 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's 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 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. Beginning on January 1, 1999, the Company established a Shareholder Value Plan which allows executive officers to participate in a long term incentive plan which includes annual grants of stock options and restricted shares. The mix of awards varies by position in the Company. The stock options vest ratably over four years. The restricted shares vest 50% after three years and 50% after five years. The F-16 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 4. EMPLOYEE BENEFIT PLANS -- Continued awards are recorded at market value on the date of grant as unearned compensation expense and amortized over the restriction periods. Generally, recipients are eligible to receive dividends on restricted stock issued. Restricted stock and annual expense information is as follows:
2000 ------------ Restricted shares outstanding at January 1, 2000 ............ -- Number of restricted shares awarded ......................... 112,903 Restricted shares repurchased or cancelled .................. (7,958) ------- Restricted shares outstanding at December 31, 2000 .......... 104,945 ======= Annual expense, net ......................................... $561,000 ======== Average fair value per share ................................ $ 24.19 ========
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 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 begins each year under this program. In September 2000, the Company established a deferred compensation plan pursuant to which various executive officers could elect to defer a portion of the compensation that would otherwise be paid to the executive officer for investment in units of phantom stock. The maximum amount any executive officer can elect to defer for investment in units of phantom stock in any year is 25% each of his gross base salary and annual incentive bonus. At the end of each calendar quarter, any executive officer that elects to defer compensation in such a manner is credited with units of phantom stock at a 15% discount. Payouts will generally be made five years after the end of the calendar year in which units of phantom stock were credited. 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 6.0% of compensation deferred at the rate of 75.0% of employee contributions. During 2000, 1999 and 1998, the Company contributed $955,303, $763,319, and $588,000, respectively, to the 401(k) savings plan. Administrative expenses of the plan are paid by the Company. 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 85% of the market value of the Common Stock, calculated as the lower of 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 55,593 and 29,214 shares of Common Stock under the Employee Stock Purchase Plan during the years ended December 31, 2000 and 1999, respectively. F-17 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 5. RENTAL INCOME The Company'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 Company 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, 2000, are as follows (in thousands): 2001 ...................... $ 425,080 2002 ...................... 394,587 2003 ...................... 342,600 2004 ...................... 285,812 2005 ...................... 229,350 Thereafter ................ 839,586 ---------- $2,517,015 ==========
6. RELATED PARTY TRANSACTIONS The Company 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 $27.1 million at December 31, 2000, and $15.1 million at December 31, 1999. The Company recorded interest income from these advances of $1.2 million, $1.1 million and $826,000 for the years ended December 31, 2000, 1999 and 1998, respectively. On December 8, 1998, the Company 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 Company 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. During 2000, the Company sold certain properties encompassing 2.0 million square feet to an entity controlled by a former executive officer and director for approximately $169.0 million, consisting of cash, shares of Common Stock, Common Units and the waiver and/or termination of certain outstanding obligations existing under various agreements between the Company and such former executive officer and director. 7. STOCKHOLDERS' EQUITY Common Stock Distributions Distributions paid on Common Stock were $2.25, $2.19 and $2.10 per share for the years ended December 31, 2000, 1999 and 1998, respectively. F-18 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. STOCKHOLDERS' EQUITY -- Continued For federal income tax purposes, the following table summarizes the estimated taxability of distributions paid:
2000 1999 1998 ---------- ---------- ---------- Per share: Ordinary income .................... $ 1.67 $ 1.70 $ 1.84 Capital gains ...................... .58 .49 .01 Return of capital .................. -- -- .25 ------- ------- ------- Total .............................. $ 2.25 $ 2.19 $ 2.10 ======= ======= =======
The Company's tax returns for the year ended December 31, 2000 have not been filed, and the taxability information for 2000 is based upon the best available data. The Company's tax returns have not been examined by the IRS, and therefore the taxability of distributions is subject to change. As of December 31, 2000, the tax basis of the Company's assets was $3,178,835,000. On January 30, 2001, the Board of Directors declared a Common Stock distribution of $.57 per share payable on February 22, 2001, to stockholders of record on February 9, 2001. Preferred Stock On February 12, 1997, the Company issued 125,000 8 5/8% Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares"). The Series A Preferred Shares are non-voting and have a liquidation preference of $1,000 per share for an aggregate liquidation preference of $125.0 million plus accrued and unpaid dividends. The net proceeds (after underwriting commission and other offering costs) of the Series A Preferred Shares issued were $121.8 million. Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by the Company's Board of Directors, out of funds legally available for payment of distributions, cumulative preferential cash distributions at a rate of 8 5/8% of the liquidation preference per annum (equivalent to $86.25 per share). On or after February 12, 2027, the Series A Preferred Shares may be redeemed for cash at the option of 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 capital shares of the Company, which may include shares of other series of preferred stock. Of the $86.25 distribution paid per Series A Preferred Share in 2000, $67.14 will be taxed as ordinary income and $19.11 will be taxed as capital gain. On September 25, 1997, the Company issued 6,900,000 8% Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Shares"). The Series B Preferred Shares are non-voting and have a liquidation preference of $25 per share for an aggregate liquidation preference of $172.5 million plus accrued and unpaid dividends. The net proceeds (after underwriting commission and other offering costs) of the Series B Preferred Shares issued were $166.3 million. Holders of the Series B Preferred Shares are entitled to receive, when, as and if declared by the Company's Board of Directors, out of funds legally available for payment of distributions, cumulative preferential cash distributions at a rate of 8% of the liquidation preference per annum (equivalent to $2.00 per share). On or after September 25, 2002, the Series B Preferred Shares may be redeemed for cash at the option of 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 capital shares of the Company, which may include shares of other series of preferred stock. Of the $2.00 distribution paid per Series B Preferred Share 2000, $1.56 will be taxed as ordinary income and $0.44 will be taxed as capital gain. On April 23, 1998, the Company issued 4,000,000 depositary shares (the "Series D Depositary Shares"), each representing a 1/10 fractional interest in an 8% Series D Cumulative Redeemable Preferred F-19 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. STOCKHOLDERS' EQUITY -- Continued Share (the "Series D Preferred Shares"). The Series D Preferred Shares are non-voting and have a liquidation preference of $250 per share for an aggregate liquidation preference of $100 million plus accrued and unpaid dividends. The net proceeds (after underwriting commission and other offering costs) of the Series D Preferred Shares issued were $96.8 million. Holders of Series D Preferred Shares are entitled to receive, when, as and if declared by the Company's Board of Directors, out of funds legally available for payment of distributions, cumulative preferential cash distributions at a rate of 8% of the liquidation preference per annum (equivalent to $20.00 per share). On or after April 23, 2003, the Series D Preferred Shares may be redeemed for cash at the option of 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 capital shares of the Company, which may include shares of other series of preferred stock. Of the $20.00 distribution paid per Series D Preferred Share in 2000, $15.57 will be taxed as ordinary income and $4.43 will be taxed as capital gain. Shareholder Rights Plan On October 4, 1997, the Board declared a dividend on one preferred share purchase right ("Right") for each outstanding share of Common Stock to be distributed to all holders of record of the Common Stock on October 16, 1997. The Rights attach to shares of Common Stock subsequently issued. Each Right entitles the registered holder to purchase one-hundredth of a participating preferred share for an exercise price of $140.00 per one-hundredth of a participating preferred share, subject to adjustment as provided in the rights agreement. The Rights will generally be exercisable only if a person or group acquires 15% or more of the Common Stock or announces a tender offer for 15% or more of the Common Stock. The Rights will expire on October 6, 2007, unless the expiration date of the Rights is extended, and the Rights are subject to redemption at a price of $0.01 per Right under certain circumstances. Dividend Reinvestment Plan The Company has instituted a Dividend Reinvestment and Stock Purchase Plan under which holders of Common Stock may elect to automatically reinvest their distributions in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The Company may issue additional shares of Common Stock or repurchase Common Stock in the open market for purposes of financing its obligations under the Dividend Reinvestment and Stock Purchase Plan. Equity Settlement On August 28, 1997, the Company entered into a purchase agreement with UBS AG, London Branch ("UB-LB") involving the sale of 1.8 million shares of Common Stock and a related forward contract providing for certain purchase price adjustments. The forward contract (as amended) generally provided that if the market price was less than a certain amount, referred to as the "Forward Price," the Company would be required to pay UB-LB the difference times 1.8 million. (Similarly, if the Market Price of a share of Common Stock was above the Forward Price, UB-LB was required to pay the Company the difference in shares of Common Stock.) On February 28, 1999, the Company and UB-LB amended the forward contract. Pursuant to the amendment, UB-LB applied $12.8 million in Company collateral to "buy down" the Forward Price by approximately $7.10 and the Company issued 161,924 shares of Common Stock to UB-LB as an interim settlement payment. On June 9, 1999, the Company settled the transaction. In connection with the settlement, 246,424 shares of Common Stock were returned and canceled. F-20 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. STOCKHOLDERS' EQUITY -- Continued 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 discretion, repurchase up to 10.0 million shares of its outstanding Common Stock and Common Units. As of December 31, 2000, the Company had used net proceeds from its disposition activity, either through direct payments or repayment of borrowings under the Revolving Loan, to repurchase 5.4 million shares of Common Stock and Common Units through periodic open market or privately negotiated transactions at a weighted average price of $23.36 per share. 8. EARNINGS PER SHARE FASB Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is computed using the weighted average number of shares of Common Stock and the dilutive effect of options, warrants and convertible securities outstanding, using the "treasury stock" method. Earnings per share 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 share amounts for all periods presented have, where appropriate, been restated to conform to the FASB Statement 128 requirements. F-21 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 8. EARNINGS PER SHARE -- Continued The following table sets forth the computation of basic and diluted earnings per share:
2000 1999 1998 --------------- --------------- -------------- (in thousands, except per share amounts) Numerator: Income before minority interest and extraordinary item ......... $157,189 $166,213 $150,372 Non-convertible preferred stock dividends (4) .................. (32,580) (32,580) (30,092) Minority interest .............................................. (18,991) (20,779) (24,335) General partner's portion of extraordinary item ................ (4,711) (7,341) (387) --------- --------- -------- Numerator for basic earnings per share -- income available to common shareholders ....................................... $100,907 $105,513 $ 95,558 Effect of dilutive securities: Minority interest ............................................ --(1) --(2) --(3) Minority interest portion of extraordinary item .............. --(1) --(2) --(3) ---------- ---------- ---------- --(1) --(2) --(3) Numerator for diluted earnings per share -- net income available to common shareholders -- after assumed conversions ............................................ $100,875 $105,513 $ 95,558 Denominator: Denominator for basic earnings per share -- weighted-average shares ........................................ 59,175 61,443 54,791 Effect of dilutive securites: Employee stock options (4) ................................... 162 78 240 Warrants (4) ................................................. 10 8 45 Common Units converted ....................................... --(1) --(2) --(3) ---------- ---------- ---------- Dilutive potential common shares ............................... 172 86 285 Denominator for diluted earnings per share -- adjusted weighted average shares and assumed conversions .................................................... 59,347 61,529 55,076 Basic earnings per share ........................................ $ 1.70 $ 1.72 $ 1.74 ========== ========== ========== Diluted earnings per share ...................................... $ 1.70 $ 1.71 $ 1.74 ========== ========== ==========
- ---------- (1) 8.4 million Common Units and the related $19.0 million in minority interest, net of $584,000 of the minority interest's portion of the extraordinary item, were excluded from the dilutive earnings per share calculation due to the anti-dilutive effect. (2) 9.3 million Common Units and the related $20.8 million in minority interest, net of $959,000 of the minority interest's portion of the extraordinary item, were excluded from the dilutive earnings per share calculation due to the anti-dilutive effect. (3) 10.5 million Common Units and the related $24.3 million in minority interest, net of $62,000 of the minority interest's portion of the extraordinary item, were excluded from the dilutive earnings per share calculation due to the anti-dilutive effect. (4) 7.7 million Common Units and the related $15.1 million in minority interest, net of $1.1 million of the minority interest's portion of the extraordinary item, were excluded from the dilutive earnings per share calculation due to the anti-dilutive effect. For additional disclosures regarding outstanding preferred stock, the employee stock options and the warrants, see Notes 4, 7 and 9. F-22 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 9. STOCK OPTIONS AND WARRANTS As of December 31, 2000, 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 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 123 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 2000 was estimated at the dates of grant using the following weighted average assumptions: risk-free interest rates ranging between 5.78% and 6.67%, dividend yield of 10.91% and a weighted average expected life of the options of five years. The fair value of the options granted in 1999 was estimated at the dates of grant using the following weighted average assumptions: risk-free interest 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 dates 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. Had the compensation cost for the Company's stock option plans been determined based on the fair value at the dates of grant for awards in 2000, 1999 and 1998 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: F-23 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 9. STOCK OPTIONS AND WARRANTS -- Continued
Year ended December 31 -------------------------------------------- 2000 1999 1998 ------------- ------------- ------------ (dollars in thousands, except per share amounts) Net income -- as reported ............................. $ 100,907 $ 105,513 $95,558 Net income -- pro forma ............................... $ 98,468 $ 103,181 $93,394 Net income per share -- basic (as reported) ........... $ 1.70 $ 1.72 $ 1.74 Net income per share -- diluted (as reported) ......... $ 1.70 $ 1.71 $ 1.74 Net income per share -- basic (pro forma) ............. $ 1.66 $ 1.68 $ 1.70 Net income per share -- diluted (pro forma) ........... $ 1.66 $ 1.68 $ 1.70
The following table summarizes information about employees' and Board of Directors' stock options outstanding at December 31, 2000, 1999 and 1998:
Options Outstanding ----------------------------- Weighted Average Number Exercise of Shares Price --------------- ----------- 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 Options granted ....................... 1,050,204 20.96 Options canceled ...................... (2,072,453) 32.17 Options exercised ..................... (103,527) 16.87 ---------- -------- Balances at December 31, 2000 ......... 3,273,658 $ 23.06 ========== ========
Options Exercisable ------------------------- Weighted Average Number of Exercise Shares Price ----------- ----------- December 31, 1998 ..................... 1,315,898 $ 26.65 December 31, 1999 ..................... 1,227,004 $ 26.47 December 31, 2000 ..................... 1,242,629 $ 24.45
Exercise prices for options outstanding as of December 31, 2000 ranged from $9.54 to $35.88. The weighted average remaining contractual life of those options is 7.5 years. Using the Black-Scholes options valuation model, the weighted average fair value of options granted during 2000, 1999 and 1998 was $0.90, $0.68 and $2.98, respectively. Warrants In connection with various acquisitions in 1997, 1996 and 1995, the Company issued warrants to purchase shares of Common Stock. F-24 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 9. STOCK OPTIONS AND WARRANTS -- Continued The following table sets forth information regarding warrants outstanding as of December 31, 2000:
Number of Exercise Date of Issuance Warrants Price - ---------------------------- ----------- ----------- February 1995 ......... 35,000 $ 21.00 April 1996 ............ 150,000 $ 28.00 October 1997 .......... 538,035 $ 32.50 December 1997 ......... 120,000 $ 34.13 ------- Total ................ 843,035 =======
The warrants granted in February 1995, April 1996 and December 1997 expire 10 years from the respective dates of issuance. All warrants are exercisable from the dates of issuance. The warrants granted in October 1997 do not have an expiration date. 10. COMMITMENTS AND CONTINGENCIES Lease Certain properties in the Company's wholly owned 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 Company 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 Company 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): 2001 ..................... $ 1,236 2002 ..................... 1,211 2003 ..................... 1,194 2004 ..................... 1,194 2005 ..................... 1,194 Thereafter ............... 48,840 ------- $54,869 =======
Litigation On October 2, 1998, John Flake, a former stockholder of J.C. Nichols Company, 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 asserts claims against J.C. Nichols and certain named directors and officers of J.C. Nichols for breach of fiduciary duty to J.C. Nichols' stockholders and to members of the J.C. Nichols Company Employee Stock Ownership Trust, as well as claims under Section 14(a) of the Securities Exchange Act of 1934 and Sections 11 and 12(2) of the Securities Act of 1933 variously against J.C. Nichols, the named directors and officers of J.C. Nichols and the Company. By order dated June 18, 1999, the court granted in part and denied in part our motion to dismiss, and the court thereafter certified the proposed class of plaintiffs with respect to the remaining claims. By order dated August 28, 2000, the court granted in part and denied in part defendants' summary judgment F-25 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 10. COMMITMENTS AND CONTINGENCIES -- Continued motion. Defendants sought reconsideration of the court's ruling with respect to certain of the securities claims as to which the court denied their summary judgment motion, and by order dated January 11, 2001, the court granted in part that reconsideration motion. On the eve of the trial of this matter, the parties settled all their remaining claims. The terms of that settlement are now being documented. The Company does not believe the settlement will have a material adverse effect on its business, financial condition or 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 Company has entered into construction contracts totaling $417.4 million at December 31, 2000. The amounts remaining on these contracts as of December 31, 2000 totaled $81.5 million. The Company has entered into various contracts under which it is committed to acquire 97.4 acres of land over a three year period for an aggregate purchase price of approximately $11.5 million. Capital Expenditures The Company 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 Company'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 Company 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. 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 Company 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 Company's financial instruments at December 31, 2000 were as follows: F-26 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
Carrying Fair Amount Value ------------- ------------- (in thousands) Cash and cash equivalents ............. $ 104,780 $ 104,780 Accounts and notes receivable ......... $ 104,921 $ 104,921 Mortgages and notes payable ........... $1,587,019 $1,613,783 Interest rate hedge contracts ......... $ 554 $ (127)
The fair values for the Company's fixed rate mortgages and notes payable were estimated using discounted cash flow analysis, based on the Company's estimated incremental borrowing rate at December 31, 2000, for similar types of borrowing arrangements. The carrying amounts of the Company's variable rate borrowings approximate fair value. The fair values of the Company's interest rate hedge contracts represent the estimated amount the Company 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 Company at December 31, 2000. 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 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 Company'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 1998. During 1999, the Company sold approximately 3.3 million rentable square feet of 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 Company sold approximately 2.9 million rentable square feet of office and industrial properties for gross proceeds of $208.1 million. The Company recorded a gain of $8.7 million related to these dispositions. In addition to the properties sold or contributed to the joint ventures, during 2000, as discussed in Note 2, the Company sold approximately 4.8 million rentable square feet of office and industrial properties and 272.0 acres of development land for gross proceeds of $369.5 million. Since December 31, 2000, the Company has sold 76,000 square feet of office properties and 277 apartment units for gross proceeds of $46.8 million. F-27 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 13. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED) The following unaudited pro forma information has been prepared assuming the acquisition of J.C. Nichols Company occurred as of January 1, 1998 (in thousands, except per share amounts):
Pro Forma Year Ended December 31, 1998 --------------------- Revenues ..................................... $ 559,083 Net income before extraordinary item ......... $ 132,986 Net income ................................... $ 132,599 Net income per share -- basic ................ $ 1.87 Net income per share -- diluted .............. $ 1.86
The pro forma information is not necessarily indicative of what the Company's results of operations would have been if the transaction had occurred at the beginning of each period presented. Additionally, the pro forma information does not purport to be indicative of the Company's results of operations for future periods. 14. SEGMENT INFORMATION The sole business of the Company is the acquisition, development and operation of rental real estate properties. The Company operates office, industrial and retail properties and apartment units. There are no material inter-segment transactions. The Company'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-28 HIGHWOODS PROPERTIES, INC. 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, 2000, 1999 and 1998:
Year Ended December 31, ---------------------------------------------- 2000 1999 1998 ------------- ------------- -------------- (in thousands) Rental Income: Office segment ................................................. $ 445,223 $ 466,027 $ 428,792 Industrial segment ............................................. 44,559 51,168 48,134 Retail segment ................................................. 36,127 32,799 13,922 Apartment segment .............................................. 17,474 16,822 9,374 ---------- ---------- ---------- Total Rental Income ............................................ $ 543,383 $ 566,816 $ 500,222 ========== ========== ========== Net Operating Income: Office segment ................................................. $ 310,955 $ 319,209 $ 292,774 Industrial segment ............................................. 37,417 42,361 39,392 Retail segment ................................................. 25,054 21,685 8,869 Apartment segment .............................................. 10,190 9,486 4,864 ---------- ---------- ---------- Total Net Operating Income ..................................... $ 383,616 $ 392,741 $ 345,899 Reconciliation to income before minority interest and extraordinary item: Equity in earnings of unconsolidated affiliates ................ 3,863 1,185 430 Cost of unsuccessful transactions .............................. -- (1,500) -- Gain on disposition of assets .................................. 4,659 8,679 1,716 Interest and other income ...................................... 19,185 16,934 11,819 Interest expense ............................................... (112,827) (117,134) (97,011) General and administrative expenses ............................ (21,864) (22,345) (20,776) Depreciation and amortization .................................. (119,443) (112,347) (91,705) ---------- ---------- ---------- Income before minority interest and extraordinary item ......... $ 157,189 $ 166,213 $ 150,372 ========== ========== ==========
At December 31, ------------------------------------------------- 2000 1999 1998 ----------- ----------- ------------ Total Assets: Office segment ................................................. $2,661,914 $3,002,953 $3,268,124 Industrial segment ............................................. 299,660 435,022 495,675 Retail segment ................................................. 273,023 258,853 239,555 Apartment segment .............................................. 118,144 118,549 139,093 Corporate and other ............................................ 348,861 200,820 171,886 ----------- ----------- ------------ Total Assets ................................................... $3,701,602 $4,016,197 $4,314,333 =========== =========== ============
15. SUBSEQUENT EVENTS (UNAUDITED) From January 1, 2001 to March 8, 2001, the Company repurchased 2.6 million shares of Common Stock and Common Units at a weighted average price of $25.19 per share/unit for an aggregate purchase price of approximately $65.1 million. F-29 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 15. SUBSEQUENT EVENTS -- Continued In 1999, legislation affecting REITs was enacted that became effective January 1, 2001. As part of this legislation, REITs are permitted to own, directly or indirectly, taxable subsidiaries through which the REIT can provide non-customary services to its tenants without tainting the rents received by the REIT. Highwoods Services, Inc, was converted, tax-free, into a taxable REIT subsidiary on January 1, 2001. 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Selected quarterly financial data for the years ended December 31, 2000 and 1999 are as follows:
For the year ended December 31, 2000 ------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter Total --------------- ---------------- --------------- ---------------- ----------- Total Revenue ........................ $141,159 $ 145,121 $138,986 $141,165 $ 566,431 -------- --------- -------- -------- --------- Income before cost of unsuccessful transactions, gain/(loss) on disposition of assets, minority interest and extraordinary item ................. 40,506 40,537 35,938 35,549 152,530 Gain/(loss) on disposition of assets ............................. 6,946 (26,062) 10,552 13,223 4,659 -------- --------- -------- -------- --------- Income before minority interest and extraordinary item ............................... 47,452 14,475 46,490 48,772 157,189 Minority interest .................... (6,020) (1,822) (5,298) (5,851) (18,991) Extraordinary item -- loss on early extinguishment of debt ............................... (195) (839) (3,310) (367) (4,711) -------- --------- -------- -------- --------- Net income ........................... 41,237 11,814 37,882 42,554 133,487 Dividends on preferred stock ......... (8,145) (8,145) (8,145) (8,145) (32,580) -------- --------- -------- -------- --------- Net income available for common shareholders ................ $ 33,092 $ 3,669 $ 29,737 $ 34,409 $ 100,907 ======== ========= ======== ======== ========= Net income per common share -- basic: Income before extraordinary item ................ $ 0.55 $ 0.08 $ 0.56 $ 0.59 $ 1.78 Extraordinary item -- loss on early extinguishment of debt ........................... -- (0.01) (0.06) (0.01) (0.08) -------- --------- -------- -------- --------- Net income ......................... $ 0.55 $ 0.07 $ 0.50 $ 0.58 $ 1.70 ======== ========= ======== ======== ========= Net income per common share -- diluted: Income before extraordinary item ................ $ 0.55 $ 0.08 $ 0.56 $ 0.59 $ 1.78 Extraordinary item -- loss on early extinguishment of debt ........................... -- (0.01) (0.06) (0.01) (0.08) -------- --------- -------- -------- --------- Net income ......................... $ 0.55 $ 0.07 $ 0.50 $ 0.58 $ 1.70 ======== ========= ======== ======== =========
F-30 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- Continued
For the year ended December 31, 1999 ------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter Total --------------- ---------------- --------------- ---------------- ----------- Total Revenue ..................... $152,205 $147,842 $140,627 $144,261 $ 584,935 -------- -------- -------- -------- --------- Income before cost of unsuccessful transactions, gain on disposition of assets, minority interest and extraordinary item .............. 40,291 39,713 42,215 36,815 159,034 Cost of unsuccessful transactions .................... -- -- -- (1,500) (1,500) Gain on disposition of assets ..... 569 1,524 846 5,740 8,679 -------- -------- -------- -------- --------- Income before minority interest and extraordinary item .......... 40,860 41,237 43,061 41,055 166,213 Minority interest ................. (5,826) (4,879) (5,065) (5,009) (20,779) Extraordinary item -- loss on early extinguishment of debt..... -- (777) (4,997) (1,567) (7,341) -------- -------- -------- -------- --------- Net income ........................ 35,034 35,581 32,999 34,479 138,093 Dividends on preferred stock ...... (8,145) (8,145) (8,145) (8,145) (32,580) -------- -------- -------- -------- --------- Net income available for common shareholders ............. $ 26,889 $ 27,436 $ 24,854 $ 26,334 $ 105,513 ======== ======== ======== ======== ========= Net income per common share -- basic: Income before extraordinary item ............. $ 0.45 $ 0.46 $ 0.48 $ 0.45 $ 1.84 Extraordinary item -- loss on early extinguishment of debt ........................ -- (0.01) (0.08) (0.03) (0.12) -------- -------- -------- -------- --------- Net income ...................... $ 0.45 $ 0.45 $ 0.40 $ 0.42 $ 1.72 ======== ======== ======== ======== ========= Net income per common share -- diluted: Income before extraordinary item ............. $ 0.45 $ 0.46 $ 0.48 $ 0.44 $ 1.83 Extraordinary item -- loss on early extinguishment of debt ........................ -- (0.01) (0.08) (0.03) (0.12) -------- -------- -------- -------- --------- Net income ...................... $ 0.45 $ 0.45 $ 0.40 $ 0.41 $ 1.71 ======== ======== ======== ======== =========
F-31 HIGHWOODS PROPERTIES, INC. SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 (in thousands)
Cost Capitalized Subsequent Initial Cost to Acquisition --------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------ ------------- -------- -------------- ----------- -------------- Asheville, NC Ridgefield I -- 636 3,607 (636) (3,607) Ridgefield II -- 910 5,157 (910) (5,157) Ridgefield III -- 743 4,722 (743) (4,722) Ridgefield IV -- 791 -- -- -- Atlanta, GA Two Point Royal -- 1,793 14,951 -- 294 400 North Business Park -- 979 6,112 -- 189 50 Glenlake -- 2,500 20,000 -- 242 6348 Northeast Expressway 1,319 277 1,629 -- 105 6438 Northeast Expressway 1,495 181 2,225 -- 77 Bluegrass Lakes -- 816 3,775 -- (11) Bluegrass Place 1 -- 491 2,016 -- 25 Bluegrass Place 2 -- 412 2,529 -- 41 Bluegrass Valley 1 -- 1,363 -- -- 3,641 Bluegrass Land Site V10 -- 1,812 -- -- -- Bluegrass Land Site V14 -- 1,419 -- -- -- 1700 Century Circle -- -- 2,456 -- -- 1700 Century Center -- 1,115 3,148 -- 514 1800 Century Boulevard -- 1,441 28,939 -- 608 1875 Century Boulevard -- -- 8,790 -- 376 1900 Century Boulevard -- -- 4,721 -- 605 2200 Century Parkway -- -- 14,274 -- 1,302 2400 Century Center -- -- 14,970 -- 20 2600 Century Parkway -- -- 10,254 -- 1,058 2635 Century Parkway -- -- 21,083 -- 1,268 2800 Century Parkway -- -- 19,963 -- 385 Chattahoochee Avenue -- 248 1,817 -- 241 Chastain Place I -- 472 3,011 -- 924 Chastain Place II -- 607 2,097 -- 8 Chastain Place III -- 539 1,662 -- (9) Corporate Lakes Distribution -- 1,275 7,227 -- 503 Center Cosmopolitan North -- 2,855 4,155 -- 900 Century Plaza 1 -- 1,290 8,425 -- 164 Century Plaza 2 -- 1,380 7,589 -- 186 Century Plaza 3 -- 570 -- -- -- Deerfield Land -- 879 -- (879) -- Deerfield 1 -- 1,194 2,612 (1,194) (2,612) Deerfield 3 -- -- -- -- -- EKA Chemical -- 609 9,883 -- 3 1035 Fred Drive -- 270 1,239 -- 31 1077 Fred Drive -- 384 1,191 (384) (1,191) 5125 Fulton Industrial Blvd -- 578 3,116 -- 92 Fulton Corporate Center -- 542 2,042 (542) (2,042) 10 Glenlake -- 3,021 30,966 (3,021) (30,856) Gwinnett Distribution -- 1,128 5,943 -- 399 Center Kennestone Corporate -- 518 4,874 -- 247 Center Lavista Business Park -- 821 5,244 -- 619 Norcross, I, II -- 326 1,979 -- 81 Nortel -- 3,342 32,109 -- 14 Newpoint Place I -- 825 3,799 -- 20 Newpoint Place II -- 1,436 3,321 47 556 Newpoint Place III -- 661 1,866 -- 694 Newpoint Place IV -- -- -- -- -- Newpoint Place -- 187 -- 3,039 10 Oakbrook I (6) 873 4,948 -- 144 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 - ------------------------------ -------- -------------- --------- -------------- -------------- ------------- Asheville, NC Ridgefield I -- -- -- -- 1987 5-40 yrs. Ridgefield II -- -- -- -- 1989 5-40 yrs. Ridgefield III -- -- -- -- 1998 5-40 yrs. Ridgefield IV 791 -- 791 -- N/A N/A Atlanta, GA Two Point Royal 1,793 15,245 17,038 1,210 1997 5-40 yrs. 400 North Business Park 979 6,301 7,280 619 1985 5-40 yrs. 50 Glenlake 2,500 20,242 22,742 1,648 1997 5-40 yrs. 6348 Northeast Expressway 277 1,734 2,011 170 1978 5-40 yrs. 6438 Northeast Expressway 181 2,302 2,483 230 1981 5-40 yrs. Bluegrass Lakes 816 3,764 4,580 301 1999 5-40 yrs. Bluegrass Place 1 491 2,041 2,532 174 1995 5-40 yrs. Bluegrass Place 2 412 2,570 2,982 218 1996 5-40 yrs. Bluegrass Valley 1 1,363 3,641 5,004 87 2000 5-40 yrs. Bluegrass Land Site V10 1,812 -- 1,812 -- 1999 5-40 yrs. Bluegrass Land Site V14 1,419 -- 1,419 -- 1999 5-40 yrs. 1700 Century Circle -- 2,456 2,456 3 1983 5-40 yrs. 1700 Century Center 1,115 3,662 4,777 552 1972 5-40 yrs. 1800 Century Boulevard 1,441 29,547 30,988 2,997 1975 5-40 yrs. 1875 Century Boulevard -- 9,166 9,166 961 1976 5-40 yrs. 1900 Century Boulevard -- 5,326 5,326 677 1971 5-40 yrs. 2200 Century Parkway -- 15,576 15,576 1,828 1971 5-40 yrs. 2400 Century Center -- 14,990 14,990 1,747 1998 5-40 yrs. 2600 Century Parkway -- 11,312 11,312 1,122 1973 5-40 yrs. 2635 Century Parkway -- 22,351 22,351 2,382 1980 5-40 yrs. 2800 Century Parkway -- 20,348 20,348 2,016 1983 5-40 yrs. Chattahoochee Avenue 248 2,058 2,306 318 1970 5-40 yrs. Chastain Place I 472 3,935 4,407 721 1997 5-40 yrs. Chastain Place II 607 2,105 2,712 292 1998 5-40 yrs. Chastain Place III 539 1,653 2,192 182 1999 5-40 yrs. Corporate Lakes Distribution 1,275 7,730 9,005 928 1988 5-40 yrs. Center Cosmopolitan North 2,855 5,055 7,910 738 1980 5-40 yrs. Century Plaza 1 1,290 8,589 9,879 294 1981 5-40 yrs. Century Plaza 2 1,380 7,775 9,155 257 1984 5-40 yrs. Century Plaza 3 570 -- 570 -- 1984 5-40 yrs. Deerfield Land -- -- -- -- N/A N/A Deerfield 1 -- -- -- -- 1999 5-40 yrs. Deerfield 3 -- -- -- -- N/A N/A EKA Chemical 609 9,886 10,495 690 1998 5-40 yrs. 1035 Fred Drive 270 1,270 1,540 126 1973 5-40 yrs. 1077 Fred Drive -- -- -- -- 1973 5-40 yrs. 5125 Fulton Industrial Blvd 578 3,208 3,786 337 1973 5-40 yrs. Fulton Corporate Center -- -- -- -- 1973 5-40 yrs. 10 Glenlake -- 110 110 -- 1998 5-40 yrs. Gwinnett Distribution 1,128 6,342 7,470 689 1991 5-40 yrs. Center Kennestone Corporate 518 5,121 5,639 508 1985 5-40 yrs. Center Lavista Business Park 821 5,863 6,684 679 1973 5-40 yrs. Norcross, I, II 326 2,060 2,386 206 1970 5-40 yrs. Nortel 3,342 32,123 35,465 2,241 1998 5-40 yrs. Newpoint Place I 825 3,819 4,644 707 1998 5-40 yrs. Newpoint Place II 1,483 3,877 5,360 153 1999 5-40 yrs. Newpoint Place III 661 2,560 3,221 302 1998 5-40 yrs. Newpoint Place IV -- -- -- -- N/A N/A Newpoint Place 3,226 10 3,236 -- N/A N/A Oakbrook I 873 5,092 5,965 597 1981 5-40 yrs.
F-32
Cost Capitalized Subsequent Initial Cost to Acquisition ----------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------- -------------- -------- -------------- ----------- -------------- Oakbrook II (6) 1,579 8,388 -- 1,199 Oakbrook III (6) 1,480 8,388 -- 220 Oakbrook IV (6) 953 5,400 -- 154 Oakbrook V (6) 2,206 12,501 -- 348 Oakbrook Summitt 4,497 950 6,572 -- 447 Oxford Lake Business Center -- 855 7,014 -- 99 Peachtree Corners Land -- 1,394 -- (386) -- Peachtree Corners I -- 1,923 5,100 (1,923) (5,100) Peachtree Corners II -- 1,392 4,482 (1,392) (4,482) Southside Distribution -- 810 1,219 -- 3,370 Center Highwoods Center I -- 305 3,299 -- 17 @ Tradeport HIW Center II at Tradeport -- 635 3,474 -- 768 HIW Center III at Tradeport -- -- -- -- -- Atlanta Tradeport -- 6,694 -- (660) 23 Tradeport I -- 557 2,669 -- 173 Tradeport II -- 557 3,456 -- 57 Tradeport III -- -- -- 668 3,812 Tradeport IV -- -- -- -- -- Baltimore, MD Sportsman Club -- 15,291 -- 8,797 -- Charlotte, NC 4101 Stuart Andrew -- 70 510 -- 254 Boulevard 4105 Stuart Andrew -- 26 189 -- 22 Boulevard 4109 Stuart Andrew -- 87 636 -- 65 Boulevard 4201 Stuart Andrew -- 110 809 -- 58 Boulevard 4205 Stuart Andrew -- 134 979 -- 60 Boulevard 4209 Stuart Andrew -- 91 665 -- 80 Boulevard 4215 Stuart Andrew -- 133 978 -- 74 Boulevard 4301 Stuart Andrew -- 232 1,702 -- 121 Boulevard 4321 Stuart Andrew -- 73 534 -- 41 Boulevard 4601 Park Square -- 2,601 7,802 -- 270 Alston & Bird -- 2,362 5,379 4 40 First Citizens Building -- 647 5,528 -- 493 Twin Lakes Distribution -- 2,816 6,570 -- 1 Center Mallard Creek I -- 1,248 4,142 -- 143 Mallard Creek III -- 845 4,762 -- 82 Mallard Creek IV -- 348 1,152 -- 3 Mallard Creek V -- 1,665 8,738 -- 1,461 Mallard Creek VI -- 834 -- -- -- NationsFord Business Park -- 1,206 -- (1,206) -- Oakhill Land -- 2,796 -- -- -- Oak Hill Business Park (6) 750 4,248 -- 93 English Oak Hill Business Park Laurel (6) 471 2,671 -- 398 Oak Hill Business Park+B150 -- 1,403 5,611 -- 611 Live Oak Oak Hill Business Park (6) 1,073 6,078 -- 446 Scarlett Oak Hill Business Park (6) 1,243 7,044 -- 634 Twin Oak Oak Hill Business Park (6) 442 2,505 -- 880 Willow Oak Hill Business Park Water (6) 1,623 9,196 -- 829 Pinebrook -- 846 4,607 -- 272 Parkway Plaza Building 1 -- 1,110 4,741 -- 670 Parkway Plaza Building 2 -- 1,694 6,777 -- 1,227 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 - ------------------------------- -------- -------------- -------- -------------- -------------- ------------- Oakbrook II 1,579 9,587 11,166 1,430 1983 5-40 yrs. Oakbrook III 1,480 8,608 10,088 1,069 1984 5-40 yrs. Oakbrook IV 953 5,554 6,507 636 1985 5-40 yrs. Oakbrook V 2,206 12,849 15,055 1,559 1985 5-40 yrs. Oakbrook Summitt 950 7,019 7,969 781 1981 5-40 yrs. Oxford Lake Business Center 855 7,113 7,968 740 1985 5-40 yrs. Peachtree Corners Land 1,008 -- 1,008 -- N/A N/A Peachtree Corners I -- -- -- -- 1999 5-40 yrs. Peachtree Corners II -- -- -- -- 1999 5-40 yrs. Southside Distribution 810 4,589 5,399 451 1988 5-40 yrs. Center Highwoods Center I 305 3,316 3,621 346 1999 5-40 yrs. @ Tradeport HIW Center II at Tradeport 635 4,242 4,877 258 1999 5-40 yrs. HIW Center III at Tradeport -- -- -- -- N/A N/A Atlanta Tradeport 6,034 23 6,057 -- N/A N/A Tradeport I 557 2,842 3,399 243 1999 5-40 yrs. Tradeport II 557 3,513 4,070 333 1999 5-40 yrs. Tradeport III 668 3,812 4,480 8 1999 5-40 yrs. Tradeport IV -- -- -- -- N/A N/A Baltimore, MD Sportsman Club 24,088 -- 24,088 -- N/A N/A Charlotte, NC 4101 Stuart Andrew 70 764 834 224 1984 5-40 yrs. Boulevard 4105 Stuart Andrew 26 211 237 43 1984 5-40 yrs. Boulevard 4109 Stuart Andrew 87 701 788 109 1984 5-40 yrs. Boulevard 4201 Stuart Andrew 110 867 977 144 1982 5-40 yrs. Boulevard 4205 Stuart Andrew 134 1,039 1,173 165 1982 5-40 yrs. Boulevard 4209 Stuart Andrew 91 745 836 127 1982 5-40 yrs. Boulevard 4215 Stuart Andrew 133 1,052 1,185 173 1982 5-40 yrs. Boulevard 4301 Stuart Andrew 232 1,823 2,055 286 1982 5-40 yrs. Boulevard 4321 Stuart Andrew 73 575 648 87 1982 5-40 yrs. Boulevard 4601 Park Square 2,601 8,072 10,673 567 1972 5-40 yrs. Alston & Bird 2,366 5,419 7,785 396 1965 5-40 yrs. First Citizens Building 647 6,021 6,668 1,141 1989 5-40 yrs. Twin Lakes Distribution 2,816 6,571 9,387 487 1991 5-40 yrs. Center Mallard Creek I 1,248 4,285 5,533 338 1986 5-40 yrs. Mallard Creek III 845 4,844 5,689 330 1990 5-40 yrs. Mallard Creek IV 348 1,155 1,503 76 1993 5-40 yrs. Mallard Creek V 1,665 10,199 11,864 460 1999 5-40 yrs. Mallard Creek VI 834 -- 834 -- N/A N/A NationsFord Business Park -- -- -- -- N/A N/A Oakhill Land 2,796 -- 2,796 -- N/A N/A Oak Hill Business Park 750 4,341 5,091 500 1984 5-40 yrs. English Oak Hill Business Park Laurel 471 3,069 3,540 435 1984 5-40 yrs. Oak Hill Business Park+B150 1,403 6,222 7,625 898 1989 5-40 yrs. Live Oak Oak Hill Business Park 1,073 6,524 7,597 808 1982 5-40 yrs. Scarlett Oak Hill Business Park 1,243 7,678 8,921 911 1985 5-40 yrs. Twin Oak Oak Hill Business Park 442 3,385 3,827 619 1982 5-40 yrs. Willow Oak Hill Business Park Water 1,623 10,025 11,648 1,430 1985 5-40 yrs. Pinebrook 846 4,879 5,725 467 1986 5-40 yrs. Parkway Plaza Building 1 1,110 5,411 6,521 758 1982 5-40 yrs. Parkway Plaza Building 2 1,694 8,004 9,698 1,667 1983 5-40 yrs.
F-33
Cost Capitalized Subsequent Initial Cost to Acquisition --------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------ ------------- ------- -------------- ----------- -------------- Parkway Plaza Building 3 (3) 1,570 6,282 -- 532 Parkway Plaza Building 6 -- -- 2,438 -- 526 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 -- -- 2,328 160 217 Parkway Plaza Bldg 12 -- 112 1,489 -- 265 Parkway Plaza Bldg 14 -- 483 6,077 -- 440 Columbia, SC Center Point I -- 1,313 7,441 -- 99 Center Point II -- 1,183 8,724 1 12 Center Point V -- 265 1,279 -- 330 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 -- 3 Piedmont Triad, NC Concourse Center 1 -- 946 7,646 180 63 ECPI -- 431 2,522 -- -- Bissell Land -- 990 -- -- -- 6348 Burnt Poplar -- 721 2,883 -- 26 6350 Burnt Poplar -- 339 1,365 -- 17 Chimney Rock A/B -- 1,610 3,757 1 293 Chimney Rock C -- 604 1,408 -- 5 Chimney Rock D -- 236 550 -- 7 Chimney Rock E -- 1,692 3,948 1 55 Chimney Rock F -- 1,431 3,338 1 3 Chimney Rock G -- 1,044 2,435 1 12 Deep River Corporate Center -- 1,033 5,855 -- 310 Airpark East-Copier (2) 252 1,008 (29) 124 Consultants Airpark East-Building 1 (2) 377 1,510 -- 101 Airpark East-Building 2 (2) 461 1,842 -- 27 Airpark East-Building 3 (2) 321 1,283 -- 85 Airpark East-HewlettPackard (2) 149 727 315 205 Airpark East-Inacom Building (2) 106 478 159 294 Airpark East-Simplex (2) 103 526 168 259 Airpark East-Building A (2) 541 2,913 (33) 550 Airpark East-Building B (2) 779 3,200 (43) 381 Airpark East-Building C (2) 2,384 9,535 -- 668 Airpark East-Building D (2) 271 3,213 579 727 Airpark East Expansion -- -- -- 36 -- Airpark East Land -- 1,317 -- (1,317) -- Airpark East-Service (2) 275 1,099 (39) 133 Center 1 Airpark East-Service (2) 222 889 (31) 119 Center 2 Airpark East-Service (2) 304 1,214 -- 66 Center 3 Airpark East-Service (2) 224 898 -- 198 Center 4 Airpark East-Service Court (2) 194 774 (24) 57 Airpark East-Warehouse 1 (2) 384 1,535 (29) 67 Airpark East-Warehouse 2 (2) 372 1,488 -- 86 Airpark East-Warehouse 3 (2) 370 1,480 (30) 49 Airpark East-Warehouse 4 (2) 657 2,628 -- 179 Airpark East-Highland (2) 175 699 (30) 386 206 South Westgate Drive -- 91 664 (91) (664) 207 South Westgate Drive -- 138 1,012 (138) (1,012) 300 South Westgate Drive -- 68 496 (68) (496) 305 South Westgate Drive -- 30 220 (30) (220) 307 South Westgate Drive -- 66 485 (66) (485) 309 South Westgate Drive -- 68 496 (68) (496) 311 South Westgate Drive -- 75 551 (75) (551) 315 South Westgate Drive -- 54 396 (54) (396) 317 South Westgate Drive -- 81 597 (81) (597) 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 - ------------------------------ --------- -------------- --------- -------------- -------------- ------------- Parkway Plaza Building 3 1,570 6,814 8,384 1,111 1984 5-40 yrs. Parkway Plaza Building 6 -- 2,964 2,964 591 1996 5-40 yrs. Parkway Plaza Building 7 -- 4,885 4,885 625 1985 5-40 yrs. Parkway Plaza Building 8 -- 4,901 4,901 617 1986 5-40 yrs. Parkway Plaza Building 9 -- 6,036 6,036 765 1984 5-40 yrs. Parkway Plaza Building 10 160 2,545 2,705 453 1999 5-40 yrs. Parkway Plaza Bldg 12 112 1,754 1,866 95 1999 5-40 yrs. Parkway Plaza Bldg 14 483 6,517 7,000 331 1999 5-40 yrs. Columbia, SC Center Point I 1,313 7,540 8,853 848 1988 5-40 yrs. Center Point II 1,184 8,736 9,920 1,190 1996 5-40 yrs. Center Point V 265 1,609 1,874 266 1997 5-40 yrs. Center Point VI 265 -- 265 -- N/A N/A Fontaine I 574 7,233 7,807 792 1985 5-40 yrs. Fontaine II 941 6,113 7,054 1,154 1987 5-40 yrs. Fontaine III 853 4,920 5,773 569 1988 5-40 yrs. Fontaine V 395 2,240 2,635 242 1990 5-40 yrs. Piedmont Triad, NC Concourse Center 1 1,126 7,709 8,835 489 1999 5-40 yrs. ECPI 431 2,522 2,953 13 2000 5-40 yrs. Bissell Land 990 -- 990 -- N/A N/A 6348 Burnt Poplar 721 2,909 3,630 427 1990 5-40 yrs. 6350 Burnt Poplar 339 1,382 1,721 203 1992 5-40 yrs. Chimney Rock A/B 1,611 4,050 5,661 257 1981 5-40 yrs. Chimney Rock C 604 1,413 2,017 96 1983 5-40 yrs. Chimney Rock D 236 557 793 37 1983 5-40 yrs. Chimney Rock E 1,693 4,003 5,696 273 1985 5-40 yrs. Chimney Rock F 1,432 3,341 4,773 229 1987 5-40 yrs. Chimney Rock G 1,045 2,447 3,492 166 1987 5-40 yrs. Deep River Corporate Center 1,033 6,165 7,198 803 1989 5-40 yrs. Airpark East-Copier 223 1,132 1,355 175 1990 5-40 yrs. Consultants Airpark East-Building 1 377 1,611 1,988 269 1990 5-40 yrs. Airpark East-Building 2 461 1,869 2,330 276 1986 5-40 yrs. Airpark East-Building 3 321 1,368 1,689 229 1986 5-40 yrs. Airpark East-HewlettPackard 464 932 1,396 225 1996 5-40 yrs. Airpark East-Inacom Building 265 772 1,037 205 1996 5-40 yrs. Airpark East-Simplex 271 785 1,056 172 1997 5-40 yrs. Airpark East-Building A 508 3,463 3,971 682 1986 5-40 yrs. Airpark East-Building B 736 3,581 4,317 684 1988 5-40 yrs. Airpark East-Building C 2,384 10,203 12,587 1,611 1990 5-40 yrs. Airpark East-Building D 850 3,940 4,790 804 1997 5-40 yrs. Airpark East Expansion (36) -- (36) -- N/A N/A Airpark East Land -- -- -- -- N/A N/A Airpark East-Service 236 1,232 1,468 238 1985 5-40 yrs. Center 1 Airpark East-Service 191 1,008 1,199 165 1985 5-40 yrs. Center 2 Airpark East-Service 304 1,280 1,584 232 1985 5-40 yrs. Center 3 Airpark East-Service 224 1,096 1,320 165 1985 5-40 yrs. Center 4 Airpark East-Service Court 170 831 1,001 144 1990 5-40 yrs. Airpark East-Warehouse 1 355 1,602 1,957 256 1985 5-40 yrs. Airpark East-Warehouse 2 372 1,574 1,946 261 1985 5-40 yrs. Airpark East-Warehouse 3 340 1,529 1,869 232 1986 5-40 yrs. Airpark East-Warehouse 4 657 2,807 3,464 451 1988 5-40 yrs. Airpark East-Highland 145 1,085 1,230 122 1990 5-40 yrs. 206 South Westgate Drive -- -- -- -- 1986 5-40 yrs. 207 South Westgate Drive -- -- -- -- 1986 5-40 yrs. 300 South Westgate Drive -- -- -- -- 1986 5-40 yrs. 305 South Westgate Drive -- -- -- -- 1985 5-40 yrs. 307 South Westgate Drive -- -- -- -- 1985 5-40 yrs. 309 South Westgate Drive -- -- -- -- 1985 5-40 yrs. 311 South Westgate Drive -- -- -- -- 1985 5-40 yrs. 315 South Westgate Drive -- -- -- -- 1985 5-40 yrs. 317 South Westgate Drive -- -- -- -- 1985 5-40 yrs.
F-34
Cost Capitalized Subsequent Initial Cost to Acquisition ----------------------- ----------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------ -------------- -------- -------------- -------------- -------------- 319 South Westgate Drive -- 54 396 (54) (396) Inman Road Land -- 2,357 -- -- -- 7906 Industrial Village Road -- 62 455 -- 23 7908 Industrial Village Road -- 62 455 -- 34 7910 Industrial Village Road -- 62 455 -- 47 Jefferson Pilot Land 608 13,560 -- (13,560) -- Airpark North - DC1 (2) 723 2,891 -- 206 Airpark North - DC2 (2) 1,094 4,375 -- 95 Airpark North - DC3 (2) 378 1,511 -- 215 Airpark North - DC4 (2) 377 1,508 -- 141 Airpark North Land (2) 804 -- -- -- 2606 Phoenix Drive- -- 63 466 -- -- 100 Series 2606 Phoenix Drive- -- 63 466 -- 84 200 Series 2606 Phoenix Drive- -- 31 229 -- 100 300 Series 2606 Phoenix Drive- -- 52 382 -- 11 400 Series 2606 Phoenix Drive- -- 64 471 -- 20 500 Series 2606 Phoenix Drive- -- 78 575 -- 16 600 Series Network Construction -- -- 533 -- 200 Highwoods Park Blg I 4,461 -- -- -- -- Holden Rd. -- -- -- -- -- 5 Dundas Circle -- 72 531 (72) (531) 7 Dundas Circle -- 75 552 (75) (552) 8 Dundas Circle -- 84 617 (84) (617) 302 Pomona Drive -- 84 617 (84) (617) 304 Pomona Drive -- 22 163 (22) (163) 306 Pomona Drive -- 50 368 (50) (368) 308 Pomona Drive -- 72 531 (72) (531) 9 Dundas Circle -- 51 373 (51) (373) 2616 Phoenix Drive -- 135 990 (135) (990) 500 Radar Road -- 202 1,484 -- 118 502 Radar Road -- 39 285 -- 80 504 Radar Road -- 39 285 -- 14 506 Radar Road -- 39 285 -- 12 Regency One-Piedmont -- 515 2,347 -- 579 Center Regency Two-Piedmont -- 435 1,859 -- 509 Center Sears Cenfact -- 861 3,446 (31) 43 4000 Spring Garden Street -- 127 933 (127) (933) 4002 Spring Garden Street -- 39 290 (39) (290) 4004 Spring Garden Street -- 139 1,019 (139) (1,019) Airpark South Warehouse I -- 537 2,934 8 (427) Airpark South Warehouse 2 -- 733 2,548 11 (37) Airpark South Warehouse 3 -- 599 2,365 -- -- Airpark South Warehouse 4 -- 489 2,175 7 287 Airpark South Warehouse VI -- 1,690 3,915 26 3 Airpark West-1 (3) 954 3,817 -- 390 Airpark West-2 (3) 887 3,536 (3) 505 Airpark West-4 (3) 226 903 -- 132 Airpark West-5 (3) 242 966 -- 127 Airpark West-6 (3) 326 1,308 -- 128 7327 West Friendly Avenue -- 60 441 -- 11 7339 West Friendly Avenue -- 63 465 -- 27 7341 West Friendly Avenue -- 113 831 -- 108 7343 West Friendly Avenue -- 72 531 -- 26 7345 West Friendly Avenue -- 66 485 -- 14 7347 West Friendly Avenue -- 97 709 -- 63 7349 West Friendly Avenue -- 53 388 -- 14 7351 West Friendly Avenue -- 106 778 -- 30 7353 West Friendly Avenue -- 123 901 -- 16 7355 West Friendly Avenue -- 72 525 -- 21 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 - ------------------------------ -------- -------------- --------- -------------- -------------- ------------- 319 South Westgate Drive -- -- -- -- 1985 5-40 yrs. Inman Road Land 2,357 -- 2,357 -- N/A N/A 7906 Industrial Village Road 62 478 540 65 1985 5-40 yrs. 7908 Industrial Village Road 62 489 551 75 1985 5-40 yrs. 7910 Industrial Village Road 62 502 564 74 1985 5-40 yrs. Jefferson Pilot Land 12,089 -- 12,089 -- N/A N/A Airpark North - DC1 723 3,097 3,820 455 1986 5-40 yrs. Airpark North - DC2 1,094 4,470 5,564 674 1987 5-40 yrs. Airpark North - DC3 378 1,726 2,104 362 1988 5-40 yrs. Airpark North - DC4 377 1,649 2,026 290 1988 5-40 yrs. Airpark North Land 804 -- 804 -- N/A N/A 2606 Phoenix Drive- 63 466 529 64 1989 5-40 yrs. 100 Series 2606 Phoenix Drive- 63 550 613 66 1989 5-40 yrs. 200 Series 2606 Phoenix Drive- 31 329 360 67 1989 5-40 yrs. 300 Series 2606 Phoenix Drive- 52 393 445 60 1989 5-40 yrs. 400 Series 2606 Phoenix Drive- 64 491 555 78 1989 5-40 yrs. 500 Series 2606 Phoenix Drive- 78 591 669 94 1989 5-40 yrs. 600 Series Network Construction -- 733 733 94 1988 5-40 yrs. Highwoods Park Blg I -- -- -- -- N/A N/A Holden Rd. -- -- -- -- N/A N/A 5 Dundas Circle -- -- -- -- 1987 5-40 yrs. 7 Dundas Circle -- -- -- -- 1986 5-40 yrs. 8 Dundas Circle -- -- -- -- 1986 5-40 yrs. 302 Pomona Drive -- -- -- -- 1987 5-40 yrs. 304 Pomona Drive -- -- -- -- 1987 5-40 yrs. 306 Pomona Drive -- -- -- -- 1987 5-40 yrs. 308 Pomona Drive -- -- -- -- 1987 5-40 yrs. 9 Dundas Circle -- -- -- -- 1986 5-40 yrs. 2616 Phoenix Drive -- -- -- -- 1985 5-40 yrs. 500 Radar Road 202 1,602 1,804 257 1981 5-40 yrs. 502 Radar Road 39 365 404 79 1986 5-40 yrs. 504 Radar Road 39 299 338 43 1986 5-40 yrs. 506 Radar Road 39 297 336 43 1986 5-40 yrs. Regency One-Piedmont 515 2,926 3,441 524 1996 5-40 yrs. Center Regency Two-Piedmont 435 2,368 2,803 584 1996 5-40 yrs. Center Sears Cenfact 830 3,489 4,319 513 1989 5-40 yrs. 4000 Spring Garden Street -- -- -- -- 1983 5-40 yrs. 4002 Spring Garden Street -- -- -- -- 1983 5-40 yrs. 4004 Spring Garden Street -- -- -- -- 1983 5-40 yrs. Airpark South Warehouse I 545 2,507 3,052 269 1998 5-40 yrs. Airpark South Warehouse 2 744 2,511 3,255 97 1999 5-40 yrs. Airpark South Warehouse 3 599 2,365 2,964 56 1999 5-40 yrs. Airpark South Warehouse 4 496 2,462 2,958 164 1999 5-40 yrs. Airpark South Warehouse VI 1,716 3,918 5,634 179 1999 5-40 yrs. Airpark West-1 954 4,207 5,161 905 1984 5-40 yrs. Airpark West-2 884 4,041 4,925 814 1985 5-40 yrs. Airpark West-4 226 1,035 1,261 214 1985 5-40 yrs. Airpark West-5 242 1,093 1,335 202 1985 5-40 yrs. Airpark West-6 326 1,436 1,762 282 1985 5-40 yrs. 7327 West Friendly Avenue 60 452 512 62 1987 5-40 yrs. 7339 West Friendly Avenue 63 492 555 75 1989 5-40 yrs. 7341 West Friendly Avenue 113 939 1,052 158 1988 5-40 yrs. 7343 West Friendly Avenue 72 557 629 79 1988 5-40 yrs. 7345 West Friendly Avenue 66 499 565 75 1988 5-40 yrs. 7347 West Friendly Avenue 97 772 869 145 1988 5-40 yrs. 7349 West Friendly Avenue 53 402 455 62 1988 5-40 yrs. 7351 West Friendly Avenue 106 808 914 121 1988 5-40 yrs. 7353 West Friendly Avenue 123 917 1,040 125 1988 5-40 yrs. 7355 West Friendly Avenue 72 546 618 74 1988 5-40 yrs.
F-35
Cost Capitalized Subsequent Initial Cost to Acquisition ---------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------ ------------- ------- -------------- ----------- -------------- 150 Stratford -- 2,777 11,459 -- 112 ALO -- 177 986 -- 2 Chesapeake (3) 1,236 4,944 -- 8 Forsyth Corporate Center (6) 326 1,850 -- 652 The Knollwood-370 (2) 1,819 7,451 -- 476 The Knollwood-380 (2) 2,977 11,912 -- 570 The Knollwood-Retail @ 380 (2) -- 1 -- 141 RMIC -- 1,091 5,525 (1,091) (5,525) Robinhood -- 290 1,159 -- 130 101 Stratford -- 1,205 6,810 -- 381 Consolidated Center/ -- 625 2,126 -- 56 Building I Consolidated Center/ -- 625 4,376 -- 138 Building II Consolidated Center/ -- 680 3,522 -- 51 Building III Consolidated Center/ -- 376 1,624 -- 184 Building IV Champion Headquarters -- 1,725 6,280 (1,725) (6,280) Hampton Park - Building 5 -- 318 742 (318) (742) Hampton Park - Building 6 -- 371 866 (371) (866) Hampton Park - Building 7 -- 212 495 (212) (495) Hampton Park - Building 8 -- 212 495 (212) (495) Hampton Park - Building 9 -- 212 495 (212) (495) 5100 Indiana Avenue -- 490 1,143 -- 2 Madison Park - Building 5610 -- 211 493 -- -- Madison Park - Building 5620 -- 941 2,196 -- -- Madison Park - Building 5630 -- 1,486 3,468 -- 13 Madison Park - Building 5635 -- 893 2,083 -- -- Madison Park - Building 5640 -- 3,632 8,476 -- 35 Madison Park - Building 5650 -- 1,081 2,522 -- 1 Madison Park - Building 5660 -- 1,910 4,456 -- 83 Madison Park - Building 5655 -- 5,891 13,753 -- 1 711 Almondridge -- 301 702 -- 25 710 Almondridge -- 1,809 4,221 523 5,211 500 Northridge -- 1,789 4,174 -- 6 520 Northridge -- 1,645 3,876 -- 243 531 Northridge Warehouse -- 4,992 11,648 -- 174 531 Northridge Office -- 766 1,788 -- 1 540 Northridge -- 2,038 4,755 -- 415 550 Northridge -- 472 1,102 -- 154 US Airways (6) 2,625 14,824 -- 209 University Commercial -- 429 1,771 -- 170 Center-Landmark 03 University Commercial -- 514 2,058 -- 181 Center-Archer 04 University Commercial -- 276 1,155 -- 66 Center-Service Center 1 University Commercial -- 215 859 -- 127 Center-Service Center 2 University Commercial -- 167 668 -- 26 Center-Service Center 3 University Commercial -- 203 812 -- 8 Center-Warehouse 1 University Commercial -- 196 786 -- 13 Center-Warehouse 2 Westpoint Business Park-BMF -- 795 3,181 -- 3 Westpoint Business -- 346 1,384 -- 1 Park-Luwabahnson Westpoint Business Park- -- 120 480 -- 38 3 & 4 Westpoint Business Park -- 1,759 -- (1,759) -- Westpoint Business Park-Wp -- 393 1,570 -- 69 11 Westpoint Business Park-Wp -- 382 1,531 -- 42 12 Westpoint Business Park-Wp -- 297 1,192 -- 41 13 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 - ------------------------------ ------- -------------- -------- -------------- -------------- ------------- 150 Stratford 2,777 11,571 14,348 1,858 1991 5-40 yrs. ALO 177 988 1,165 13 1998 5-40 yrs. Chesapeake 1,236 4,952 6,188 729 1993 5-40 yrs. Forsyth Corporate Center 326 2,502 2,828 468 1985 5-40 yrs. The Knollwood-370 1,819 7,927 9,746 1,309 1994 5-40 yrs. The Knollwood-380 2,977 12,482 15,459 2,095 1990 5-40 yrs. The Knollwood-Retail @ 380 -- 142 142 56 1995 5-40 yrs. RMIC -- -- -- -- 1998 5-40 yrs. Robinhood 290 1,289 1,579 233 1989 5-40 yrs. 101 Stratford 1,205 7,191 8,396 557 1986 5-40 yrs. Consolidated Center/ 625 2,182 2,807 170 1983 5-40 yrs. Building I Consolidated Center/ 625 4,514 5,139 368 1983 5-40 yrs. Building II Consolidated Center/ 680 3,573 4,253 279 1989 5-40 yrs. Building III Consolidated Center/ 376 1,808 2,184 195 1989 5-40 yrs. Building IV Champion Headquarters -- -- -- -- 1993 5-40 yrs. Hampton Park - Building 5 -- -- -- -- 1981 5-40 yrs. Hampton Park - Building 6 -- -- -- -- 1980 5-40 yrs. Hampton Park - Building 7 -- -- -- -- 1983 5-40 yrs. Hampton Park - Building 8 -- -- -- -- 1984 5-40 yrs. Hampton Park - Building 9 -- -- -- -- 1985 5-40 yrs. 5100 Indiana Avenue 490 1,145 1,635 73 1982 5-40 yrs. Madison Park - Building 5610 211 493 704 31 1988 5-40 yrs. Madison Park - Building 5620 941 2,196 3,137 141 1983 5-40 yrs. Madison Park - Building 5630 1,486 3,481 4,967 223 1983 5-40 yrs. Madison Park - Building 5635 893 2,083 2,976 134 1986 5-40 yrs. Madison Park - Building 5640 3,632 8,511 12,143 544 1985 5-40 yrs. Madison Park - Building 5650 1,081 2,523 3,604 162 1984 5-40 yrs. Madison Park - Building 5660 1,910 4,539 6,449 285 1984 5-40 yrs. Madison Park - Building 5655 5,891 13,754 19,645 882 1987 5-40 yrs. 711 Almondridge 301 727 1,028 56 1988 5-40 yrs. 710 Almondridge 2,332 9,432 11,764 300 1989 5-40 yrs. 500 Northridge 1,789 4,180 5,969 274 1988 5-40 yrs. 520 Northridge 1,645 4,119 5,764 274 1988 5-40 yrs. 531 Northridge Warehouse 4,992 11,822 16,814 757 1989 5-40 yrs. 531 Northridge Office 766 1,789 2,555 116 1989 5-40 yrs. 540 Northridge 2,038 5,170 7,208 311 1987 5-40 yrs. 550 Northridge 472 1,256 1,728 126 1989 5-40 yrs. US Airways 2,625 15,033 17,658 1,177 1970-1987 5-40 yrs. University Commercial 429 1,941 2,370 315 1985 5-40 yrs. Center-Landmark 03 University Commercial 514 2,239 2,753 387 1986 5-40 yrs. Center-Archer 04 University Commercial 276 1,221 1,497 212 1983 5-40 yrs. Center-Service Center 1 University Commercial 215 986 1,201 190 1983 5-40 yrs. Center-Service Center 2 University Commercial 167 694 861 105 1984 5-40 yrs. Center-Service Center 3 University Commercial 203 820 1,023 120 1983 5-40 yrs. Center-Warehouse 1 University Commercial 196 799 995 117 1983 5-40 yrs. Center-Warehouse 2 Westpoint Business Park-BMF 795 3,184 3,979 467 1986 5-40 yrs. Westpoint Business 346 1,385 1,731 204 1990 5-40 yrs. Park-Luwabahnson Westpoint Business Park- 120 518 638 78 1988 5-40 yrs. 3 & 4 Westpoint Business Park -- -- -- -- N/A N/A Westpoint Business Park-Wp 393 1,639 2,032 256 1988 5-40 yrs. 11 Westpoint Business Park-Wp 382 1,573 1,955 232 1988 5-40 yrs. 12 Westpoint Business Park-Wp 297 1,233 1,530 182 1988 5-40 yrs. 13
F-36
Cost Capitalized Subsequent Initial Cost to Acquisition ----------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------- -------------- -------- -------------- ----------- -------------- Westpoint Business -- 640 2,577 -- 25 Park-Fairchild Westpoint Business -- 178 590 -- 452 Park-Warehouse5 Greenville, SC 385 Land -- 1,800 -- -- -- Nationsbank Plaza -- 642 9,349 -- 1,883 Brookfield Plaza (6) 1,489 8,437 -- 345 Brookfield-CRS Sirrine -- 3,022 17,125 -- 24 Brookfield-YMCA -- 33 189 -- 16 385 Building 1 -- 1,413 1,401 -- 2,783 Patewood I -- 942 5,016 -- 71 Patewood II -- 942 5,018 -- 285 Patewood III (6) 835 4,733 -- 158 Patewood IV (6) 1,210 6,856 -- 14 Patewood V (6) 1,677 9,503 -- 22 Patewood VI -- 2,375 9,643 -- (32) 769 Pelham Road -- 705 2,778 -- 3 Patewood Business Center -- 1,312 7,436 -- 252 Highwoods Properties -- -- -- 2,692 70,201 Jacksonville, FL 9A Land -- 3,915 -- -- -- Belfort Park I -- 1,322 4,285 (1,322) (4,285) Belfort Park II -- 831 5,066 (831) (5,066) Belfort Park III -- 647 4,063 (647) (4,063) Belfort Park VI -- -- -- 656 -- Belfort Park VII -- -- -- 2,103 -- CIGNA Building -- 381 1,592 (381) (1,592) Harry James Building -- 272 1,360 (272) (1,360) Independent Square -- 3,985 44,633 (3,985) (44,633) Three Oaks Plaza -- 1,630 14,036 (1,630) (14,036) Reflections -- 958 9,877 (958) (9,877) Southpoint Building -- 594 3,987 (594) (3,987) SWD Land Annex -- -- -- 1 5 Highwoods Center -- 1,143 6,476 (1,143) (6,476) Life of the South Building -- 184 4,750 (184) (4,750) Tallahasse, FL Blair Stone Building -- 1,550 32,988 (1,550) (32,988) 215 South Monroe St. -- 1,950 17,853 (1,950) (17,853) Building Shawnee Mission, KS Corinth Square North Shops (4) 2,693 10,772 -- 64 Corinth Shops South (4) 1,043 4,172 -- 13 Fairway Shops 2,620 673 2,694 -- 127 Prairie Village Rest & Bank (7) -- -- -- 247 Prairie Village Shops (7) 3,289 13,157 -- 1,216 Shannon Valley Shopping 6,258 1,669 6,678 -- 1,844 Center Trailwood III Shops -- 223 893 (223) (893) Trailwood Shops -- 458 1,831 (458) (1,831) Valencia Place (5) -- 2,245 441 10,927 Westwood Shops -- 113 453 (113) (453) Brymar Building -- 329 1,317 -- 2 Corinth Executive Square -- 514 2,054 -- 286 Corinth Ofice Building 821 529 2,116 -- 20 Fairway North Building 4,500 753 3,013 -- 252 Fairway West Building 3,775 851 3,402 -- 223 Hartford Office Building -- 568 2,271 (568) (2,271) Land-Kansas -- 27,484 121 (8,985) (121) Nichols Building 870 490 1,959 -- 73 Oak Park Building -- 368 1,470 (368) (1,470) Prairie Village Office Center -- 749 2,997 -- 102 OUIVIRA Business Park A -- 191 447 (191) (447) QUIVIRA Business Park B -- 179 417 (179) (417) QUIVIRA Business Park C -- 189 440 (189) (440) QUIVIRA Business Park D -- 154 360 (154) (360) 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 - ------------------------------- -------- -------------- --------- -------------- -------------- ------------- Westpoint Business 640 2,602 3,242 380 1990 5-40 yrs. Park-Fairchild Westpoint Business 178 1,042 1,220 292 1995 5-40 yrs. Park-Warehouse5 Greenville, SC 385 Land 1,800 -- 1,800 -- N/A N/A Nationsbank Plaza 642 11,232 11,874 1,250 1973 5-40 yrs. Brookfield Plaza 1,489 8,782 10,271 1,115 1987 5-40 yrs. Brookfield-CRS Sirrine 3,022 17,149 20,171 1,849 1990 5-40 yrs. Brookfield-YMCA 33 205 238 33 1990 5-40 yrs. 385 Building 1 1,413 4,184 5,597 604 1998 5-40 yrs. Patewood I 942 5,087 6,029 497 1985 5-40 yrs. Patewood II 942 5,303 6,245 560 1987 5-40 yrs. Patewood III 835 4,891 5,726 651 1989 5-40 yrs. Patewood IV 1,210 6,870 8,080 741 1989 5-40 yrs. Patewood V 1,677 9,525 11,202 1,027 1990 5-40 yrs. Patewood VI 2,375 9,611 11,986 1,103 1999 5-40 yrs. 769 Pelham Road 705 2,781 3,486 202 1989 5-40 yrs. Patewood Business Center 1,312 7,688 9,000 841 1983 5-40 yrs. Highwoods Properties 2,692 70,201 72,893 1,348 1998 5-40 yrs. Jacksonville, FL 9A Land 3,915 -- 3,915 -- N/A N/A Belfort Park I -- -- -- -- 1988 5-40 yrs. Belfort Park II -- -- -- -- 1988 5-40 yrs. Belfort Park III -- -- -- -- 1988 5-40 yrs. Belfort Park VI 656 -- 656 -- N/A N/A Belfort Park VII 2,103 -- 2,103 -- N/A N/A CIGNA Building -- -- -- -- 1972 5-40 yrs. Harry James Building -- -- -- -- 1982 5-40 yrs. Independent Square -- -- -- -- 1975 5-40 yrs. Three Oaks Plaza -- -- -- -- 1972 5-40 yrs. Reflections -- -- -- -- 1985 5-40 yrs. Southpoint Building -- -- -- -- 1980 5-40 yrs. SWD Land Annex 1 5 6 1 N/A N/A Highwoods Center -- -- -- -- 1991 5-40 yrs. Life of the South Building -- -- -- -- 1964 5-40 yrs. Tallahasse, FL Blair Stone Building -- -- -- -- 1994 5-40 yrs. 215 South Monroe St. -- -- -- -- 1976 5-40 yrs. Building Shawnee Mission, KS Corinth Square North Shops 2,693 10,836 13,529 713 1962 5-40 yrs. Corinth Shops South 1,043 4,185 5,228 267 1953 5-40 yrs. Fairway Shops 673 2,821 3,494 215 1940 5-40 yrs. Prairie Village Rest & Bank -- 247 247 2 1948 5-40 yrs. Prairie Village Shops 3,289 14,373 17,662 995 1948 5-40 yrs. Shannon Valley Shopping 1,669 8,522 10,191 633 1988 5-40 yrs. Center Trailwood III Shops -- -- -- -- 1986 5-40 yrs. Trailwood Shops -- -- -- -- 1968 5-40 yrs. Valencia Place 441 13,172 13,613 89 1999 5-40 yrs. Westwood Shops -- -- -- -- 1926 5-40 yrs. Brymar Building 329 1,319 1,648 91 1968 5-40 yrs. Corinth Executive Square 514 2,340 2,854 200 1973 5-40 yrs. Corinth Ofice Building 529 2,136 2,665 135 1960 5-40 yrs. Fairway North Building 753 3,265 4,018 254 1985 5-40 yrs. Fairway West Building 851 3,625 4,476 302 1983 5-40 yrs. Hartford Office Building -- -- -- -- 1978 5-40 yrs. Land-Kansas 19,290 -- 20,081 -- N/A N/A Nichols Building 490 2,032 2,522 155 1978 5-40 yrs. Oak Park Building -- -- -- -- 1976 5-40 yrs. Prairie Village Office Center 749 3,099 3,848 232 1960 5-40 yrs. OUIVIRA Business Park A -- -- -- -- 1975 5-40 yrs. QUIVIRA Business Park B -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park C -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park D -- -- -- -- 1973 5-40 yrs.
F-37
Cost Capitalized Subsequent Initial Cost to Acquisition ---------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - --------------------------- --------------- -------- -------------- ----------- -------------- QUIVIRA Business Park E -- 251 586 (251) (586) QUIVIRA Business Park F -- 171 400 (171) (400) QUIVIRA Business Park G -- 205 477 (205) (477) QUIVIRA Business Park H -- 175 407 (175) (407) QUIVIRA Business Park J -- 360 839 (360) (839) QUIVIRA Business Park L -- 98 222 (98) (222) QUIVIRA Business Park K -- 95 222 (95) (222) QUIVIRA Business Park SWB -- 257 600 (257) (600) Kansas City, MO 48th & Penn (5) 418 3,765 -- 812 Balcony Retail (5) 889 8,002 -- 2,945 Brookside Shopping Center 3,699 2,002 8,602 154 649 Court of the Penguins (5) 566 5,091 -- 491 Colonial Shops -- 138 550 -- 14 Crestwood Shops -- 253 1,013 (253) (1,013) Esplanade (5) 748 6,734 -- 1,407 Land Under Ground Leases -- 9,789 114(18) (8,688) (114) Retail Ground Leases Retail KH -- 677 -- -- -- Halls Block (5) 275 2,478 -- 3,335 Kenilworth -- 113 452 (113) (452) Macy's Block (5) 504 4,536 -- 503 Millcreek Retail (5) 602 5,422 -- 1,714 Nichols Block Retail (5) 600 5,402 -- 795 96th & Nall Shops -- 99 397 (99) (397) Plaza Central (5) 405 3,649 -- 1,452 Plaza Savings South (5) 357 3,211 -- 1,724 Romanelli Annex Shops -- 24 97 (24) (97) Red Bridge Shops -- 1,091 4,364 -- 1,007 Romanelli Shops -- 219 875 (219) (875) Seville Shops West (5) 300 2,696 -- 9,494 Seville Square (5) -- 20,973 -- 719 Swanson Block (5) 949 8,537 -- 3,769 Theater Block (5) 1,197 10,769 -- 4,321 Time Block Retail (5) 1,292 11,627 -- 4,330 Triangle (5) 308 2,771 -- 539 Corinth Gardens -- 283 1,603 -- 119 Coach House North 8,000 1,604 9,092 -- 322 Coach House South 20,000 3,707 21,008 -- 582 Coach Lamp -- 870 4,929 -- 302 Corinth Paddock -- 1,050 5,949 -- 411 Corinth Place 4,500 639 3,623 -- 95 Rental Houses -- -- -- -- -- Kenilworth 6,910 2,160 12,240 -- 565 Kirkwood Circle -- 3,000 -- (3,000) -- Mission Valley 994 576 3,266 -- 105 Neptune 4,372 1,073 6,079 -- 81 Parklane -- 273 1,548 -- 108 Regency House 4,063 1,853 10,500 -- 1,468 St. Charles Apartments -- -- -- -- -- Sulgrave 7,546 2,621 14,855 -- 1,279 Tama Apartments (HPI) -- -- 94 -- -- Wornall Road Apartments -- 30 171 -- 14 4900 Main Building -- -- 12,809 -- 337 63rd & Brookside Building -- 71 283 -- 14 Balcony Office (5) 65 585 -- 94 Bannister Business Center -- 306 713 (306) (713) Esplanade Block Office (5) 375 3,374 -- 261 Marley Continental Homes -- 180 1,620 (180) (1,620) of KS Millcreek Office (5) 79 717 -- 183 Land-Missouri -- 3,794 190 (434) -- Nichols Block Office (5) 74 668 -- 76 One Ward Parkway -- 666 2,663 -- 212 Park Plaza Building (5) 1,352 5,409 -- 276 Parkway Building -- 395 1,578 -- 135 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 - --------------------------- -------- -------------- --------- -------------- -------------- ------------- QUIVIRA Business Park E -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park F -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park G -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park H -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park J -- -- -- -- 1973 5-40 yrs. QUIVIRA Business Park L -- -- -- -- 1985 5-40 yrs. QUIVIRA Business Park K -- -- -- -- 1985 5-40 yrs. QUIVIRA Business Park SWB -- -- -- -- 1973 5-40 yrs. Kansas City, MO 48th & Penn 418 4,577 4,995 415 1948 5-40 yrs. Balcony Retail 889 10,947 11,836 687 1925 5-40 yrs. Brookside Shopping Center 2,156 9,251 11,407 582 1919 5-40 yrs. Court of the Penguins 566 5,582 6,148 446 1945 5-40 yrs. Colonial Shops 138 564 702 44 1907 5-40 yrs. Crestwood Shops -- -- -- -- 1932 5-40 yrs. Esplanade 748 8,141 8,889 586 1928 5-40 yrs. Land Under Ground Leases 1,101 -- 1,101 -- N/A N/A Retail Ground Leases Retail KH 677 -- 677 -- N/A N/A Halls Block 275 5,813 6,088 198 1964 5-40 yrs. Kenilworth -- -- -- -- 1965 5-40 yrs. Macy's Block 504 5,039 5,543 364 1926 5-40 yrs. Millcreek Retail 602 7,136 7,738 585 1920 5-40 yrs. Nichols Block Retail 600 6,197 6,797 435 1930 5-40 yrs. 96th & Nall Shops -- -- -- -- 1976 5-40 yrs. Plaza Central 405 5,101 5,506 455 1958 5-40 yrs. Plaza Savings South 357 4,935 5,292 275 1948 5-40 yrs. Romanelli Annex Shops -- -- -- -- 1963 5-40 yrs. Red Bridge Shops 1,091 5,371 6,462 294 1959 5-40 yrs. Romanelli Shops -- -- -- -- 1925 5-40 yrs. Seville Shops West 300 12,190 12,490 656 1999 5-40 yrs. Seville Square -- 21,692 21,692 818 1999 5-40 yrs. Swanson Block 949 12,306 13,255 687 1967 5-40 yrs. Theater Block 1,197 15,090 16,287 1,033 1928 5-40 yrs. Time Block Retail 1,292 15,957 17,249 957 1929 5-40 yrs. Triangle 308 3,310 3,618 265 1925 5-40 yrs. Corinth Gardens 283 1,722 2,005 109 1961 5-40 yrs. Coach House North 1,604 9,414 11,018 586 1986 5-40 yrs. Coach House South 3,707 21,590 25,297 1,326 1984 5-40 yrs. Coach Lamp 870 5,231 6,101 321 1961 5-40 yrs. Corinth Paddock 1,050 6,360 7,410 391 1973 5-40 yrs. Corinth Place 639 3,718 4,357 230 1987 5-40 yrs. Rental Houses -- -- -- -- N/A 5-40 yrs. Kenilworth 2,160 12,805 14,965 799 1965 5-40 yrs. Kirkwood Circle -- -- -- -- N/A N/A Mission Valley 576 3,371 3,947 210 1964 5-40 yrs. Neptune 1,073 6,160 7,233 386 1988 5-40 yrs. Parklane 273 1,656 1,929 99 1924 5-40 yrs. Regency House 1,853 11,968 13,821 829 1960 5-40 yrs. St. Charles Apartments -- -- -- -- 1922 5-40 yrs. Sulgrave 2,621 16,134 18,755 1,030 1967 5-40 yrs. Tama Apartments (HPI) -- 94 94 4 1965 5-40 yrs. Wornall Road Apartments 30 185 215 11 1918 5-40 yrs. 4900 Main Building -- 13,146 13,146 852 1986 5-40 yrs. 63rd & Brookside Building 71 297 368 20 1919 5-40 yrs. Balcony Office 65 679 744 38 1928 5-40 yrs. Bannister Business Center -- -- -- -- 1985 5-40 yrs. Esplanade Block Office 375 3,635 4,010 218 1945 5-40 yrs. Marley Continental Homes -- -- -- -- N/A 5-40 yrs. of KS Millcreek Office 79 900 979 54 1925 5-40 yrs. Land-Missouri 3,360 190 3,550 12 N/A 5-40 yrs. Nichols Block Office 74 744 818 64 1938 5-40 yrs. One Ward Parkway 666 2,875 3,541 289 1980 5-40 yrs. Park Plaza Building 1,352 5,685 7,037 412 1983 5-40 yrs. Parkway Building 395 1,713 2,108 169 1906-1910 5-40 yrs.
F-38
Cost Capitalized Subsequent Initial Cost to Acquisition ---------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - -------------------------------- --------------- -------- -------------- ----------- -------------- Romanelli Annex Office -- 73 294 (73) (294) Building Red Bridge Professional -- 405 1,621 (405) (1,621) Building Somerset -- 30 122 -- -- Two Brush Creek Plaza -- 961 3,845 -- 182 Theatre Block Office (5) 242 2,179 -- 142 Time Block Office (5) 199 1,792 -- 503 Valencia Place Office -- 1,530 27,548 -- 4,665 HPI Rental Houses -- -- 949 -- -- HPI St. Charles Apartments -- 45 165 -- -- HPI 4900 Main St -- 3,202 -- -- -- HPI Challenger 19,000 19,095 -- -- -- Memphis, TN Atrium I & II -- 1,530 6,121 40 374 Centrum -- 1,013 5,488 -- 268 Colonnade -- 1,300 7,994 -- (19) Hickory Hill Medical Plaza -- 398 2,256 -- 18 3400 Players Club Parkway (6) 1,005 5,515 -- 9 International Place Phase II -- 4,847 27,469 -- 1,176 Kirby Centre -- 525 2,973 -- 125 International Place Phase III -- 2,566 -- -- -- 6000 Poplar Ave -- 2,340 11,385 -- (210) 6060 Poplar Ave -- 1,980 8,677 -- (289) Shadow Creek I -- 973 5,493 -- -- Southwind Office Center "A" -- 996 5,643 -- 272 Southwind Office Center "B" -- 1,356 7,684 -- 356 Southwind Office Center "D" -- 744 6,232 -- (131) Southwind Office Center "C" (6) 1,070 5,924 -- -- Norfolk, VA Battlefield Business Center II -- 774 4,387 (774) (4,387) Greenbriar Business Center -- 936 5,305 -- 63 Hampton Center Two -- 945 6,567 -- 801 Riverside II 675 2 9,148 481 (9,148) Nashville, TN 3322 West End -- 3,021 27,266 4 273 3401 Westend -- 6,103 23,343 (1,147) (1,857) 5310 Maryland Way -- 1,923 7,360 (368) (1,082) Ayers Land -- 1,164 -- -- -- Southpointe -- 1,655 9,059 -- (98) BNA Corporate Center 11,049 -- 22,588 -- (2,066) Caterpillar Financial Center -- -- 2,964 5,120 39,499 Century City Plaza I -- 903 3,612 -- 552 Cool Springs Land -- -- -- 7,412 -- Cool Springs-Building II -- -- -- -- -- Cool Springs I -- 1,983 13,854 -- 75 Eastpark 1, 2, 3 3,630 3,137 11,842 (766) (1,099) Grassmere sold -- 1779 --(19) (1,779) -- Grassmere I -- 1,251 7,091 (1,251) (7,091) Grassmere II -- 2,260 12,804 (2,260) (12,804) Grassmere III -- 1,340 7,592 (1,340) (7,592) Highwoods Plaza I -- 1,772 9,029 -- 68 Highwoods Plaza II -- 1,448 6,948 -- 1,549 Harpeth on The Green II -- 1,419 5,677 1 572 Harpeth on the Green III -- 1,658 6,633 2 465 Harpeth on the Green IV -- 1,709 6,835 5 729 Harpeth on the Green V -- 662 5,771 -- (124) Lakeview Ridge -- 2,179 7,545 (411) (1,125) Lakeview Ridge II -- 605 5,883 -- (41) Lakeview Ridge III -- 1,073 9,708 -- 692 The Ramparts at Brentwood -- 2,394 12,806 -- (1,052) The Sparrow Building -- 1,262 5,047 -- 272 Grassmere/Thousdale Land -- 760 -- (760) -- Winners Circle -- 1,495 7,072 2 236 Westwood South -- 2,106 10,517 -- 510 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 - -------------------------------- -------- -------------- --------- -------------- -------------- ------------- Romanelli Annex Office -- -- -- -- 1963 5-40 yrs. Building Red Bridge Professional -- -- -- -- 1972 5-40 yrs. Building Somerset 30 122 152 7 1998 5-40 yrs. Two Brush Creek Plaza 961 4,027 4,988 305 1983 5-40 yrs. Theatre Block Office 242 2,321 2,563 148 1928 5-40 yrs. Time Block Office 199 2,295 2,494 143 1945 5-40 yrs. Valencia Place Office 1,530 32,213 33,743 390 1999 5-40 yrs. HPI Rental Houses -- 949 949 58 1960 5-40 yrs. HPI St. Charles Apartments 45 165 210 10 1922 5-40 yrs. HPI 4900 Main St 3,202 -- 3,202 -- N/A 5-40 yrs. HPI Challenger 19,095 -- 19,095 -- N/A 5-40 yrs. Memphis, TN Atrium I & II 1,570 6,495 8,065 679 1984 5-40 yrs. Centrum 1,013 5,756 6,769 551 1979 5-40 yrs. Colonnade 1,300 7,975 9,275 944 1998 5-40 yrs. Hickory Hill Medical Plaza 398 2,274 2,672 250 1988 5-40 yrs. 3400 Players Club Parkway 1,005 5,524 6,529 919 1997 5-40 yrs. International Place Phase II 4,847 28,645 33,492 3,508 1988 5-40 yrs. Kirby Centre 525 3,098 3,623 347 1984 5-40 yrs. International Place Phase III 2,566 -- 2,566 -- N/A N/A 6000 Poplar Ave 2,340 11,175 13,515 12 1985 5-40 yrs. 6060 Poplar Ave 1,980 8,388 10,368 9 1987 5-40 yrs. Shadow Creek I 973 5,493 6,466 11 2000 5-40 yrs. Southwind Office Center "A" 996 5,915 6,911 687 1991 5-40 yrs. Southwind Office Center "B" 1,356 8,040 9,396 961 1990 5-40 yrs. Southwind Office Center "D" 744 6,101 6,845 400 1999 5-40 yrs. Southwind Office Center "C" 1,070 5,924 6,994 423 1998 5-40 yrs. Norfolk, VA Battlefield Business Center II -- -- -- -- 1987 5-40 yrs. Greenbriar Business Center 936 5,368 6,304 585 1984 5-40 yrs. Hampton Center Two 945 7,368 8,313 457 1999 5-40 yrs. Riverside II 483 -- 483 -- 1999 5-40 yrs. Nashville, TN 3322 West End 3,025 27,539 30,564 839 1986 5-40 yrs. 3401 Westend 4,956 21,486 26,442 3,004 1982 5-40 yrs. 5310 Maryland Way 1,555 6,278 7,833 738 1994 5-40 yrs. Ayers Land 1,164 -- 1,164 -- N/A N/A Southpointe 1,655 8,961 10,616 1,229 1998 5-40 yrs. BNA Corporate Center -- 20,522 20,522 2,626 1985 5-40 yrs. Caterpillar Financial Center 5,120 42,463 47,583 819 1999 5-40 yrs. Century City Plaza I 903 4,164 5,067 630 1987 5-40 yrs. Cool Springs Land 7,412 -- 7,412 -- N/A N/A Cool Springs-Building II -- -- -- -- N/A N/A Cool Springs I 1,983 13,929 15,912 1,255 1999 5-40 yrs. Eastpark 1, 2, 3 2,371 10,743 13,114 1,543 1978 5-40 yrs. Grassmere sold -- -- -- -- N/A N/A Grassmere I -- -- -- -- 1984 5-40 yrs. Grassmere II -- -- -- -- 1985 5-40 yrs. Grassmere III -- -- -- -- 1990 5-40 yrs. Highwoods Plaza I 1,772 9,097 10,869 1,727 1996 5-40 yrs. Highwoods Plaza II 1,448 8,497 9,945 1,577 1997 5-40 yrs. Harpeth on The Green II 1,420 6,249 7,669 765 1984 5-40 yrs. Harpeth on the Green III 1,660 7,098 8,758 827 1987 5-40 yrs. Harpeth on the Green IV 1,714 7,564 9,278 978 1989 5-40 yrs. Harpeth on the Green V 662 5,647 6,309 822 1998 5-40 yrs. Lakeview Ridge 1,768 6,420 8,188 763 1986 5-40 yrs. Lakeview Ridge II 605 5,842 6,447 865 1998 5-40 yrs. Lakeview Ridge III 1,073 10,400 11,473 632 1999 5-40 yrs. The Ramparts at Brentwood 2,394 11,754 14,148 13 1986 5-40 yrs. The Sparrow Building 1,262 5,319 6,581 565 1982 5-40 yrs. Grassmere/Thousdale Land -- -- -- -- N/A N/A Winners Circle 1,497 7,308 8,805 607 1987 5-40 yrs. Westwood South 2,106 11,027 13,133 701 1999 5-40 yrs.
F-39
Cost Capitalized Subsequent Initial Cost to Acquisition --------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ------------------------------ ------------- ------- -------------- ----------- -------------- Orlando, FL Sunport Center -- 1,505 9,777 -- 107 Oakridge Center -- 4,700 18,761 -- 805 Sandlake Southwest -- 1,025 4,049 (1,025) (4,049) Lake Mary Land -- 2,804 -- -- -- InCharge Institute -- 501 2,085 -- MetroWest Center -- 1,344 7,618 -- 330 Landmark I -- 6,785 28,243 (6,785) (28,243) Landmark II -- 6,785 28,206 (6,785) (28,206) C N A Maitland I -- 1,858 16,129 (1,858) (15,817) Maitland Building B -- 1,115 8,121 (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) MetroWest Land -- -- -- 3,044 -- 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 (4,400) (29,836) Capital Plaza -- -- -- -- (14) Capital Plaza III -- -- -- 2,970 -- Pine Street Parking -- 1,030 8,087 (1,030) (8,087) Interlachen Village 2,026 1,100 2,689 -- 66 Signature Plaza -- 4,300 30,294 (4,300) (30,294) Research Triangle, NC Blue Ridge II -- 463 1,485 -- (15) Blue Ridge I -- 722 4,538 -- 1,053 3600 Glenwood Avenue -- -- 10,994 -- -- 3645 Trust Drive - One North -- 520 2,949 268 460 Commerce Center 3737 Glenwood Ave. -- -- 15,889 -- 1,889 4101 Research Commons -- 1,349 6,928 -- -- 4201 Research Commons -- 1,204 7,715 (1,204) (7,715) 4301 Research Commons -- 900 7,425 (900) (7,425) 4401 Research Commons -- 1,249 8,929 -- 4,938 4501 Research Commons -- 785 4,448 (785) (4,448) 4800 North Park -- 2,678 17,673 -- 307 4900 North Park 1,334 770 1,989 -- 275 5000 North Park (6) 1,010 4,697 -- 1,110 5200 Green's Dairy - One -- 169 959 -- 40 North Commerce Center 5220 Green's Dairy - One -- 382 2,165 -- 196 North Commerce Center 5301 Departure Drive -- 882 5,000 (882) (5,000) Amica -- 289 1,517 -- 91 Arrowwood -- 955 3,406 -- 631 Aspen -- 560 2,088 -- 453 Birchwood -- 201 907 (201) (907) BTI -- -- 15,504 -- 3,867 BTI Houses -- 250 250 (250) (250) Capital Center -- 851 -- (474) (377) Cedar East -- 563 2,491 -- 268 Cedar West -- 563 2,475 -- 614 CentreGreen 1 -- 1,677 7,133 -- -- Clintrials Land Parcel 2 -- 657 -- -- -- Clintrials Land Parcel 3 -- 548 -- -- -- Colony Corporate Center -- 613 3,296 (613) (3,296) Concourse -- 986 12,069 (986) (12,069) Cape Fear -- 131 -- -- 2,627 Creekstone Crossing -- 728 3,841 -- 100 Catawba -- 125 1,635 -- 293 Cottonwood -- 609 3,253 -- 8 Cypress -- 567 1,729 -- 164 Day Tract Land -- 3,860 -- -- -- Dogwood -- 766 2,777 -- 23 EPA Annex -- 2,601 10,920 -- 111 Expressway Warehouse -- 242 -- (242) -- Global Software (6) 465 7,471 -- -- 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 - ------------------------------ ------- -------------- ---------- -------------- -------------- ------------- Orlando, FL Sunport Center 1,505 9,884 11,389 800 1990 5-40 yrs. Oakridge Center 4,700 19,566 24,266 1,654 1966-1992 5-40 yrs. Sandlake Southwest -- -- -- -- 1986 5-40 yrs. Lake Mary Land 2,804 -- 2,804 -- N/A N/A InCharge Institute 501 2,085 2,586 23 2000 5-40 yrs. MetroWest Center 1,344 7,948 9,292 904 1988 5-40 yrs. Landmark I -- -- -- -- 1983 5-40 yrs. Landmark II -- -- -- -- 1985 5-40 yrs. C N A Maitland I -- 312 312 -- 1998 5-40 yrs. Maitland Building B -- -- -- -- 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. MetroWest Land 3,044 -- 3,044 -- N/A N/A One Winter Park -- -- -- -- 1982 5-40 yrs. The Palladium -- -- -- -- 1988 5-40 yrs. 201 Pine Street Building -- -- -- -- 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 -- -- -- -- 1999 5-40 yrs. Interlachen Village 1,100 2,755 3,855 248 1987 5-40 yrs. Signature Plaza -- -- -- -- 1986 5-40 yrs. Research Triangle, NC Blue Ridge II 463 1,470 1,933 527 1988 5-40 yrs. Blue Ridge I 722 5,591 6,313 1,153 1982 5-40 yrs. 3600 Glenwood Avenue -- 10,994 10,994 1,042 1986 5-40 yrs. 3645 Trust Drive - One North 788 3,409 4,197 366 1984 5-40 yrs. Commerce Center 3737 Glenwood Ave. -- 17,778 17,778 688 1999 5-40 yrs. 4101 Research Commons 1,349 6,928 8,277 49 1999 5-40 yrs. 4201 Research Commons -- -- -- -- 1991 5-40 yrs. 4301 Research Commons -- -- -- -- 1989 5-40 yrs. 4401 Research Commons 1,249 13,867 15,116 4,651 1987 5-40 yrs. 4501 Research Commons -- -- -- -- 1985 5-40 yrs. 4800 North Park 2,678 17,980 20,658 3,025 1985 5-40 yrs. 4900 North Park 770 2,264 3,034 472 1984 5-40 yrs. 5000 North Park 1,010 5,807 6,817 1,455 1980 5-40 yrs. 5200 Green's Dairy - One 169 999 1,168 119 1984 5-40 yrs. North Commerce Center 5220 Green's Dairy - One 382 2,361 2,743 279 1984 5-40 yrs. North Commerce Center 5301 Departure Drive -- -- -- -- 1984 5-40 yrs. Amica 289 1,608 1,897 327 1983 5-40 yrs. Arrowwood 955 4,037 4,992 882 1979 5-40 yrs. Aspen 560 2,541 3,101 555 1980 5-40 yrs. Birchwood -- -- -- -- 1983 5-40 yrs. BTI -- 19,371 19,371 1,275 1995 5-40 yrs. BTI Houses -- -- -- -- N/A 5-40 yrs. Capital Center 377 (377) -- -- N/A N/A Cedar East 563 2,759 3,322 582 1981 5-40 yrs. Cedar West 563 3,089 3,652 768 1981 5-40 yrs. CentreGreen 1 1,677 7,133 8,810 61 2000 5-40 yrs. Clintrials Land Parcel 2 657 -- 657 -- N/A N/A Clintrials Land Parcel 3 548 -- 548 -- N/A N/A Colony Corporate Center -- -- -- -- 1985 5-40 yrs. Concourse -- -- -- -- 1986 5-40 yrs. Cape Fear 131 2,627 2,758 1,776 1979 5-40 yrs. Creekstone Crossing 728 3,941 4,669 580 1990 5-40 yrs. Catawba 125 1,928 2,053 1,225 1980 5-40 yrs. Cottonwood 609 3,261 3,870 548 1983 5-40 yrs. Cypress 567 1,893 2,460 437 1980 5-40 yrs. Day Tract Land 3,860 -- 3,860 -- N/A N/A Dogwood 766 2,800 3,566 461 1983 5-40 yrs. EPA Annex 2,601 11,031 13,632 1,634 1966 5-40 yrs. Expressway Warehouse -- -- -- -- 1990 5-40 yrs. Global Software 465 7,471 7,936 1,720 1996 5-40 yrs.
F-40
Cost Capitalized Subsequent Initial Cost to Acquisition ----------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - --------------------------- -------------- -------- -------------- ----------- -------------- Hawthorn -- 904 3,782 -- 214 Highwoods Health Club -- 142 524 -- 2,516 Holiday Inn Reservations -- 867 2,735 -- 132 Center Holly -- 300 1,144 (300) (1,144) Healthsource -- 1,294 10,593 10 1,696 Highwoods Tower One (6) 203 16,914 -- 554 Highwoods Tower Two 8,199 -- -- -- -- Highwoods Centre -- 532 7,902 -- (127) Ironwood -- 319 1,276 -- 367 Kaiser -- 133 3,625 -- 567 Laurel -- 884 2,524 -- 449 Lake Plaza East -- 856 4,893 (856) (4,893) Highwoods Office Center -- 1,103 49 (746) -- North Highwoods Office Center -- 2,519 -- -- -- South Leatherwood -- 213 851 -- 445 Martin Land -- -- -- -- -- Maplewood -- -- -- -- -- A4 Health Systems -- 717 3,418 (717) (3,418) Creekstone Park -- 796 -- (647) -- Northpark I -- 405 -- 93 3,774 North Park - Land -- 962 -- 510 -- Phase I - One North -- 768 4,353 -- 395 Commerce Center \`W' Building - One North -- 1,163 6,592 -- 1,513 Commerce Center Overlook -- 398 10,401 -- 592 Pamlico/Roanoke -- 269 -- 20 11,087 Raleigh Corp Center Lot D -- -- -- 2,039 -- Red Oak at Highwoods -- 389 6,086 -- 358 Rexwoods Center I (3) 775 -- 103 3,749 Rexwoods II -- 355 -- 7 1,851 Rexwoods III -- 886 -- 34 2,916 Rexwoods IV -- 586 -- -- 3,629 Rexwoods V (6) 1,301 5,979 -- 60 Riverbirch (6) 448 -- 21 4,281 Situs I -- 693 2,917 (693) (2,917) Situs II -- 718 5,950 (718) (5,950) Situs III -- -- -- -- -- Six Forks Center I -- 666 2,663 -- 499 Six Forks Center II -- 1,086 4,345 -- 435 Six Forks Center III (6) 862 4,411 -- 431 Smoketree Tower -- 2,353 11,802 -- 1,684 South Square I (3) 606 3,785 -- 557 South Square II -- 525 4,710 -- 297 Sycamore (6) 255 5,830 -- -- Building 2A - Triangle -- 377 4,004 (377) (4,004) Business Center Building 2B - Triangle -- 118 1,225 (118) (1,225) Business Center Building 3 - Triangle -- 409 5,349 (409) (5,349) Business Center Building 7 - Triangle -- 414 6,301 2,610 (6,301) Business Center Weston -- 1,544 -- (1,544) -- Willow Oak (6) 458 4,685 -- 1,776 Richmond, VA Highwoods Distribution -- -- -- 6,690 -- Center Airport Center I -- 708 4,374 -- 998 Airport Center 2 -- 362 2,896 -- 305 Capital One Building I -- 1,278 10,690 -- 313 Capital One Building II -- 477 3,946 -- 243 Capital One Building III -- 1,278 11,515 -- (171) Capital One Parking Deck -- -- 2,288 -- 132 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 - --------------------------- -------- -------------- --------- -------------- -------------- ------------- Hawthorn 904 3,996 4,900 2,044 1987 5-40 yrs. Highwoods Health Club 142 3,040 3,182 347 1998 5-40 yrs. Holiday Inn Reservations 867 2,867 3,734 492 1984 5-40 yrs. Center Holly -- -- -- -- 1984 5-40 yrs. Healthsource 1,304 12,289 13,593 1,678 1996 5-40 yrs. Highwoods Tower One 203 17,468 17,671 4,473 1991 5-40 yrs. Highwoods Tower Two -- -- -- -- N/A N/A Highwoods Centre 532 7,775 8,307 747 1998 5-40 yrs. Ironwood 319 1,643 1,962 422 1978 5-40 yrs. Kaiser 133 4,192 4,325 1,711 1988 5-40 yrs. Laurel 884 2,973 3,857 528 1982 5-40 yrs. Lake Plaza East -- -- -- -- 1984 5-40 yrs. Highwoods Office Center 357 49 406 15 N/A N/A North Highwoods Office Center 2,519 -- 2,519 -- N/A N/A South Leatherwood 213 1,296 1,509 373 1979 5-40 yrs. Martin Land -- -- -- -- N/A N/A Maplewood -- -- -- -- N/A N/A A4 Health Systems -- -- -- -- 1996 5-40 yrs. Creekstone Park -- -- -- -- N/A N/A Northpark I 498 3,774 4,272 523 1997 5-40 yrs. North Park - Land 1,472 -- 1,472 -- N/A N/A Phase I - One North 768 4,748 5,516 607 1981 5-40 yrs. Commerce Center \`W' Building - One North 1,163 8,105 9,268 1,171 1983 5-40 yrs. Commerce Center Overlook 398 10,993 11,391 754 1999 5-40 yrs. Pamlico/Roanoke 289 11,087 11,376 3,432 1980 5-40 yrs. Raleigh Corp Center Lot D 2,039 -- 2,039 -- N/A N/A Red Oak at Highwoods 389 6,444 6,833 491 1999 5-40 yrs. Rexwoods Center I 878 3,749 4,627 1,136 1990 5-40 yrs. Rexwoods II 362 1,851 2,213 344 1993 5-40 yrs. Rexwoods III 920 2,916 3,836 712 1992 5-40 yrs. Rexwoods IV 586 3,629 4,215 958 1995 5-40 yrs. Rexwoods V 1,301 6,039 7,340 788 1998 5-40 yrs. Riverbirch 469 4,281 4,750 1,443 1987 5-40 yrs. Situs I -- -- -- -- 1996 5-40 yrs. Situs II -- -- -- -- 1998 5-40 yrs. Situs III -- -- -- -- N/A N/A Six Forks Center I 666 3,162 3,828 497 1982 5-40 yrs. Six Forks Center II 1,086 4,780 5,866 732 1983 5-40 yrs. Six Forks Center III 862 4,842 5,704 881 1987 5-40 yrs. Smoketree Tower 2,353 13,486 15,839 2,815 1984 5-40 yrs. South Square I 606 4,342 4,948 862 1988 5-40 yrs. South Square II 525 5,007 5,532 906 1989 5-40 yrs. Sycamore 255 5,830 6,085 996 1997 5-40 yrs. Building 2A - Triangle -- -- -- -- 1984 5-40 yrs. Business Center Building 2B - Triangle -- -- -- -- 1984 5-40 yrs. Business Center Building 3 - Triangle -- -- -- -- 1988 5-40 yrs. Business Center Building 7 - Triangle 3,024 -- 3,024 -- 1986 5-40 yrs. Business Center Weston -- -- -- -- N/A N/A Willow Oak 458 6,461 6,919 1,989 1995 5-40 yrs. Richmond, VA Highwoods Distribution 6,690 -- 6,690 -- N/A N/A Center Airport Center I 708 5,372 6,080 728 1997 5-40 yrs. Airport Center 2 362 3,201 3,563 251 1998 5-40 yrs. Capital One Building I 1,278 11,003 12,281 565 1999 5-40 yrs. Capital One Building II 477 4,189 4,666 200 1999 5-40 yrs. Capital One Building III 1,278 11,344 12,622 484 1999 5-40 yrs. Capital One Parking Deck -- 2,420 2,420 79 1999 5-40 yrs.
F-41
Cost Capitalized Subsequent Initial Cost to Acquisition ----------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ---------------------------- ------------- -------- -------------- ----------- -------------- 1309 Cary Street -- 171 685 -- 77 4900 Cox -- 1,324 5,305 -- 165 Technology Park 1 -- 541 2,166 -- 146 Development Opportunity -- 29 -- -- -- Strip East Shore I -- -- 1,254 953 4,492 East Shore II -- 907 6,662 -- 110 East Shore III -- -- 2,220 1,319 3,965 Eastshore Four -- 1,183 -- -- -- Grove Park -- 349 2,685 364 3,149 Grove Park II -- 907 -- -- -- Highwoods Distribution -- 517 5,714 -- 405 Center Highwoods One (6) 1,846 8,613 -- 1,985 Richfood Holdings Building -- 785 5,170 -- 1,375 North Shore Commons -- 71 -- (71) -- Highwoods Five -- 806 4,948 -- 936 Sadler & Cox Land -- -- -- 1,682 -- IXL Building -- 907 4,937 -- -- Highwoods Common -- 547 4,342 (26) (774) Innsbrook Centre -- 914 6,768 -- 184 Liberty Mutual Building 3,169 1,205 4,819 -- 608 Mercer Plaza -- 1,556 12,350 -- -- Markel-American -- 1,372 8,667 -- 896 North Park Building -- 2,163 8,659 -- 328 North Shore Commons -- -- -- -- -- Bldg A Hamilton Beach Building -- 1,086 4,344 -- 329 Pavillion - Richmond -- 401 -- -- -- One Shockoe Plaza -- -- 19,324 -- (3,954) Pickles Land 731 850 -- -- -- Stony Point I -- 1,384 11,445 -- 1,050 Stony Point II -- 1,561 10,949 -- 1,496 Technology Park 2 -- 264 1,058 -- 46 Vantage Place-A -- 203 811 -- 147 Vantage Place-B -- 233 931 -- 129 Vantage Place-C -- 235 940 -- 89 Vantage Place-D -- 218 873 -- 187 Vantage Point -- 1,089 4,354 -- 206 Waterfront Plaza -- 585 2,347 -- 626 Westshore I -- 358 1,431 -- 28 Westshore II -- 545 2,181 -- 34 Westshore III -- 961 3,601 -- 1,348 Virginia Mutual -- 1,301 6,034 -- (252) South Florida Debartolo Land -- 1,727 -- (1,727) -- The 1800 Eller Drive -- -- 9,724 -- 491 Building Tampa, FL 5400 Gray Street -- 350 295 -- 8 Anchor Glass -- 1,281 11,034 (1,281) (11,034) Atrium -- 1,639 9,286 (287) 2,219 Bayshore Place -- 2,248 10,323 (2,248) (10,323) Bay View -- 1,304 5,964 -- 178 Bay Vista Garden Center -- 447 4,777 -- 11 Bay Vista Garden Center II -- 1,328 6,981 134 400 Bay Vista Office Center -- 935 4,480 -- 295 Bay Vista Retail Center -- 283 1,135 -- 31 Countryside Place -- 843 3,731 -- 114 Clearwater Point 317 1,531 -- 38 Cypress Center Land -- 1,410 -- -- -- Cypress Commons -- 1,211 11,488 -- 7 Cypress Center I Cigna -- 3,171 12,635 -- 3 Cypress Center III -- 1,190 7,690 -- 5 Cypress West 2,054 615 4,988 -- 191 Brookwood Day Care Center -- 61 347 -- 25 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 - ---------------------------- -------- -------------- --------- -------------- -------------- ------------- 1309 Cary Street 171 762 933 97 1987 5-40 yrs. 4900 Cox 1,324 5,470 6,794 724 1991 5-40 yrs. Technology Park 1 541 2,312 2,853 339 1991 5-40 yrs. Development Opportunity 29 -- 29 -- N/A N/A Strip East Shore I 953 5,746 6,699 112 N/A N/A East Shore II 907 6,772 7,679 520 1999 5-40 yrs. East Shore III 1,319 6,185 7,504 145 1999 5-40 yrs. Eastshore Four 1,183 -- 1,183 -- N/A N/A Grove Park 713 5,834 6,547 794 1997 5-40 yrs. Grove Park II 907 -- 907 -- N/A N/A Highwoods Distribution 517 6,119 6,636 316 1999 5-40 yrs. Center Highwoods One 1,846 10,598 12,444 2,009 1996 5-40 yrs. Richfood Holdings Building 785 6,545 7,330 872 1997 5-40 yrs. North Shore Commons -- -- -- -- N/A N/A Highwoods Five 806 5,884 6,690 546 1998 5-40 yrs. Sadler & Cox Land 1,682 -- 1,682 -- N/A N/A IXL Building 907 4,937 5,844 36 2000 5-40 yrs. Highwoods Common 521 3,568 4,089 137 1999 5-40 yrs. Innsbrook Centre 914 6,952 7,866 190 1989 5-40 yrs. Liberty Mutual Building 1,205 5,427 6,632 690 1990 5-40 yrs. Mercer Plaza 1,556 12,350 13,906 324 1984 5-40 yrs. Markel-American 1,372 9,563 10,935 780 1998 5-40 yrs. North Park Building 2,163 8,987 11,150 1,110 1989 5-40 yrs. North Shore Commons -- -- -- -- N/A N/A Bldg A Hamilton Beach Building 1,086 4,673 5,759 636 1986 5-40 yrs. Pavillion - Richmond 401 -- 401 -- N/A N/A One Shockoe Plaza -- 15,370 15,370 1,916 1996 5-40 yrs. Pickles Land 850 -- 850 -- N/A N/A Stony Point I 1,384 12,495 13,879 1,161 1990 5-40 yrs. Stony Point II 1,561 12,445 14,006 714 1999 5-40 yrs. Technology Park 2 264 1,104 1,368 160 1991 5-40 yrs. Vantage Place-A 203 958 1,161 186 1987 5-40 yrs. Vantage Place-B 233 1,060 1,293 180 1988 5-40 yrs. Vantage Place-C 235 1,029 1,264 171 1987 5-40 yrs. Vantage Place-D 218 1,060 1,278 215 1988 5-40 yrs. Vantage Point 1,089 4,560 5,649 690 1990 5-40 yrs. Waterfront Plaza 585 2,973 3,558 545 1988 5-40 yrs. Westshore I 358 1,459 1,817 181 1995 5-40 yrs. Westshore II 545 2,215 2,760 268 1995 5-40 yrs. Westshore III 961 4,949 5,910 770 1997 5-40 yrs. Virginia Mutual 1,301 5,782 7,083 44 1996 5-40 yrs. South Florida Debartolo Land -- -- -- -- N/A N/A The 1800 Eller Drive -- 10,215 10,215 573 1983 5-40 yrs. Building Tampa, FL 5400 Gray Street 350 303 653 24 1973 5-40 yrs. Anchor Glass -- -- -- -- 1988 5-40 yrs. Atrium 1,352 11,505 12,857 1,111 1989 5-40 yrs. Bayshore Place -- -- -- -- 1990 5-40 yrs. Bay View 1,304 6,142 7,446 477 1982 5-40 yrs. Bay Vista Garden Center 447 4,788 5,235 348 1982 5-40 yrs. Bay Vista Garden Center II 1,462 7,381 8,843 720 1997 5-40 yrs. Bay Vista Office Center 935 4,775 5,710 450 1982 5-40 yrs. Bay Vista Retail Center 283 1,166 1,449 91 1987 5-40 yrs. Countryside Place 843 3,845 4,688 316 1988 5-40 yrs. Clearwater Point 317 1,569 1,886 122 1981 5-40 yrs. Cypress Center Land 1,410 -- 1,410 -- N/A N/A Cypress Commons 1,211 11,495 12,706 1,121 1985 5-40 yrs. Cypress Center I Cigna 3,171 12,638 15,809 1,441 1982 5-40 yrs. Cypress Center III 1,190 7,695 8,885 322 1983 5-40 yrs. Cypress West 615 5,179 5,794 460 1985 5-40 yrs. Brookwood Day Care Center 61 372 433 43 1986 5-40 yrs.
F-42
Cost Capitalized Subsequent Initial Cost to Acquisition ------------------------- -------------------------- 2000 Building & Building & Description Encumbrance Land Improvements Land Improvements - ---------------------------- ------------- ---------- -------------- ----------- -------------- Expo Building -- 171 969 -- 23 Feathersound II 2,227 800 7,282 -- 367 Fireman's Fund Building -- 500 4,107 -- 95 Fireman's fund Land -- 1,000 -- -- -- Federated -- 6,028 -- -- -- Horizon Office Building (1) -- 6,114 -- 172 Highwoods Preserve I -- -- 2,268 1,618 18,970 Highwoods Preserve III -- -- 1,524 1,488 17,165 Highwoods Preserve IV -- 1,639 16,355 -- 6,717 Highwoods Preserve V -- -- -- -- -- Highwoods Plaza -- 545 4,650 -- 344 Highwoods Preserve Land -- 3,231 -- -- -- ROMAC -- -- -- -- -- Lakepointe II (1) 2,000 20,376 -- 2,817 Lakeside (1) -- 7,272 -- 106 Lakepointe I (1) 2,100 31,390 -- 444 Northside Square Office -- 601 3,601 -- 103 Building Northside Square Retail -- 800 2,808 -- 61 Building One Harbour Place (3) 2,015 25,252 -- 1 Parkside (1) -- 9,193 -- 277 Pavillion Office Building (1) -- 16,022 -- 205 Pavilion Parking Garage (1) -- 5,618 -- -- Park Place -- 1,508 -- -- -- REO Building -- 795 4,484 -- 181 Registry I -- 744 4,216 -- 337 Registry II -- 908 5,147 -- 394 Registry Square -- 344 1,951 -- 104 Rocky Point Land -- 3,484 -- -- -- Sabal Business Center I -- 375 2,127 -- 128 Sabal Business Center II -- 342 1,935 -- 137 Sabal Business Center III -- 290 1,642 -- 45 Sabal Business Center IV -- 819 4,638 -- 7 Sabal Business Center V -- 1,026 5,813 -- 86 Sabal Business Center VI -- 1,609 9,116 -- 80 Sabal Business Center VII -- 1,519 8,605 -- 44 Sabal Lake Building -- 572 3,241 -- 152 Sabal Industrial Park Land -- 473 -- -- -- Sabal Park Plaza -- 611 3,460 -- 384 Sabal Tech Center -- 548 3,107 -- 97 Summit Executive Centre -- 579 2,749 -- 1 Spectrum (1) 1,450 14,173 -- 264 Sabal Pavilion - Phase I -- 660 8,633 304 (69) Sabal Pavilion - Phase II -- 357 -- -- -- Tower Place -- 3,194 18,098 (3,194) (18,098) USF&G -- 1,366 7,742 -- 1,391 Westshore Square 2,811 1,130 5,155 -- 16 ----- ------ ------ ------- 668,327 3,039,068 (83,902) (245,198) ======= ========= ======= ======== 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 - ---------------------------- ---------- -------------- ------------ -------------- -------------- ------------- Expo Building 171 992 1,163 109 1981 5-40 yrs. Feathersound II 800 7,649 8,449 714 1986 5-40 yrs. Fireman's Fund Building 500 4,202 4,702 365 1982 5-40 yrs. Fireman's fund Land 1,000 -- 1,000 -- N/A N/A Federated 6,028 -- 6,028 -- N/A N/A Horizon Office Building -- 6,286 6,286 524 1980 5-40 yrs. Highwoods Preserve I 1,618 21,238 22,856 492 1999 5-40 yrs. Highwoods Preserve III 1,488 18,689 20,177 352 1999 5-40 yrs. Highwoods Preserve IV 1,639 23,072 24,711 160 1999 5-40 yrs. Highwoods Preserve V -- -- -- -- N/A N/A Highwoods Plaza 545 4,994 5,539 34 1999 5-40 yrs. Highwoods Preserve Land 3,231 -- 3,231 -- N/A N/A ROMAC -- -- -- -- N/A N/A Lakepointe II 2,000 23,193 25,193 715 1999 5-40 yrs. Lakeside -- 7,378 7,378 592 1978 5-40 yrs. Lakepointe I 2,100 31,834 33,934 2,595 1986 5-40 yrs. Northside Square Office 601 3,704 4,305 304 1986 5-40 yrs. Building Northside Square Retail 800 2,869 3,669 227 1986 5-40 yrs. Building One Harbour Place 2,015 25,253 27,268 237 1985 5-40 yrs. Parkside -- 9,470 9,470 763 1979 5-40 yrs. Pavillion Office Building -- 16,227 16,227 1,314 1982 5-40 yrs. Pavilion Parking Garage -- 5,618 5,618 168 1999 5-40 yrs. Park Place 1,508 -- 1,508 -- N/A N/A REO Building 795 4,665 5,460 384 1983 5-40 yrs. Registry I 744 4,553 5,297 546 1985 5-40 yrs. Registry II 908 5,541 6,449 667 1987 5-40 yrs. Registry Square 344 2,055 2,399 225 1988 5-40 yrs. Rocky Point Land 3,484 -- 3,484 -- N/A N/A Sabal Business Center I 375 2,255 2,630 259 1982 5-40 yrs. Sabal Business Center II 342 2,072 2,414 273 1984 5-40 yrs. Sabal Business Center III 290 1,687 1,977 187 1984 5-40 yrs. Sabal Business Center IV 819 4,645 5,464 501 1984 5-40 yrs. Sabal Business Center V 1,026 5,899 6,925 652 1988 5-40 yrs. Sabal Business Center VI 1,609 9,196 10,805 994 1988 5-40 yrs. Sabal Business Center VII 1,519 8,649 10,168 935 1990 5-40 yrs. Sabal Lake Building 572 3,393 3,965 425 1986 5-40 yrs. Sabal Industrial Park Land 473 -- 473 -- N/A N/A Sabal Park Plaza 611 3,844 4,455 648 1987 5-40 yrs. Sabal Tech Center 548 3,204 3,752 341 1989 5-40 yrs. Summit Executive Centre 579 2,750 3,329 200 1988 5-40 yrs. Spectrum 1,450 14,437 15,887 1,211 1984 5-40 yrs. Sabal Pavilion - Phase I 964 8,564 9,528 443 1998 5-40 yrs. Sabal Pavilion - Phase II 357 -- 357 -- N/A N/A Tower Place -- -- -- -- 1988 5-40 yrs. USF&G 1,366 9,133 10,499 1,402 1988 5-40 yrs. Westshore Square 1,130 5,171 6,301 383 1976 5-40 yrs. ----- ------ ------ ----- 596,439 2,793,870 3,443,117 280,772 ======= ========= ========= =======
- --------- (1) These assets are pledged as collateral for a $71,183,000 first mortgage loan. (2) These assets are pledged as collateral for a $45,396,000 first mortgage loan. (3) These assets are pledged as collateral for a $29,328,000 first mortgage loan. (4) These assets are pledged as collateral for a $7,883,000 first mortgage loan. (5) These assets are pledged as collateral for a $136,836,000 first mortgage loan. (6) These assets are pledged as collateral for a $185,701,000 first mortgage loan. (7) These assets are pledged as collateral for a $11,141,000 first mortgage loan. The aggregate cost for Federal Income tax purposes was approximately $3,118,840,000. F-43 HIGHWOODS PROPERTIES, INC. NOTE TO SCHEDULE III (in thousands) As of December 31, 2000, 1999 and 1998 A summary of activity for real estate and accumulated depreciation is as follows:
December 31, ----------------------------------------------- 2000 1999 1998 -------------- -------------- ------------- Real Estate: Balance at beginning of year ........................ $3,768,234 $4,025,472 $2,603,410 Additions Acquisitions, development and improvements ......... 403,012 507,475 1,447,637 Cost of real estate sold ........................... (733,608) (764,713) (25,575) ---------- ---------- ---------- Balance at close of year (a) ........................ $3,437,638 $3,768,234 $4,025,472 ========== ========== ========== Accumulated Depreciation Balance at beginning of year ........................ $ 237,979 $ 167,989 $ 86,062 Depreciation expense ............................... 108,752 99,386 83,462 Real estate sold ................................... (65,959) (29,396) (1,535) ---------- ---------- ---------- Balance at close of year (b) ........................ $ 280,772 $ 237,979 $ 167,989 ========== ========== ========== - ---------- (a) Reconciliation of total cost to balance sheet caption at December 31, 2000, 1999 and 1998 (in thousands) 2000 1999 1998 ---------- ---------- ---------- Total per schedule III ................................ $3,443,117 $3,768,234 $4,025,472 Construction in progress exclusive of land included in schedule III ....................................... 87,622 186,925 189,465 Furniture, fixtures and equipment ..................... 11,433 7,917 7,693 Property held for sale ................................ (133,303) (51,603) (129,166) ---------- ---------- ---------- Total real estate assets at cost ...................... $3,408,869 $3,911,473 $4,093,464 ========== ========== ========== - ---------- (b) Reconciliation of total accumulated depreciation to balance sheet caption at December 31, 2000, 1999 and 1998 (in thousands) 2000 1999 1998 ---------- ---------- ---------- Total per Schedule III ................................ $ 280,772 $ 237,979 $ 167,989 Accumulated depreciation -- furniture, fixtures and equipment .......................................... 5,317 2,799 3,953 Property held for sale ................................ (5,479) (2,643) (2,670) ---------- ---------- ---------- Total accumulated depreciation ........................ $ 280,610 $ 238,135 $ 169,272 ========== ========== ==========
F-44 EX-23 2 0002.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 333-51671-01, 333-51759, and 333-61913, and Form S-8 Nos. 333-38878, 333-12117, 333-29759 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 19, 2001 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, 2000. /s/ ERNST & YOUNG LLP Raleigh, North Carolina March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----