-----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, JRymgaz1ZHMMtbM8UBgWk6pknKV5dBCOeR50PlCshB2CfiXVU6lPOPLrXgq3YSn/ 51ha+MdUQf7ZhPwjTmEq+Q== 0001021408-02-004062.txt : 20020415 0001021408-02-004062.hdr.sgml : 20020415 ACCESSION NUMBER: 0001021408-02-004062 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020325 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13100 FILM NUMBER: 02583872 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-K 1 d10k.txt FORM 10-K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001 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 Identification No.) of incorporation or organization) 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 5/8% Series A Cumulative Redeemable Preferred Shares 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. [ ] 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 26, 2002 was $1,412,352,570. As of February 26, 2002, there were 52,897,100 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 20, 2002, are incorporated by reference in Part III, Items 10, 11, 12 and 13, of the Form 10-K. =============================================================================== HIGHWOODS PROPERTIES, INC. TABLE OF CONTENTS Item No. Page No. - -------- -------- PART I 1. Business....................................................... 3 2. Properties..................................................... 12 3. Legal Proceedings.............................................. 17 4. Submission of Matters to a Vote of Security Holders............ 17 X. Executive Officers of the Registrant........................... 18 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters...................................................... 19 6. Selected Financial Data........................................ 20 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 21 7A. Quantitative and Qualitative Disclosures About Market Risk..... 32 8. Financial Statements......................................... 32 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................... 32 PART III 10. Directors and Executive Officers of the Registrant............. 33 11. Executive Compensation......................................... 33 12. Security Ownership of Certain Beneficial Owners and Management. 33 13. Certain Relationships and Related Transactions................. 33 PART IV 14. Exhibits and Reports on Form 8-K............................... 34 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, 2001, we: . owned 498 in-service office, industrial and retail properties, encompassing approximately 37.2 million rentable square feet and 213 apartment units; . owned an interest (50% or less) in 74 in-service office and industrial properties, encompassing approximately 7.2 million rentable square feet and 418 apartment units; . owned 1,327 acres of undeveloped land suitable for future development; and . were developing an additional 25 properties, which will encompass approximately 2.8 million rentable square feet (including three properties encompassing 347,000 rentable square feet that we are developing with our joint venture partners). The following summarizes our capital recycling program during the past three years ending December 31, 2001: 2001 2000 1999 Total ------- ------ ------ -------- Office, Industrial and Retail Properties (rentable square feet in thousands) Dispositions /(1)/ (268) (4,743) (7,595) (12,606) Contributions to Joint Ventures /(1)/ (118) (2,199) (1,198) (3,515) Developments Placed In-Service 1,351 3,480 2,167 6,998 Acquisitions 72 669 960 1,701 ------- ------- ------- -------- Net Change in Wholly-owned In-Service Properties 1,037 (2,793) (5,666) (7,422) ======= ======= ======= ======== Apartment Properties (in units) Dispositions (1,672) -- -- (1,672) ======= ======= ======= ======== - ------------------- /(1)/ Excludes wholly-owned development properties sold or contributed to joint ventures. In addition to the above property activity, we repurchased $148.8 million, $101.8 million and $25.5 million of Common Stock and Common Units during 2001, 2000 and 1999, respectively, and $18.5 million of Preferred Stock during 2001. 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, 2001, the Company owned 87.7% 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. 3 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 and retail 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. 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 capital recycling 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 capital recycling 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 Capital Structure. We are committed to maintaining a flexible 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 any one or more of: . borrowings under our unsecured and secured revolving credit facilities; . the issuance of unsecured debt; . the issuance of secured debt; . the issuance of equity securities by both the Company and the Operating Partnership; . the selective disposition of non-core assets; and . the sale or contribution of our wholly-owned properties, development projects and development land to strategic joint ventures formed with unrelated investors. 4 CAPITAL RECYCLING PROGRAM The following table summarizes our capital recycling program during 2001 ($ in thousands): ACQUISITION ACTIVITY
Building Date Rentable Initial Property Market Type /(1)/ Acquired Square Feet Cost - -------- ------ ---------- -------- ----------- ------- University Center Charlotte O 1/17/01 72,000 $ 1,513 ------- -------- Total 72,000 $ 1,513 ======= ========
DISPOSITION ACTIVITY
Building Date Rentable Sales Property Market Type /(1)/ Sold Square Feet Price - -------- ------ ---------- ------- ----------- -------- Regency House Kansas City M 2/13/01 N/A $ 12,000 Sulgrave Kansas City M 2/13/01 N/A 25,900 Lakefront Plaza One Norfolk O 3/2/01 76,000 8,400 Coach House North Kansas City M 5/31/01 N/A 10,200 Coach House South Kansas City M 5/31/01 N/A 27,900 Coach Lamp Kansas City M 5/31/01 N/A 6,800 Corinth Place Kansas City M 5/31/01 N/A 5,400 5100 Indiana Avenue Piedmont Triad I 6/27/01 88,000 2,200 Expo Building Tampa O 8/15/01 26,000 1,300 Kirby Centre Memphis O 9/27/01 32,000 2,800 Corinth Gardens Kansas City M 9/28/01 N/A 2,200 Corinth Paddock Kansas City M 9/28/01 N/A 7,800 Kenilworth Kansas City M 9/28/01 N/A 17,100 Mission Valley Kansas City M 9/28/01 N/A 4,300 Clearwater Pointe Tampa O 9/28/01 26,000 1,700 Robinhood Piedmont Triad O 11/29/01 20,000 1,800 -------- --------- Total 268,000 $ 137,800 ======== =========
JOINT VENTURE ACTIVITY
Building Date Rentable Sales Property Market Type/(1)/ Contributed square Feet Price -------- ------ -------- ----------- ----------- -------- Situs III Research Triangle O 7/30/01 39,000 $ 5,100 ECPI/Concourse Center One Piedmont Triad O 12/19/01 118,000 14,280 -------- --------- Total 157,000 $ 19,380 -------- ---------
/(1)/ O = Office I = Industrial M = Multifamily 5 DEVELOPMENT ACTIVITY The following wholly-owned development projects were placed in service during 2001 ($ in thousands): Placed In-Service
Month Building Placed Number of Rentable Cost Name Market Type/(1)/ In-Service Properties Square Feet to Date - ---- ------ -------- ---------- ---------- ----------- --------- Centre Green One Research Triangle O 02/01 1 97,000 $ 11,082 Valencia Place Kansas City O 02/01 1 250,000 39,685 Maplewood Research Triangle O 04/01 1 36,000 3,978 Tradeport Place III Atlanta I 05/01 1 122,000 4,787 ParkWest Two Research Triangle O 05/01 1 48,000 3,856 Highwoods Preserve V Tampa O 07/01 1 185,000 24,400 Romac Tampa O 09/01 1 128,000 14,078 Highwoods Center III at Tradeport Atlanta O 11/01 1 43,000 3,533 Shadow Creek Memphis O 12/01 1 80,000 8,628 Tradeport Place IV Atlanta I 12/01 1 122,000 3,964 Deerfield III Atlanta O 12/01 1 54,000 4,306 Enterprise Center I Piedmont Triad I 12/01 1 120,000 3,695 Highwoods Plaza Tampa O 12/01 1 66,000 6,866 --- --------- --------- Total 13 1,351,000 $ 132,858 === ========= =========
- --------------- /(1)/ O = Office I = Industrial As of December 31, 2001, we were developing 19 suburban office properties, two industrial properties, and one retail property totaling 2.4 million rentable square feet of office, industrial and retail 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 (and therefore, are not included in the following table) three additional properties totaling 347,000 rentable square feet. At December 31, 2001, these three development projects had an aggregate budgeted cost of $45.8 million and were 58.0% pre-leased. IN-PROCESS
Rentable Estimated Cost at Pre-Leasing Estimated Estimated Name Market Square Feet Cost 12/31/01 Percentage/(1)/ Completion Stabilization/(2)/ - ---- ------ ----------- --------- -------- -------------- ---------- ----------------- ($ in thousands) Office: Verizon Wireless Greenville 193,000 $16,356 $16,124 100% 1Q02 1Q02 International Place 3 Memphis 214,000 34,272 26,761 100 2Q02 2Q02 1825 Century Center/(3)/ Atlanta 101,000 16,254 2,560 100 3Q02 3Q02 Seven Springs I Nashville 131,000 15,556 11,719 4 1Q02 1Q03 801 Raleigh Corporate Center /(3)/ Research Triangle 100,000 12,016 1,396 40 4Q02 2Q04 ------- ------- ------- ---- ---- ---- Total or Weighted Average of all In-Process Development Projects 739,000 $94,454 $58,560 75% ======= ======= ======= ====
/(1)/ Letters of intent comprise 5.0% of the total pre-leasing percentage. /(2)/ We generally consider a development project to be stabilized upon the earlier of the first date such project is at least 95% occupied or one year from the date of completion. /(3)/ We are developing these properties for a third party and own an option to purchase each property. 6 COMPLETED-NOT STABILIZED
Percent Rentable Estimated Cost at Leased/ Estimated Estimated Name Market Square Feet Cost 12/31/01 Pre-leased/(1)/ Completion Stabilization/(2)/ - ---- ------ ----------- --------- -------- ------------- ---------- ------------- ($ in thousands) Office: 380 Park Place Tampa 82,000 $ 9,697 $ 9,591 93% 1Q01 1Q02 Innslake Richmond 65,000 7,192 7,102 100 4Q01 2Q02 Met Life Building at Brookfield Greenville 117,000 13,220 12,502 84 3Q01 2Q02 Cool Springs II Nashville 205,000 22,718 19,280 70 2Q01 2Q02 Highwoods Tower II Research Triangle 167,000 25,134 22,065 94 1Q01 2Q02 Hickory Trace Nashville 52,000 5,933 5,578 53 3Q01 3Q02 ParkWest One Research Triangle 46,000 4,364 4,036 74 2Q01 3Q02 North Shore Commons A Richmond 115,000 13,084 12,479 79 2Q01 3Q02 Stony Point III Richmond 107,000 11,425 11,040 73 2Q01 3Q02 Shadow Creek II Memphis 81,000 8,750 6,919 19 4Q01 4Q02 Highwoods Park at Jefferson Village Piedmond Triad 98,000 11,290 9,370 4 4Q01 4Q02 Centre Green Two Research Triangle 97,000 11,596 9,872 31 2Q01 1Q03 Centre Green Four Research Triangle 100,000 11,764 9,186 50 4Q01 2Q03 GlenLake One Research Triangle 158,000 22,417 17,801 -- 4Q01 2Q03 ----------- -------- -------- --- Completed-Not Stabilized Office Total or Weighted Average 1,490,000 $178,584 $156,821 58% =========== ======== ======== === Industrial: Holden Road Piedmont Triad 64,000 $ 2,014 $ 1,872 60% 1Q01 2Q02 Newpoint IV Atlanta 136,000 5,288 4,182 29 4Q01 4Q02 ----------- --------- -------- --- Completed-Not Stabilized Industrial Total or Weighted Average 200,000 $ 7,302 $ 6,054 39% =========== ======== ======== === Retail: Granada Shops Kansas City 20,000 $ 4,680 $ 4,131 90% 4Q01 4Q02 ----------- -------- -------- --- Completed-Not Stabilized Retail Total or Weighted Average 20,000 $ 4,680 $ 4,131 90% =========== ======== ======== === Total or Weighted Average of all Completed-Not Stabilized Development Projects 1,710,000 $190,566 $167,006 57% ============ ======== ======== === Total or Weighted Average of all Development Projects 2,449,000 $285,020 $225,566 62% ============ ======== ======== ===
- --------------- /(1)/ Letters of intent comprise 5.0% of the total pre-leasing percentage. /(2)/ We generally consider a development project to be stabilized upon the earlier of the first date such project is at least 95% occupied or one year from the date of completion. 7 DEVELOPMENT ANALYSIS
Rentable Estimated Pre-Leasing Square Feet Cost Percentage/(1)/ ----------- ----------- -------------- ($ in thousands) Summary By Estimated Stabilization Date First Quarter 2002................... 275,000 $ 26,053 98% Second Quarter 2002.................. 832,000 104,550 86 Third Quarter 2002................... 421,000 51,060 79 Fourth Quarter 2002.................. 335,000 30,008 23 First Quarter 2003................... 228,000 27,152 15 Second Quarter 2003.................. 258,000 34,181 19 Second Quarter 2004.................. 100,000 12,016 40 --------- --------- --- Total or Weighted Average............ 2,449,000 $ 285,020 62% ========= ========= === Summary by Market: Atlanta.............................. 237,000 $ 21,542 59% Greenville........................... 310,000 29,576 94 Kansas City.......................... 20,000 4,680 90 Memphis.............................. 295,000 43,022 78 Nashville............................ 388,000 44,207 45 Piedmont Triad....................... 162,000 13,304 26 Research Triangle.................... 668,000 87,291 47 Richmond............................. 287,000 31,701 82 Tampa................................ 82,000 9,697 93 --------- --------- --- Total or Weighted Average............ 2,449,000 $ 285,020 62% ========= ========= === Build-to-Suit........................ 508,000 $ 66,882 100% Multi-tenant......................... 1,941,000 218,138 52 --------- --------- --- Total or Weighted Average............ 2,449,000 $ 285,020 62% ========= ========= === Average Rentable Average Square Estimated Average Feet Cost Pre-Leasing/(1)/ --------- -------------- --------------- ($ in thousands) Average Per Property By Type: Office............................... 117,316 $ 14,370 64% Industrial........................... 100,000 3,651 39 Retail............................... 20,000 4,680 90 --------- --------- --- Weighted Average..................... 111,318 $ 12,955 62% ========= ========= ===
- --------------- /(1)/ Letters of intent comprise 5.0% of the total pre-leasing percentage. COMPETITION Our properties compete for tenants with similar properties located in our markets primarily on the basis of location, rent, 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, 2001, the Company employed 540 persons. RISK FACTORS An investment in our capital stock involves various risks. All investors should carefully consider the following risk factors in conjunction with the other information contained in this annual report before purchasing our securities. If any of these risks actually occur, our business, operating results, prospects and financial condition could be harmed. 8 Adverse conditions in the real estate market may impair our ability to make distributions to you. Events or conditions which are beyond our control may adversely affect our ability to generate revenues in excess of operating expenses, including debt service and capital expenditures. Such events or conditions could include: . general and regional economic conditions, particularly in the southeastern region of the United States; . changes in interest rate levels and the availability of financing; . increases in operating costs, including real estate taxes and insurance premiums, due to inflation and other factors, which may not necessarily be offset by increased rents; and . inability of a significant number of tenants to pay rent. Future acquisitions may fail to perform in accordance with our expectations and may require development and renovation costs exceeding our estimates. In the normal course of business, we typically evaluate potential acquisitions, enter into non-binding letters of intent, and may, at any time, enter into contracts to acquire and may acquire additional properties. However, changing market conditions, including competition from others, may diminish our opportunities for making attractive acquisitions. Once made, our investments may fail to perform in accordance with our expectations. In addition, the renovation and improvement costs we incur in bringing an acquired property up to market standards may exceed our estimates. Although we anticipate financing future acquisitions and renovations through a combination of advances under our revolving loans and other forms of secured or unsecured financing, no assurance can be given that we will have the financial resources to make suitable acquisitions or renovations. If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties may not be available or may be available only on disadvantageous terms. In addition to acquisitions, we periodically consider developing and constructing properties. Risks associated with development and construction activities include: . the unavailability of favorable financing; . construction costs exceeding original estimates; . construction and lease-up delays resulting in increased debt service expense and construction costs; and . insufficient occupancy rates and rents at a newly completed property causing a property to be unprofitable. Development activities are also subject to risks relating to our inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental and utility company authorizations. Because holders of our Common Units, including some of our officers and directors, may suffer adverse tax consequences upon the sale of some of our properties, we may sometimes make decisions that are not in your best interest. Holders of Common Units may suffer adverse tax consequences upon certain of our properties' sales. Therefore, holders of Common Units, including certain of our officers and directors, may have different objectives regarding the appropriate pricing and timing of a property's sale. Although we are the sole general partner of the Operating Partnership and have the exclusive authority to sell an individual property, officers and directors who hold Common Units may influence us not to sell certain properties even if such sale might be financially advantageous to stockholders. The success of our joint venture activity depends upon our ability to work effectively with financially sound partners. Instead of owning properties directly, we have invested, and may continue to invest, as a partner or a co-venturer. Under certain circumstances, this type of investment may involve risks not otherwise present, including the possibility that a partner or co-venturer might become bankrupt or that a partner or co-venturer might have business interests or goals inconsistent with ours. Also, such a partner or co-venturer may take action contrary to our instructions or requests or contrary to provisions in our joint venture agreements that could harm us, including jeopardize our qualification as a REIT. We may also risk an impasse on decisions because neither the partner nor the co-venturer would have full control over the partnership or joint venture. 9 Our insurance coverage on our properties may be inadequate. We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire and flood. Our existing insurance policies expire in July 2002. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, these types of insurance may be prohibitively expensive. If any or all of the foregoing should occur, we may not have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a property or properties, as well as the anticipated future revenue from the property or properties. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could adversely affect our ability to make distributions to our stockholders. We may be unable to repay or refinance our existing indebtedness. We are subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet required payment obligations and the inability to refinance existing indebtedness. A portion of our existing indebtedness will become due in the next several years. If our debt cannot be paid, refinanced or extended at maturity, in addition to our failure to repay our debt, we may not be able to make distributions to stockholders at expected levels or at all. Furthermore, if any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to make distributions to stockholders. If we do not meet our mortgage financing obligations, any properties securing such indebtedness could be foreclosed on, which would have a material adverse effect our cash flow and ability to make distributions and, depending on the number of properties foreclosed on, could threaten our continued viability. We may be subject to taxation as a regular corporation if we fail to maintain our REIT status. Our failure to qualify as a REIT would have serious adverse consequences to our stockholders. Many of the requirements for taxation as a REIT, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from certain sources that are itemized in the REIT tax laws. We are also required to distribute to stockholders at least 90% of our REIT taxable income, excluding capital gains. The fact that we hold our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the IRS might change the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT. If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. If we failed to qualify as a REIT, we would have to pay significant income taxes and would therefore have less money available for investments or for distributions to stockholders. This would likely have a significant adverse effect of the value of our securities. In addition, we would no longer be required to make any distributions to stockholders. We may need to borrow money or sell assets in order to make required distributions. In order to make the distributions required to maintain our REIT status, we may need to borrow funds. To obtain the favorable tax treatment associated with REIT qualification, we generally will be required to distribute to stockholders at least 90% of our annual REIT taxable income, excluding net capital gain. We intend to make distributions to stockholders to comply with the distribution provisions of the Internal Revenue Code and to avoid income and other taxes. Differences in timing between the receipt of income and the payment of expenses in arriving at taxable income and the effect of required debt amortization payments could require us to borrow funds on a short-term basis or liquidate funds on adverse terms to meet the REIT qualification distribution requirements. Because provisions contained in Maryland law, our charter and our bylaws may have an anti-takeover effect, investors may be prevented from receiving a "control premium" for their shares. Provisions contained in our charter and bylaws, as well as Maryland general corporation law, may have anti-takeover effects that delay, defer or prevent a takeover attempt, which may prevent stockholders from receiving a "control premium" for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their common stock over then-prevailing market prices. These provisions include the following: 10 . Ownership limit. Our charter prohibits direct or constructive ownership by any person of more than 9.8% of our outstanding capital stock. Any attempt to own or transfer shares of our capital stock in excess of the ownership limit without the consent of our board of directors will be void. . Preferred stock. Our charter authorizes our board of directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval. The issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. . Staggered board. Our board of directors is divided into three classes. As a result each director serves for a three-year term. This staggering of our board may discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our stockholders. . Maryland control share acquisition statute. Maryland law limits the voting rights of "control shares" of a corporation in the event of a "control share acquisition." . Maryland unsolicited takeover statute. Under Maryland law, our board of directors could adopt various anti-takeover provisions without the consent of stockholders. The adoption of such measures could discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our stockholders. . Anti-Takeover Protections of Operating Partnership Agreement. The Operating Partnership Agreement contains certain provisions that may require a potential acquiror to maintain the Operating Partnership structure and maintain the limited partners' right to continue to hold Common Units with future redemption rights. These provisions might limit the possibility of a change of control transaction involving the Company, even if such a transaction would be in your best interest. . Dilutive Effect of Shareholders' Rights Plan. On October 4, 1997, our board of directors adopted a Shareholders' Rights Plan and declared a distribution of one preferred share purchase right for each outstanding share of Common Stock. The rights were issued on October 16, 1997 to each stockholder of record on such date. Since the rights would cause substantial dilution to a person or group that attempts to acquire us on terms of which our board of directors does not approve, such rights could discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our stockholders. The rights should not interfere with any merger or other business combination the board of directors approves since we may redeem the rights for $.01 per right, prior to the time that a person or group has acquired beneficial ownership of 15% or more of the Common Stock. 11 ITEM 2. PROPERTIES GENERAL As of December 31, 2001, we owned 498 in-service office, industrial and retail properties, encompassing approximately 37.2 million rentable square feet, and 213 apartment units. The following table sets forth information about our wholly-owned in-service properties at December 31, 2001:
Percentage of December 2001 Rental Revenue Rentable -------------------------------------------- Square Feet/(1)/ Occupancy Office Industrial Retail Total -------------- --------- ------ ---------- ------ -------- Piedmont Triad....... 8,233,000 92.3% 6.5% 4.4% -- 10.9% Atlanta.............. 6,484,000 89.9 9.9 3.3 -- 13.2 Tampa................ 4,383,000 93.5 15.3 0.3 -- 15.6 Research Triangle.... 3,923,000 91.9 12.6 0.2 -- 12.8 Kansas City.......... 2,857,000 94.7 4.7 -- 7.8% 12.5 Nashville............ 2,787,000 90.3 10.4 -- -- 10.4 Richmond............. 2,703,000 98.4 8.4 0.4 -- 8.8 Charlotte............ 2,229,000 89.1 4.5 0.6 -- 5.1 Greenville........... 1,216,000 86.5 3.3 0.2 -- 3.5 Memphis.............. 1,134,000 91.1 4.1 -- -- 4.1 Orlando.............. 664,000 90.5 1.3 -- -- 1.3 Columbia............. 426,000 77.6 1.2 -- -- 1.2 Other................ 182,000 99.4 0.6 -- -- 0.6 ---------- ---- ---- --- --- ----- Total 37,221,000 91.9% 82.8% 9.4% 7.8% 100.0% ========== ==== ==== === === =====
- --------------- /(1)/ Excludes Kansas City's basement space. 12 The following table sets forth information about our wholly-owned in-service and development properties as of December 31, 2001 and 2000:
December 31, 2001 December 31, 2000 ----------------------------- ----------------------------- Percent Percent Rentable Leased/ Rentable Leased/ Square Feet Pre-Leased Square Feet Pre-Leased ----------- ---------- ----------- ---------- In-Service Office............................ 24,945,000 91.9% 24,177,000 94.0% Industrial........................ 10,640,000 91.9 10,357,000 95.0 Retail /(1)/...................... 1,636,000 96.0 1,649,000 94.4 ----------- ---- ----------- ---- Total or Weighted Average...... 37,221,000 91.9% 36,183,000 94.1% =========== ==== =========== ==== Development Completed -- Not Stabilized Office............................ 1,490,000 58.4% 547,000 84.0% Industrial........................ 200,000 39.2 122,000 90.0 Retail............................ 20,000 90.0 -- -- ----------- ---- ----------- ---- Total or Weighted Average...... 1,710,000 56.5% 669,000 85.0% =========== ==== =========== ==== In-Process Office............................ 739,000 74.9% 1,998,000 56.0% Industrial........................ -- -- 186,000 14.0 Retail............................ -- -- -- -- ----------- ---- ----------- ---- Total or Weighted Average...... 739,000 74.9% 2,184,000 53.0% =========== ==== =========== ==== Total Office............................ 27,174,000 26,722,000 Industrial........................ 10,840,000 10,665,000 Retail /(1)/....................... 1,656,000 1,649,000 ----------- ----------- Total.......................... 39,670,000 39,036,000 =========== ===========
- ----------------- /(1)/ Excludes Kansas City's basement space. Tenants The following table sets forth information concerning the 20 largest tenants of our wholly-owned properties as of December 31, 2001:
Number Annualized Annualized Tenant of Leases Rental Revenue /(1)/ Rental Revenue - ------ --------- -------------------- -------------- ($ in thousands) AT&T............................... 12 $ 14,432 3.0% Intermedia Communications /(2)/.... 5 14,329 2.9 Federal Government................. 56 11,761 2.4 Capital One Services............... 9 10,150 2.1 Caterpillar Financial Services..... 1 7,677 1.6 IBM................................ 7 7,513 1.5 State of Georgia................... 10 6,888 1.4 PricewaterhouseCoopers............. 7 6,841 1.4 US Air............................. 9 6,621 1.4 Northern Telecom, Inc.............. 3 5,331 1.1 WorldCom........................... 17 4,711 1.0 Bell South......................... 13 4,652 1.0 Sara Lee........................... 8 4,384 0.9 DST Realty, Inc.................... 12 3,223 0.7 BB&T............................... 9 3,160 0.6 Lockton Companies, Inc............. 1 3,060 0.6 Volvo.............................. 5 2,946 0.6 International Paper Co............. 10 2,886 0.6 Romac.............................. 1 2,867 0.6 Business Telecom, Inc.............. 4 2,775 0.6 --- --------- ---- Total.............................. 199 $ 126,207 26.0% === ========= ====
- ----------------- /(1)/ Annualized Rental Revenue is December 2001 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12. /(2)/ A wholly-owned subsidiary of WorldCom. 13 The following tables set forth information about leasing activities at our wholly-owned in-service properties (excluding apartment units) for the years ended December 31, 2001, 2000 and 1999.
2001 ----------------------------------------------- Office Industrial Retail ------------- ------------- ------------ Net Effective Rents Related to Re-Leased Space: Number of lease transactions (signed leases) 538 107 44 Rentable square footage leased...................... 2,782,331 1,524,276 125,992 Average per rentable square foot over the lease term:...................................... Base rent ....................................... $ 17.24 $ 4.99 $ 21.06 Tenant improvements.............................. (1.10) (0.27) (1.16) Leasing commissions.............................. (0.70) (0.11) (0.61) Rent concessions ............................... (0.06) - (0.06) -------------- ------------ ------------ Effective rent................................... $ 15.38 $ 4.61 $ 19.23 Expense stop /(1)/................................. (3.84) (0.43) - -------------- ------------ ------------ Equivalent effective net rent.................... $ 11.54 $ 4.18 $ 19.23 ============== ============ ============ Average term in years............................... 4.8 2.6 7.5 ============== ============ ============ Rental Rate Trends: Average final rate with expense Pass-throughs.................................... $ 15.66 $ 4.76 $ 14.08 Average first year cash rental rate................. $ 16.34 $ 4.73 $ 18.06 -------------- ------------ ------------ Percentage increase................................. 4.34% (0.80%) 28.26% ============== ============ ============ Capital Expenditures Related to Re-leased Space: Tenant Improvements: Total dollars committed under signed leases.................................... $ 7,648,567 $ 468,962 $ 424,192 Rentable square feet............................. 2,782,331 1,524,276 125,992 -------------- ------------ ------------ Per rentable square foot......................... $ 2.75 $ 0.31 $ 3.37 ============== ============ ============ Leasing Commissions: Total dollars committed under Signed leases.................................... $ 7,648,567 $ 468,962 $ 424,192 Rentable square feet............................. 2,782,331 1,524,276 125,992 -------------- ------------ ------------ Per rentable square foot......................... $ 2.75 $ 0.31 $ 3.37 ============== ============ ============ Total: Total dollars committed under Signed leases.................................... $ 24,883,337 $ 2,004,013 $ 1,950,745 Rentable square feet............................. 2,782,331 1,524,276 125,992 -------------- ------------ ------------ Per rentable square foot......................... $ 8.94 $ 1.31 $ 15.48 ============== ============ ============
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) - - -------------- ------------ ------------ 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............................... 4.6 4.1 7.0 ============== ============ ============ 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 ----------------------------------------------- Office Industrial Retail ------------- ------------- ------------ Net Effective Rents Related to Re-Leased Space: Number of lease transactions (signed leases) 1,051 249 101 Rentable square footage leased...................... 5,086,408 2,786,017 378,304 Average per rentable square foot over the lease term: Base rent........................................ $ 15.58 $ 5.35 $ 17.24 Tenant improvements.............................. (0.82) (0.28) (1.02) Leasing commissions.............................. (0.39) (0.13) (0.44) Rent concessions................................. (0.03) (0.01) (0.01) -------------- ------------ ------------ Effective rent................................... $ 14.34 $ 4.93 $ 15.77 Expense stop /(1)/............................... (4.19) (0.28) (0.07) -------------- ------------ ------------ Equivalent effective net rent.................... $ 10.15 $ 4.65 $ 15.70 ============== ============ ============ Average term in years............................... 4.6 3.7 6.4 ============== ============ ============ Rental Rate Trends: Average final rate with expense Pass-throughs.................................... $ 15.13 $ 5.05 $ 12.21 Average first year cash rental rate................. $ 15.68 $ 5.24 $ 16.28 -------------- ------------ ------------ Percentage increase................................. 3.64% 3.76% 33.33% ============== ============ ============ Capital Expenditures Related to Re-leased Space: Tenant Improvements: Total dollars committed under signed leases.................................... $ 21,748,441 $ 3,621,621 $ 4,589,543 Rentable square feet............................. 5,086,408 2,786,017 378,304 -------------- ------------ ------------ Per rentable square foot......................... $ 4.28 $ 1.30 $ 12.13 ============== ============ ============ Leasing Commissions: Total dollars committed under Signed leases.................................... $ 8,990,333 $ 1,336,828 $ 1,069,227 Rentable square feet............................. 5,086,408 2,786,017 378,304 -------------- ------------ ------------ Per rentable square foot......................... $ 1.77 $ 0.48 $ 2.83 ============== ============ ============ Total: Total dollars committed under Signed leases.................................... $ 30,738,774 $ 4,958,449 $ 5,658,770 Rentable square feet............................. 5,086,40 2,786,017 378,304 -------------- ------------ ------------ Per rentable square foot......................... $ 6.04 $ 1.78 $ 14.96 ============== ============ ============
- ----------------- /(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. 14 The following tables set forth scheduled lease expirations for executed leases at our wholly-owned properties (excluding apartment units) as of December 31, 2001, 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) 2002 697 3,246,295 13.9% $ 54,591 $16.82 13.6% 2003 563 3,659,444 15.8 62,603 17.11 15.6 2004 468 2,798,023 12.0 48,934 17.49 12.2 2005 451 3,131,115 13.4 54,953 17.55 13.6 2006 419 2,783,494 12.0 48,503 17.43 12.0 2007 66 942,377 4.0 14,936 15.85 3.7 2008 86 1,859,431 8.0 28,101 15.11 7.0 2009 26 1,136,417 4.9 18,990 16.71 4.7 2010 41 1,419,478 6.1 26,317 18.54 6.5 2011 38 882,132 3.8 18,044 20.45 4.5 Thereafter 84 1,428,058 6.1 26,665 18.67 6.6 ------ ---------- ----- -------- ------- ------- 2,939 23,286,264 100.0% $402,637 $17.29 100.0% ====== ========== ===== ======== ======= =======
INDUSTRIAL PROPERTIES:
Average Percentage of Percentage of Annual Leased Rents Rentable Leased Annual Rents Rental Rate Represented Number of Square Feet Square Footage Under Per Square by Lease Leases Subject to Represented by Expiring Foot for Expiring Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases - -------- -------- --------------- --------------- ---------------- ----------- -------------- ($ in thousands) 2002 133 2,104,382 21.9% $ 9,337 $4.44 20.5% 2003 117 1,284,888 13.3 6,701 5.22 14.6 2004 89 2,544,294 26.5 10,254 4.03 22.5 2005 42 725,542 7.5 4,253 5.86 9.3 2006 39 757,279 7.9 4,585 6.05 10.0 2007 16 1,177,306 12.2 4,903 4.16 10.7 2008 8 252,274 2.6 1,611 6.39 3.5 2009 6 268,813 2.8 1,890 7.03 4.1 2010 4 182,746 1.9 1,063 5.82 2.3 2011 1 33,555 0.3 159 4.74 0.3 Thereafter 11 297,519 3.1 986 3.31 2.2 ---- ---------- ----- -------- ----- ------ 466 9,628,598 100.0% $ 45,742 $4.75 100.0% ==== ========== ===== ======== ===== ======
- ----------------- /(1)/ Annual Rents Under Expiring Leases are December 2001 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12. 15 RETAIL PROPERTIES:
Average Percentage of Percentage of Annual Leased Rents Rentable Leased Annual Rents Rental Rate Represented Number of Square Feet Square Footage Under Per Square by Lease Leases Subject to Represented by Expiring Foot for Expiring Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases - --------- -------- --------------- --------------- --------------- ----------- ------------ ($ in thousands) 2002 40 106,061 6.8% $ 1,631 $15.38 4.3% 2003 48 128,732 8.2 2,973 23.09 7.9 2004 35 154,003 9.8 2,202 14.30 5.8 2005 51 161,312 10.3 3,119 19.34 8.3 2006 34 106,658 6.8 2,658 24.92 7.0 2007 25 85,895 5.5 1,891 22.02 5.0 2008 24 108,038 6.9 3,764 34.84 10.0 2009 17 138,661 8.9 2,813 20.29 7.4 2010 20 125,470 8.0 3,195 25.46 8.5 2011 15 82,880 5.3 1,798 21.69 4.8 Thereafter 29 366,356 23.5 11,720 31.99 31.0 ---- --------- ----- ------- ------ ------ 338 1,564,066 100.0% $37,764 $24.14 100.0% ==== ========= ===== ======= ====== ======
TOTAL:
Average Percentage of Percentage of Annual Leased Rents Rentable Leased Annual Rents Rental Rate Represented Number of Square Feet Square Footage Under Per Square by Lease Leases Subject to Represented by Expiring Foot for Expiring Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases - --------- -------- --------------- --------------- ---------------- ----------- ------------ ($ in thousands) 2002 870 5,456,738 15.8% $ 65,559 $12.01 13.5% 2003 728 5,073,064 14.7 72,277 14.25 14.8 2004 592 5,496,320 15.9 61,390 11.17 12.6 2005 544 4,017,969 11.7 62,325 15.51 12.8 2006 492 3,647,431 10.6 55,746 15.28 11.5 2007 107 2,205,578 6.4 21,730 9.85 4.5 2008 118 2,219,743 6.4 33,476 15.08 6.9 2009 49 1,543,891 4.5 23,693 15.35 4.9 2010 65 1,727,694 5.0 30,575 17.70 6.3 2011 54 998,567 2.9 20,001 20.03 4.1 Thereafter 124 2,091,933 6.1 39,371 18.82 8.1 ----- ---------- ----- -------- ------ ----- 3,743 34,478,928 100.0% $486,143 $14.10 100.0% ===== ========== ===== ======== ====== =====
- ----------------- /(1)/ Annual Rents Under Expiring Leases are December 2001 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12. 16 DEVELOPMENT LAND We estimate that we can develop approximately 13.7 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 that our commercially zoned and unencumbered land in existing business parks gives us a development 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 We are a party to a variety of legal proceedings arising in the ordinary course of our business. We believe that we are adequately covered by insurance and indemnification agreements. Accordingly, none of such proceedings are expected to have a material adverse effect on our business, financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information with respect to our executive officers:
Name Age Position and Background - ---- --- ----------------------- Ronald P. Gibson 57 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 43 Director, Executive Vice President, Chief Operating Officer and Secretary. Mr. Fritsch joined us in 1982 and was a partner of our predecessor. Gene H. Anderson 56 Director and Senior Vice President. Mr. Anderson manages the operations of our Georgia properties and the Piedmont Triad division of North Carolina. Mr. Anderson was the founder and president of Anderson Properties, Inc. prior to its merger with the Company. Michael F. Beale 48 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 52 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 us. 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 45 Senior Vice President. Mr. Jackson is responsible for our operations in Virginia and the Research Triangle division of North Carolina. Prior to joining us in 1998, Mr. Jackson was senior vice president of Compass Development and Construction Services. Carman J. Liuzzo 41 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 52 Vice President and General Counsel. Prior to joining us in 1997, Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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. Quarter 2001 2000 -------------------------------- -------------------------------- Ended: High Low Distribution High Low Distribution - ----- ----- ----- ------------ ----- ----- ------------ March 31 $ 25.99 $ 24.00 $ .57 $ 23.50 $ 20.25 $ .555 June 30 26.65 24.15 .57 25.94 21.31 .555 September 30 26.67 23.45 .585 27.19 23.50 .57 December 31 26.42 23.52 .585 24.94 21.25 .57 - ------------------ On February 26, 2002, the last reported stock price of the Common Stock on the NYSE was $26.70 per share and the Company had 1,474 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 and such other factors as the Board of Directors deems relevant. During 2001, the Company's Common Stock distributions totaled $125,380,000, $8,924,000 of which represented return of capital for income tax purposes. In accordance with the 1999 Tax Relief Extension Act, the 95.0% distribution requirement was reduced to 90.0% beginning in 2001. The minimum distribution per share of Common Stock required to maintain REIT status (excluding any distribution of net capital gains) was approximately $1.52 per share in 2001 and $1.54 per share in 2000. The Company has instituted a Dividend Reinvestment and Stock Purchase Plan under which holders of Common Stock may elect to automatically reinvest their distributions in additional shares of Common Stock and may make optional cash payments for additional shares of Common Stock. The Company may issue additional shares of Common Stock or repurchase Common Stock in the open market for purposes of satisfying its obligations under the Dividend Reinvestment and Stock Purchase Plan. In August 1997, the Company instituted an Employee Stock Purchase Plan for all active employees. At the end of each three-month offering period, each participant's account balance is applied to acquire shares of Common Stock at 85.0% of the market value of the Common Stock, calculated as the lower of the average closing price on the NYSE on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. A participant may contribute up to 25.0% of their pay. During 2001, employees purchased 40,935 shares of Common Stock under the Employee Stock Purchase Plan. 19 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and operating information for the Company as of and for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 ($ in thousands, except per share amounts):
2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- Operating Data: Total revenue.................................. $ 540,615 $ 566,431 $ 584,935 $ 512,471 $ 274,470 Rental property operating expenses............. 154,942 159,767 174,075 154,323 76,743 General and administrative..................... 21,404 21,864 22,345 20,776 10,216 Interest expense............................... 108,501 112,827 117,134 97,011 47,394 Depreciation and amortization.................. 121,067 119,443 112,347 91,705 47,533 ----------- ----------- ----------- ----------- ----------- Income before cost of unsuccessfultransactions, Gain on disposition of land and depreciable assets, minority interest and extraordinary item......................................... 134,701 152,530 159,034 148,656 92,584 Cost of unsuccessful transactions.............. - - (1,500) - - Gain on disposition of land and depreciable assets....................................... 16,172 4,659 8,679 1,716 - ----------- ----------- ----------- ----------- ----------- Income before minority interest and Extraordinary item........................... 150,873 157,189 166,213 150,372 92,584 Minority interest.............................. (18,948) (18,991) (20,779) (24,335) (15,106) ----------- ----------- ----------- ----------- ----------- Income before extraordinary item............... 131,925 138,198 145,434 126,037 77,478 Extraordinary item-loss on early Extinguishment of debt....................... (714) (4,711) (7,341) (387) (5,799) ----------- ----------- ----------- ----------- ----------- Net income..................................... 131,211 133,487 138,093 125,650 71,679 Dividends on preferred stock................... (31,500) (32,580) (32,580) (30,092) (13,117) ----------- ----------- ----------- ----------- ----------- Net income available for common shareholders... $ 99,711 $ 100,907 $ 105,513 $ 95,558 $ 58,562 =========== =========== =========== =========== =========== Net income per common share - basic............ $ 1.84 $ 1.70 $ 1.72 $ 1.74 $ 1.51 =========== =========== =========== =========== =========== Net income per common share - diluted.......... $ 1.83 $ 1.70 $ 1.71 $ 1.74 $ 1.50 =========== =========== =========== =========== =========== Distributions declared per common share........ $ 2.31 $ 2.25 $ 2.19 $ 2.10 $ 1.98 =========== =========== =========== =========== =========== Balance Sheet Data (at end of period): Net real estate assets......................... $ 3,280,155 $ 3,128,259 $ 3,673,338 $ 3,924,192 $ 2,614,654 Total assets.................................. 3,648,286 3,701,602 4,016,197 4,314,333 2,722,306 Total mortgages and notes payable.............. 1,719,230 1,587,019 1,766,177 2,008,716 978,558 Other Data: Number of in-service properties................ 498 493 563 658 481 Total rentable square feet..................... 37,221,000 36,183,000 38,976,000 44,642,000 30,721,000
20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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 this section and under the heading "Business". 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: . speculative development activity by our competitors in our existing markets could result in an excessive supply of office, industrial and retail properties relative to tenant demand; . the financial condition of our tenants could deteriorate; . the costs of our development projects could exceed our original estimates; . we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated; . we may not be able to lease or release space quickly or on as favorable terms as old leases; . we may have incorrectly assessed the environmental condition of our properties; . an unexpected increase in interest rates would increase our debt service costs; . we may not be able to continue to meet our long-term liquidity requirements on favorable terms; . we could lose key executive officers; and . our southeastern and midwestern markets may suffer additional declines in economic growth. This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in "Business - Risk Factors" set forth elsewhere in this Annual Report. 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. 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. At December 31, 2001, we: . owned 498 in-service office, industrial and retail properties, encompassing approximately 37.2 million rentable square feet and 213 apartment units; 21 . owned an interest (50% or less) in 74 in-service office and industrial properties, encompassing approximately 7.2 million rentable square feet and 418 apartment units; . owned 1,327 acres (and have agreed to purchase an additional eight acres over the next year) of undeveloped land suitable for future development; and . were developing an additional 25 properties, which will encompass approximately 2.8 million rentable square feet (including three properties encompassing 347,000 rentable square feet that we are developing with our joint venture partners). The following summarizes our capital recycling program during the past three years ending December 31, 2001: 2001 2000 1999 Total -------- ------- ------- ------- Office, Industrial and Retail Properties (rentable square feet in thousands) Dispositions /(1)/..................... (268) (4,743) (7,595) (12,606) Contributions to Joint Ventures /(1)/.. (118) (2,199) (1,198) (3,515) Developments Placed In-Service......... 1,351 3,480 2,167 6,998 Acquisitions........................... 72 669 960 1,701 -------- ------- ------- ------- Net Change in Wholly-owned In-Service Properties................ 1,037 (2,793) (5,666) (7,422) ======== ======= ======= ======= Apartment Properties (in units) Dispositions........................... (1,672) -- -- (1,672) ======== ======= ======= ======= - ----------------- /(1)/ Excludes wholly-owned development properties sold or contributed to joint ventures. In addition to the above property activity, we repurchased $148.8 million, $101.8 million and $25.5 million of Common Stock and Common Units during 2001, 2000 and 1999, respectively, and $18.5 million of Preferred Stock during 2001. The Company conducts substantially all of its activities through, and substantially all of its interests in the properties are held directly or indirectly by, the Operating Partnership. The Company is the sole general partner of the Operating Partnership. At December 31, 2001, the Company owned 87.7% of the Common Units in the Operating Partnership. 22 RESULTS OF OPERATIONS The following table sets forth information regarding our results of operations for the years ended December 31, 2001, 2000 and 1999 ($ in millions):
Year Ended December 31, 2001 2000 -------------------------- to 2000 to 1999 2001 2000 1999 $ Change $ Change --------- ------- ------- ---------- --------- Revenue: Rental property.................................. $ 506.8 $543.4 $566.8 $ (36.6) $ (23.4) Equity in earnings of unconsolidated affiliates.. 8.9 3.8 1.2 5.1 2.6 Interest and other income........................ 24.9 19.2 16.9 5.7 2.3 --------- ------- ------- ---------- --------- Total revenue 540.6 566.4 584.9 (25.8) (18.5) Operating expenses:................................ Rental property.................................. 154.9 159.8 174.1 (4.9) (14.3) Depreciation and amortization.................... 121.1 119.4 112.3 1.7 7.1 Interest expense: Contractual.................................... 106.5 110.3 114.3 (3.8) (4.0) Amortization of deferred financing costs....... 2.0 2.5 2.8 (0.5) (0.3) --------- ------- ------- ---------- --------- 108.5 112.8 117.1 (4.3) (4.3) General and administrative....................... 21.4 21.9 22.4 (0.5) (0.5) --------- ------- ------- ---------- --------- Income before gain on disposition of land and depreciable assets, minority interest and extraordinary item.............. 134.7 152.5 159.0 (17.8) (6.5) Cost of unsuccessful transactions.............. -- -- (1.5) -- 1.5 Gain on disposition of land and depreciable assets........................... 16.2 4.7 8.7 11.5 (4.0) --------- ------- ------- ---------- --------- Income before minority interest and extraordinary item........................... 150.9 157.2 166.2 (6.3) (9.0) Minority interest.................................. (19.0) (19.0) (20.8) -- 1.8 --------- ------- ------- ---------- --------- Income before extraordinary item 131.9 138.2 145.4 (6.3) (7.2) Extraordinary item -- loss on early extinguishment of debt......................................... (0.7) (4.7) (7.3) 4.0 2.6 --------- ------- ------- ---------- --------- Net income..................................... 131.2 133.5 138.1 (2.3) (4.6) Dividends on preferred shares...................... (31.5) (32.6) (32.6) 1.1 -- --------- ------- ------- ---------- --------- Net income available for common Shareholders................................... $ 99.7 $100.9 $105.5 $ (1.2) $ (4.6) ========= ======= ======= ========== =========
Comparison of 2001 to 2000. Revenues from rental operations decreased $36.6 million, or 6.7%, from $543.4 million for the year ended December 31, 2000 to $506.8 million for the year ended December 31, 2001. The decrease was primarily a result of the changes in our property portfolio as a result of our capital recycling program and a decrease in the average occupancy rates from 93.8% in 2000 to 92.9% in 2001, offset in part by an increase in rental rates on new leases and rollovers. Additionally, due to lower expected economic growth and increasing market vacancy rates in our core markets, we expect a slight decline in occupancy during 2002. Our in-service wholly-owned portfolio increased from 36.2 million square feet at December 31, 2000 to 37.2 million square feet at December 31, 2001. Same property rental revenues, which are the revenues of the 449 in-service properties wholly-owned on January 1, 2000, increased $6.7 million, or 1.66%, for the year ended December 31, 2001, compared to the year ended December 31, 2000. This increase was primarily a result of scheduled increases in rental rates on existing leases, an overall increase in rental rates on new leases and rollovers and an increase in recoveries from tenants. Partially offsetting the increase in rental revenue was a decrease in termination fees from $4.0 million in 2000 to $2.5 million in 2001. In addition, same store straight-line rent declined from $6.3 million in 2000 to $4.4 million in 2001. Same store average occupancy declined from 94.2% in 2000 to 93.2% in 2001. During the year ended December 31, 2001, 689 second generation leases representing 4.4 million square feet of office, industrial and retail space were executed at an average rate per square foot which was 4.7% higher than the average rate per square foot on the previous leases. Rental revenue is comprised of base rent, including termination fees, recoveries from tenants and parking and other income. Base rental revenue is recognized on a straight-line basis over the terms of the respective leases. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents 23 currently billed in accordance with lease agreements. Recoveries from tenants represent reimbursements for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs. Equity in earnings of unconsolidated affiliates increased $5.1 million from $3.8 million for the year ended December 31, 2000 to $8.9 million for the year ended December 31, 2001. The increase was primarily a result of the inclusion of a full year of earnings in 2001 for two joint ventures that were formed with unrelated investors during May and December of 2000. We account for our investments in unconsolidated joint ventures using the equity method of accounting because we do not control these joint venture entities. These investments are initially recorded at cost, as investments in unconsolidated affiliates, and are subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated affiliates over 40 years. Interest and other income increased $5.7 million, or 29.7%, from $19.2 million for the year ended December 31, 2000 to $24.9 million for the year ended December 31, 2001. The increase resulted from additional interest income and leasing and management fees earned from our joint ventures during 2001, partly offset by an adjustment related to the adoption of SFAS 133 (see Consolidated Financial Statements Note #8) along with other income generated from our apartments which were sold during 2001. Rental operating expenses (real estate taxes, utilities, insurance, repairs and maintenance and other property-related expenses) decreased $4.9 million, or 3.1%, from $159.8 million for the year ended December 31, 2000 to $154.9 million for the year ended December 31, 2001. The decrease was primarily a result of the net decrease in our property portfolio as a result of our capital recycling program along with a decrease in variable expenses related to lower average occupancy. Rental operating expenses as a percentage of related revenues increased from 29.4% for the year ended December 31, 2000 to 30.6% for the year ended December 31, 2001. Same property rental property expenses, which are the expenses of the 449 in-service properties wholly-owned on January 1, 2000, increased $5.3 million, or 4.4 %, for the year ended December 31, 2001, compared to the year ended December 31, 2000. This increase was primarily a result of increases in real estate taxes, utilities and small increases in various other rental expense accounts. The increase in real estate taxes is primarily due to higher property tax assessments. Depreciation and amortization for the years ended December 31, 2001 and 2000 totaled $121.1 million and $119.4 million, respectively. The increase of $1.7 million, or 1.4%, was due to an increase in the amortization of leasing commissions and tenant improvements, partly offset by a decrease in the depreciation on buildings that resulted from owning fewer properties as a result of our capital recycling program during 2001 and 2000. Interest expense decreased $4.3 million, or 3.8 %, from $ 112.8 million for the year ended December 31, 2000 to $108.5 million for the year ended December 31, 2001. The decrease was primarily attributable to the decrease in the weighted average interest rates for the entire year of 2001, partly offset by an increase in the average outstanding debt in 2001. Interest expense for the years ended December 31, 2001 and 2000 included $2.0 million and $2.5 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 4.0% in 2001 and 3.9% in 2000. Costs directly related to the development of rental properties are capitalized. Capitalized development costs include interest, wages, property taxes, insurance and other project costs incurred during the period of development. Capitalized interest for the years ended December 31, 2001 and 2000 was $16.9 million and $23.7 million, respectively. Gain on dispositions of assets increased $11.5 million from $4.7 million for the year ended December 31, 2000 to $16.2 million for the year ended December 31, 2001. During 2001, the primary source of the gain was the disposition of 1,672 apartment units. During 2000, the Jacksonville portfolio was sold at a loss, which was offset by gains recognized on joint venture transactions along with dispositions of land and office, industrial, and retail properties. 24 Income before minority interest and extraordinary item equaled $150.9 million and $157.2 million for the years ended December 31, 2001 and 2000, respectively. The Company's net income allocated to minority interest totaled $19.0 million for the years ended December 31, 2001 and 2000, respectively. The Company recorded $31.5 million and $32.6 million in preferred stock dividends for each of the years ended December 31, 2001 and 2000, respectively. The decrease was a result of the $18.5 million repurchase by the Company of its preferred stock during 2001. 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 changes in our portfolio as a result of our capital recycling program, which was partially offset by an increase in rental rates on new leases and rollovers and a slight increase in average occupancy from 93.2% in 1999 to 93.8% 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 rental property revenues, which are the revenues of the 443 in-service properties wholly-owned on January 1, 1999, increased $6.3 million, or 1.7 %, for the year ended December 31, 2000, compared to the year ended December 31, 1999. This increase was primarily a result of scheduled increases in rental rates on existing leases, an overall increase in rental rates on new leases and rollovers and an increase in termination fees from $3.0 million in 1999 to $4.0 million in 2000. Partially offsetting the increase in rental revenues was a decrease in same property straight-line rent from $7.0 million in 1999 to $6.3 million in 2000. Same store average occupancy remained flat at 93.2% for 2000 and 1999. During the year ended December 31, 2000, 1,046 second generation 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. Equity in earnings of unconsolidated affiliates increased $2.6 million from $1.2 million for the year ended December 31, 1999 to $3.8 million for the year ended December 31, 2000. The increase was primarily a result of the inclusion of a full year of earnings for a joint venture that was formed with unrelated investors during 1999 and a partial year of earnings for a joint venture formed with unrelated investors during 2000. 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 resulted from additional 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 a 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 net decrease in our property portfolio as a result of our capital recycling program. 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. Same property rental property expenses, which are the expenses of the 443 in-service properties wholly-owned on January 1, 1999, increased $1.6 million, or 1.4 %, for the year ended December 31, 2000, compared to the year ended December 31, 1999. This increase was primarily a result of small increases in various rental expense accounts. 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 in amortization of leasing commissions and tenant improvements, partly offset by a decrease in depreciation on buildings that resulted from owning fewer buildings as a result of our capital recycling program 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 25 to our interest rate hedge contracts. Capitalized interest for the years ended December 31, 2000 and 1999 was $23.7 million and $29.1 million, respectively. General and administrative expenses as a percentage of total revenues was 3.8% in 1999 and 3.9% in 2000. Gain on dispositions of assets decreased $4.0 million from $8.7 million for the year ended December 31, 1999 to $4.7 million for the year ended December 31, 2000. During 2000, the Jacksonville portfolio was sold at a loss, which was offset by gains on joint venture transactions along with dispositions of land and office, industrial, and retail properties. During 1999, the sale of the Baltimore portfolio along with other office, industrial and retail properties generated a gain, which was offset by a slight loss on the disposition of the South Florida portfolio. 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 $32.6 million in preferred stock dividends for each of the years ended December 31, 2000 and 1999. LIQUIDITY AND CAPITAL RESOURCES Statement of Cash Flows. The following table sets forth the changes in the Company's cash flows from 2000 to 2001 ($ in thousands):
Year Ended December 31, ---------------------------------- 2001 2000 Change -------------- -------------- -------------- Cash Provided By Operating Activities $ 247,564 $ 256,400 $ (8,836) Cash (Used in)/Provided By Investing Activities (139,645) 286,212 (425,857) Cash Used in Financing Activities (212,123) (472,328) 260,205
The decrease in cash provided by operating activities was primarily the result of our capital recycling program and a decrease in average occupancy rates for our wholly-owned portfolio. Real estate taxes were higher in 2001 primarily due to higher property assessments. The level of net cash provided by operating activities is also affected by the timing of receipt of revenues and payment of expenses. The increase in cash used for investing activities was primarily a result of a decrease of $568.6 million in the proceeds from the disposition of real estate assets in 2001, partly offset by the collection of advances from subsidiaries of $27.6 million in 2001, the collection of notes receivables in the amount of $37.2 million in 2001 and the reduction in additions to real estate assets of $71.3 million in 2001. The decrease in cash used in financing activities was primarily a result of a decrease of $307.4 million in net repayments on the unsecured revolving loan, mortgages and notes payable in 2001 and a $10.1 million decrease in the payment of distributions on the Common Stock and Common Units and the payment of dividends on the Preferred Stock, partly offset by an increase of $47.0 million related to the repurchase of Common Stock and Common Units and an increase of $18.5 million related to the repurchase of Preferred Stock during 2001. Capitalization. Based on our total market capitalization of $3.66 billion at December 31, 2001 (at the December 31, 2001 stock price of $25.95 and assuming the redemption for shares of Common Stock of the 7.4 million Common Units of minority interest in the Operating Partnership), our debt represented approximately 47.0% of our total market capitalization. Our total indebtedness at December 31, 2001 was $1.72 billion and was comprised of $540.1 million of secured indebtedness with a weighted average interest rate of 8.0% and $1.2 billion of unsecured indebtedness with a weighted average interest rate of 6.4%. We do not intend to reserve funds to retire existing secured or unsecured debt upon maturity. For a more complete discussion of our long-term liquidity needs, see "Current and Future Cash Needs." 26 The following table sets forth the maturity schedule of our long-term debt as of December 31, 2001 ($ in thousands):
--------------------------------------------------- 2-3 4-5 6 or more Total 1 Year Years Years Years ---------- ------- -------- -------- ---------- Fixed Rate Debt: Unsecured: MOPPRS /(1)/.................... $ 125,000 $ -- $ -- $ -- $ 125,000 Put Option Notes /(2)/.......... 100,000 -- -- -- 100,000 Notes........................... 706,500 -- 246,500 110,000 350,000 Term Loan....................... 19,165 19,165 -- -- -- Secured: Mortgages and loans payable..... 536,143 27,664 23,853 91,901 392,725 ---------- ------- -------- -------- ---------- Total Fixed Rate Debt............... 1,486,808 46,829 270,353 201,901 967,725 ---------- ------- -------- -------- ---------- Variable Rate Debt: Unsecured: Revolving Loan.................. 228,500 -- 228,500 -- -- Secured: Revolving Loan.................. 3,922 -- 3,922 -- -- ---------- ------- -------- -------- ---------- Total Variable Rate Debt 232,422 -- 232,422 -- -- ---------- ------- -------- -------- ---------- Total Long Term Debt..................... $1,719,230 $46,829 $502,775 $201,901 $ 967,725 ========== ======= ======== ========= ==========
- ------------------------ /(1)/ 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% from the date of issuance through January 31, 2003. After January 31, 2003, the interest rate to maturity on such MOPPRS will be 5.715% plus the applicable spread determined as of January 31, 2003. In connection with the initial issuance of the MOPPRS, a counter party was granted a remarketing option to purchase the MOPPRS from the holders thereof on January 31, 2003 at 100.0% of the principal amount. If the counter party elects not to exercise this option, the Operating Partnership would be required to repurchase the MOPPRS from the holders on January 31, 2003 at 100.0% of the principal amount plus accrued and unpaid interest. /(2)/ On June 24, 1997, a trust formed by the Operating Partnership sold $100.0 million of Exercisable Put Option Securities due June 15, 2004 ("X-POS"), which represent fractional undivided beneficial interest in the trust. The assets of the trust consist of, among other things, $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the "Put Option Notes"), issued by the Operating Partnership. The Put Option Notes bear an interest rate of 7.19% from the date of issuance through June 15, 2004. After June 15, 2004, the interest rate to maturity on such Put Option Notes will be 6.39% plus the applicable spread determined as of June 15, 2004. In connection with the initial issuance of the Put Option Notes, a counter party was granted an option to purchase the Put Option Notes from the trust on June 15, 2004 at 100.0% of the principal amount. If the counter party elects not to exercise this option, the Operating Partnership would be required to repurchase the Put Option Notes from the Trust on June 15, 2004 at 100.0% of the principal amount plus accrued and unpaid interest. We currently have a $300.0 million unsecured revolving loan (with $228.5 million outstanding at December 31, 2001) that matures in December 2003 and a $55.2 million secured revolving loan (with $3.9 million outstanding at December 31, 2001) that matures in March 2003. Our unsecured revolving loan also includes a $150.0 million competitive sub-facility. Depending upon the corporate credit ratings assigned to us from time to time by the various rating agencies, our unsecured revolving loan bears variable rate interest at a spread above LIBOR ranging from 0.70% to 1.55% and our secured revolving loan bears variable rate interest at a spread above LIBOR ranging from 0.55% to 1.50%. We currently have a credit rating of BBB- assigned by Standard & Poor's, a credit rating of BBB assigned by Fitch Inc. and a credit rating of Baa2 assigned by Moody's Investor Service. As a result, interest currently accrues on borrowings under our unsecured revolving loan at an average rate of LIBOR plus 85 basis points and under our secured revolving loan at an average rate of LIBOR plus 75 basis points. In addition, we are currently required to pay an annual facility fee equal to .20% of the total commitment under the unsecured revolving loan. 27 The terms of each of our revolving loans and the indenture that governs our outstanding notes require us to comply with various operating and financial covenants and performance ratios. We are currently in compliance with all such requirements. In addition, based on our current expectation of future operating performance, we expect to remain in compliance for the foreseeable future. Joint Ventures. During the past several years, we have formed various joint ventures with unrelated investors. We have retained minority equity interests ranging from 12.50% to 50.00% in these joint ventures. As required by GAAP, we have accounted for our joint venture activity using the equity method of accounting, as we do not control these joint ventures. As a result, the assets and liabilities of our joint ventures are not included on our balance sheet. Our joint ventures have approximately $587.6 million of outstanding debt. All of the joint venture debt is nonrecourse to the Company except (1) in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and material misrepresentations and (2) with respect to $8.7 million of construction debt related to the MG-HIW Rocky Point, LLC, which has been initially guaranteed in part by the Company subject to a pro rata indemnity from the Company's joint venture partner. The Company's guarantee of the MG-HIW Rocky Point, LLC debt represented 50.0% of the outstanding loan balance at December 31, 2001 and will decrease to 15.0% in the first quarter of 2002. Interest Rate Hedging Activities. To meet in part our long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Borrowings under our two revolving loans bear interest at variable rates. Our long-term debt, which consists of long-term financings and the unsecured issuance of debt securities, typically bears interest at fixed rates. In addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. The following table sets forth information regarding our interest rate hedge contract as of December 31, 2001 ($ in thousands): Notional Maturity Fixed Fair Market Type of Hedge Amount Date Reference Rate Rate Value - ------------- -------- -------- --------------------- ------- ----------- Swap $ 19,165 6/10/02 1-Month LIBOR + 0.75% 6.95% $ (411) The interest rate on all of our variable rate debt is adjusted at one- and three-month intervals, subject to settlements under these contracts. We also enter into treasury lock agreements from time to time in order to limit our exposure to an increase in interest rates with respect to future debt offerings. Net payments to counterparties under interest rate hedge contracts were $1.0 million during 2001 and were recorded as additional interest expense. Current and Future Cash Needs. Historically, rental revenue has been the principal source of funds to meet our short-term liquidity requirements, which primarily consist of operating expenses, debt service, stockholder distributions and ordinary course 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. In addition to the requirements discussed above, our short-term (within the next 12 months) liquidity requirements also include the funding of approximately $55.0 million of our existing development activity. See "Business - -- Development Activity." We expect to fund our short-term liquidity requirements through a combination of working capital, cash flows from operations and the following: . borrowings under our unsecured revolving loan (up to $74.6 million of availability, as of March 12, 2002); . borrowings under our secured revolving loan (up to $46.4 million of availability, as of March 12, 2002); . the selective disposition of non-core assets; 28 . the sale or contribution of some of our wholly-owned properties, development projects and development land to strategic joint ventures to be formed with unrelated investors, which will have the net effect of generating additional capital through such sale or contributions; and . the issuance of secured debt (at December 31, 2001, we had $2.7 billion of unencumbered real estate assets at cost). 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 two revolving loans and long-term unsecured debt. We remain committed to maintaining a flexible 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 unsecured revolving loan. We do not intend to reserve funds to retire existing secured or unsecured indebtedness upon maturity. Instead, we will seek to refinance such debt at maturity or retire such debt through the issuance of equity or debt securities. We anticipate that our available cash and cash equivalents and cash flows from operating activities, with cash available from borrowings and other sources, will be adequate to meet our capital and liquidity 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 payments may be adversely affected. Distributions to Stockholders. To maintain qualification as a REIT, the Company must distribute to stockholders at least 90% of REIT taxable income. In accordance with the 1999 Tax Relief Extension Act, the 95% distribution requirement was reduced to 90% beginning in 2001. The Company expects to use its cash flow from operating activities for distributions to stockholders and for payment of recurring, non-incremental revenuegenerating 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. Share and Unit Repurchase Program. On April 25, 2001, we announced that the Company's Board of Directors authorized the repurchase of up to an additional 5.0 million shares of Common Stock and Common Units. As of February 19, 2002, the Company had repurchased 1.4 million shares of Common Stock and Common Units at a weighted average purchase price of $24.49 per share and a total purchase price of $33.1 million under this new repurchase program. In determining whether or not to repurchase additional capital stock, we will consider, among other factors, the effect of repurchases on our liquidity and the price of our Common Stock. On June 19, 2001, the Company repurchased in a privately negotiated transaction 20,055 Series A Preferred Shares at $922.50 per share, for a total purchase price of $18.5 million. For each Series A Preferred Share repurchased by the Company, one equivalent Series A Preferred Unit in the Operating Partnership was retired. Disposition Activity. As part of our ongoing capital recycling program, since December 31, 2001 through February 19, 2002, we have sold 128,000 square feet of office properties and 43.0 acres of development land for gross proceeds of $22.1 million. In addition, at February 19, 2002, we had 396,000 square feet of office properties and 165.0 acres of land under contract for sale in various transactions totaling $96.2 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 2002. However, we can provide no assurance that all or parts of these transactions will be consummated. When properties are identified as held for sale, we discontinue depreciation and estimate the net proceeds expected from the disposition of such properties. If, in our opinion, the net sales price of the properties that have been identified for sale is less than the net book value of the properties, a valuation allowance is established. Additionally, on a periodic basis, we assess whether there are any indicators that the value of our real estate 29 properties may be impaired. A property's value is impaired only if our estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the property over the fair value of the property. We do not believe that the value of any of our rental properties is impaired. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 142 becomes effective beginning January 1, 2002. We do not anticipate that these standards will have a material adverse effect on our liquidity, financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment of disposal of long-lived assets. This standard harmonizes the accounting for impaired assets and resolves some of the implementation issues as originally described in SFAS No. 121. The new standard becomes effective for the year ending December 31, 2002. We do not expect this pronouncement to have a material impact on our liquidity, financial position or results of operations. 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 GAAP. It should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. FFO does not measure whether cash flow is sufficient to fund all cash needs, including principal amortization, capital improvements and distributions to stockholders. Further, FFO as disclosed by other REITs may not be comparable to our calculation of FFO, as described below. FFO and cash available for distributions should not be considered as alternatives to net income as an indication of our performance or to cash flows as a measure of liquidity. FFO equals net income (computed in accordance with 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. Amortization of deferred financing costs and depreciation of non-real estate assets are not added back to net income in arriving at FFO. In addition, FFO includes both recurring and non-recurring operating results. As a result, non-recurring items that are not defined as "extraordinary" under GAAP are reflected in the calculation of FFO. Gains and losses from the sale of depreciable operating property are 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. 30 FFO and cash available for distribution for the years ended December 31, 2001, 2000 and 1999 are summarized in the following table ($ in thousands):
--------------------------------------- Year Ended December 31 2001 2000 1999 ------------- ------------ ------------- FFO: Income before minority interest and extraordinary item.................. $ 150,873 $ 157,189 $ 166,213 Add/(Deduct): Dividends to preferred shareholders................................ (31,500) (32,580) (32,580) Transition loss upon adoption of FAS 133........................... 556 -- -- Cost of unsuccessful transactions.................................. -- -- 1,500 Severance costs and other division closing expenses................ -- -- 1,813 Gain on disposition of land and depreciable assets................. (16,172) (4,659) (8,679) Gain on disposition of land........................................ 4,702 6,449 -- Depreciation and amortization...................................... 121,067 119,443 112,347 Depreciation on unconsolidated subsidiaries........................ 8,483 5,581 3,618 ------------ ------------ ------------ FFO........................................................... 238,009 251,423 244,232 Cash Available for Distribution: Add/(Deduct): Rental income from straight-line rents............................. (11,257) (14,892) (14,983) Amortization of deferred financing costs........................... 2,005 2,512 2,823 Non-incremental revenue generating capital expenditures /(1)/: Building improvements paid....................................... (8,345) (10,566) (10,056) Second generation tenant improvements paid....................... (19,704) (22,287) (25,043) Second generation lease commissions paid......................... (15,697) (13,033) (13,653) ------------ ------------ ------------ Cash available for distribution............................... $ 185,011 $ 193,157 $ 183,320 ============ ============ ============ Weighted average shares/units outstanding /(2)/ -- basic ............... 61,839 67,544 70,671 ============ ============ ============ Weighted average shares/units outstanding /(2)/ -- diluted.............. 62,182 67,715 70,757 ============ ============ ============ Dividend payout ratios: FFO................................................................ 60.3% 60.6% 63.5% ============ ============ ============ Cash available for distribution.................................... 77.6% 78.9% 85.7% ============ ============ ============
- ------------------------ /(1)/ Amounts represent cash expenditures. /(2)/ 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. 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 share of increases in operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to inflation. 31 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 our two revolving loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings and the issuance of unsecured 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. Variable Rate Debt. As of December 31, 2001, the Company had approximately $232.4 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, 2002, our interest expense would be increased or decreased approximately $2.3 million. Interest Rate Hedge Contract. For a discussion of our interest rate hedge contract in effect at December 31, 2001, 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 this interest rate hedge contract as of December 31, 2001 would increase by approximately $83,668. If interest rates decrease by 100 basis points, the aggregate fair market value of this interest rate hedge contract as of December 31, 2001 would decrease by approximately $83,804. In addition, we are exposed to certain losses in the event of nonperformance by the counterparty under the hedge contract. We expect the counterparty, which is a major financial institution, to perform fully under this contract. However, if the counterparty was to default on its obligation under the interest rate hedge contract, we could be required to pay the full rates on our debt, even if such rates were in excess of the rate in the contract. ITEM 8. FINANCIAL STATEMENTS See page F-1 of the financial report included herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 32 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 20, 2002 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 "Voting Securities and Principal Stockholders" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section under the heading "Related Party Transactions" of the Proxy Statement is incorporated herein by reference. 33 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. 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
34
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. (b) Reports on Form 8-K - None. 35 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 15, 2002. 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 15, 2002 -------------------------- Directors O. Temple Sloan, Jr. /s/ Ronald P. Gibson President, Chief Executive March 15, 2002 -------------------------- Officer and Director Ronald P. Gibson /s/ Edward J. Fritsch Executive Vice President, March 15, 2002 -------------------------- Chief Operating Officer, Edward J. Fritsch Secretary and Director /s/ John L. Turner Vice Chairman of the Board March 15, 2002 -------------------------- and Director John L. Turner /s/ Gene H. Anderson Senior Vice President and March 15, 2002 -------------------------- Director Gene H. Anderson /s/ Thomas W. Adler Director March 15, 2002 -------------------------- Thomas W. Adler /s/ Kay N. Callison Director March 15, 2002 -------------------------- Kay N. Callison /s/ William E. Graham, Jr. Director March 15, 2002 -------------------------- William E. Graham, Jr. /s/ Lawrence S. Kaplan Director March 15, 2002 -------------------------- Lawrence S. Kaplan /s/ L. Glenn Orr, Jr. Director March 15, 2002 -------------------------- L. Glenn Orr, Jr. /s/ Willard H. Smith, Jr. Director March 15, 2002 -------------------------- Willard H. Smith Jr. /s/ Carman J. Liuzzo Vice President and Chief March 15, 2002 -------------------------- Financial Officer (Principal Carman J. Liuzzo Financial Officer and Principal Accounting Officer) and Treasurer 36 INDEX TO FINANCIAL STATEMENTS Page ---- Highwoods Properties, Inc Report of Independent Auditors.................................... F-2 Consolidated Balance Sheets as of December 31, 2001 and 2000...... F-3 Consolidated Statements of Income for the Years Ended December 31, 2001, 2000, and 1999.................................... F-4 Consolidated Statements of St ockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999....................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999............................ F-6 Notes to Consolidated Financial Statements........................ F-8 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, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, 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, 2002 F-2 HIGHWOODS PROPERTIES, INC. Consolidated Balance Sheets ($ in thousands, except per share amounts)
December 31, ---------------------------------- 2001 2000 ------------ ------------ Assets Real estate assets, at cost: Land and improvements................................................... $ 442,467 $ 421,270 Buildings and tenant improvements....................................... 2,942,260 2,742,946 Development in process.................................................. 108,118 87,622 Land held for development............................................... 153,468 145,598 Furniture, fixtures and equipment....................................... 19,398 11,433 ------------ ------------ 3,665,711 3,408,869 Less -- accumulated depreciation........................................ (385,556) (280,610) ------------ ------------ Net real estate assets.................................................. 3,280,155 3,128,259 Property held for sale.................................................. 82,031 127,824 Cash and cash equivalents.................................................... 576 104,780 Restricted cash.............................................................. 5,685 2,192 Accounts receivable, net of allowance of $1,087 and $825 at December 31, 2001 and 2000, respectively................................ 23,659 23,205 Advances to related parties.................................................. 788 28,358 Notes receivable............................................................. 43,761 80,918 Accrued straight-line rents receivable....................................... 49,078 39,295 Investment in unconsolidated affiliates...................................... 83,393 78,423 Other assets: Deferred leasing costs.................................................. 102,502 83,269 Deferred financing costs................................................ 26,121 43,110 Prepaid expenses and other.............................................. 10,461 11,878 ------------ ------------ 139,084 138,257 Less -- accumulated amortization........................................ (59,924) (49,909) ------------ ------------ Other assets, net.................................................... 79,160 88,348 ------------ ------------ Total Assets................................................................. $ 3,648,286 $ 3,701,602 ============ ============ Liabilities and Stockholders' Equity Mortgages and notes payable.................................................. $ 1,719,230 $ 1,587,019 Accounts payable, accrued expenses and other liabilities..................... 120,235 109,824 ------------ ------------ Total Liabilities....................................................... 1,839,465 1,696,843 Minority interest............................................................ 203,181 213,214 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), 104,945 and 125,000 shares issued and outstanding at December 31, 2001 and 2000, respectively................. 104,945 125,000 8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 6,900,000 shares issued and outstanding at December 31, 2001 and 2000.............................................. 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, 2001 and 2000.............................................. 100,000 100,000 Common stock, $.01 par value, 200,000,000 authorized shares; 52,891,822 and 58,124,205 shares issued and outstanding at December 31, 2001 and 2000................................................................ 529 581 Additional paid-in capital................................................... 1,376,546 1,506,161 Distributions in excess of net earnings...................................... (135,878) (110,209) Accumulated other comprehensive loss......................................... (9,441) - Deferred compensation -- restricted stock.................................... (3,561) (2,488) ------------ ------------ Total Stockholders' Equity.............................................. 1,605,640 1,791,545 ------------ ------------ Total Liabilities and Stockholders' Equity................................... $ 3,648,286 $ 3,701,602 ============ ============
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, 2001, 2000 and 1999
2001 2000 1999 --------- --------- --------- Revenue: Rental property....................................................... $ 506,850 $ 543,383 $ 566,816 Equity in earnings of unconsolidated affiliates....................... 8,911 3,863 1,185 Interest and other income............................................. 24,854 19,185 16,934 --------- --------- --------- Total revenue............................................................ 540,615 566,431 584,935 Operating expenses: Rental property....................................................... 154,942 159,767 174,075 Depreciation and amortization......................................... 121,067 119,443 112,347 Interest expense: Contractual......................................................... 106,496 110,315 114,311 Amortization of deferred financing costs............................ 2,005 2,512 2,823 --------- --------- --------- 108,501 112,827 117,134 General and administrative............................................ 21,404 21,864 22,345 --------- --------- --------- Income before cost of unsuccessful transactions, gain on disposition of land and depreciable assets, minority interest and extraordinary item............................................ 134,701 152,530 159,034 Cost of unsuccessful transactions................................... - - (1,500) Gain on disposition of land and depreciable assets.................. 16,172 4,659 8,679 --------- --------- --------- Income before minority interest and extraordinary item.............. 150,873 157,189 166,213 Minority interest........................................................ (18,948) (18,991) (20,779) --------- --------- --------- Income before extraordinary item.................................... 131,925 138,198 145,434 Extraordinary item -- loss on early extinguishment of debt............... (714) (4,711) (7,341) --------- --------- --------- Net income.......................................................... 131,211 133,487 138,093 Dividends on preferred shares............................................ (31,500) (32,580) (32,580) --------- --------- --------- Net income available for common shareholders.......................... $ 99,711 $ 100,907 $ 105,513 ========= ========= ========= Net income per common share -- basic: Income before extraordinary item...................................... $ 1.85 $ 1.78 $ 1.84 Extraordinary item -- loss on early extinguishment of debt............ (0.01) (0.08) (0.12) --------- --------- --------- Net income............................................................ $ 1.84 $ 1.70 $ 1.72 ========= ========= ========= Weighted average common shares outstanding -- basic................... 54,228 59,175 61,443 ========= ========= ========= Net income per common share -- diluted: Income before extraordinary item...................................... $ 1.84 $ 1.78 $ 1.83 Extraordinary item -- loss on early extinguishment of debt............ (0.01) (0.08) (0.12) --------- --------- --------- Net income............................................................ $ 1.83 $ 1.70 $ 1.71 ========= ========= ========= Weighted average common shares outstanding -- diluted................. 54,571 59,347 61,529 ========= ========= =========
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, 2001, 2000 and 1999
Accumulated Retained Other Earnings Number of Additional Deferred Compre- (Distributions Common Common Series A Series B Series D Paid-In Compen- hensive in Excess of Shares Stock Preferred Preferred Preferred Capital sation Loss Net Earnings) Total ---------- ------- --------- --------- --------- ---------- ------- -------- ------------ ----------- Balance at December 31, 1998.... 59,865,259 $ 599 $125,000 $172,500 $100,000 $1,546,592 $ - $ - $ (48,692) $ 1,895,999 Issuance of Common Stock......... 1,191,462 12 - - - 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......... 1,258,316 12 - - - 40,606 - - - 40,618 Forward Equity Transaction.......... - - - - - (12,783) - - - (12,783) Retirement of Common Stock......... (246,424) (2) - - - - - - (150) (152) Repurchase of Common Stock......... (1,150,000) (12) - - - (25,463) - - - (25,475) ---------- ------- --------- --------- --------- ---------- ------- -------- ------------ ----------- Balance at December 31, 1999.... 60,918,613 609 125,000 172,500 100,000 1,572,031 - - (77,670) 1,892,470 Issuance of Common Stock......... 81,733 - - - - 749 - - - 749 Common Stock dividends............ - - - - - - - - (133,446) (133,446) Preferred Stock dividends............ - - - - - - - - (32,580) (32,580) Issuance of Restricted Stock..... 104,945 1 - - - 2,557 (3,049) - - (491) Amortization of Deferred Compensation......... - - - - - - 561 - - 561 Repurchase of Common Stock......... (2,981,086) (29) - - - (69,176) - - - (69,205) Net Income.............. - - - - - - - - 133,487 133,487 ---------- ------- --------- --------- --------- ---------- ------- -------- ------------ ----------- Balance at December 31, 2000.... 58,124,205 581 125,000 172,500 100,000 1,506,161 (2,488) - (110,209) 1,791,545 Issuance of Common Stock......... 72,256 - - - - 1,424 - - - 1,424 Common Stock dividends............ - - - - - - - - (125,380) (125,380) Preferred Stock dividends............ - - - - - - - - (31,500) (31,500) Issuance of Restricted Stock..... 84,661 - - - - 2,109 (2,109) - - - Amortization of Deferred Compensation......... - - - - - - 1,036 - - 1,036 Repurchase of Common Stock......... (5,389,300) (52) - - - (134,702) - - - (134,754) Repurchase of Preferred Stock...... - - (20,055) - - 1,554 - - - (18,501) Accumulated Other Comprehensive Loss... - - - - - - - (9,441) - (9,441) Net Income.............. - - - - - - - - 131,211 131,211 ---------- ------- --------- --------- --------- ---------- ------- -------- ------------ ----------- Balance at December 31, 2001.... 52,891,822 $ 529 $104,945 $172,500 $100,000 $1,376,546 $(3,561) $(9,441) $(135,878) $ 1,605,640 ========== ======= ========= ========= ========= ========== ======= ======== ============ ===========
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, 2001, 2000 and 1999
2001 2000 1999 --------- --------- --------- Operating activities: Net income......................................................... $ 131,211 $ 133,487 $ 138,093 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.................................................... 107,179 108,119 101,534 Amortization.................................................... 15,893 13,836 13,636 Amortization of deferred compensation........................... 1,036 561 - Equity in earnings of unconsolidated affiliates................. (8,911) (3,863) (1,185) Loss on early extinguishment of debt............................ 714 4,711 7,341 Minority interest............................................... 18,948 18,991 20,779 Gain on disposition of land and depreciable assets.............. (16,172) (4,659) (8,679) Transition loss upon adoption of SFAS 133....................... 556 - - Loss on ineffective portion of derivative instruments........... 559 - - Changes in operating assets and liabilities: Accounts receivable............................................. (454) (1,156) 5,039 Prepaid expenses and other assets............................... (2,076) 3,386 742 Accrued straight-line rents receivable.......................... (11,257) (14,892) (14,983) Accounts payable, accrued expenses and other liabilities........ 10,338 (2,121) (29,700) --------- --------- --------- Net cash provided by operating activities..................... 247,564 256,400 232,617 --------- --------- --------- Investing activities: Proceeds from disposition of real estate assets.................... 161,389 729,945 696,379 Additions to real estate assets.................................... (351,983) (423,245) (511,056) (Advances to)/Repayments from subsidiaries......................... 27,570 (12,464) (4,676) Distributions from unconsolidated affiliates....................... 9,722 3,030 1,685 (Advances)/Repayments of notes receivable.......................... 37,157 (15,557) (18,016) Other investing activities......................................... (23,500) 4,503 (3,953) --------- --------- --------- Net cash (used in)/provided by investing activities........... (139,645) 286,212 160,363 --------- --------- --------- Financing activities: Distributions paid on common stock and common units................ (142,889) (151,890) (154,088) Dividends paid on preferred stock.................................. (31,500) (32,580) (32,580) Repurchase of preferred stock...................................... (18,501) - - Net proceeds from the sale of common stock......................... 1,424 749 17,551 Repurchase of common stock and units............................... (148,787) (101,813) (25,475) Payment of prepayment penalties.................................... (714) (4,711) (7,341) Borrowings on revolving loans...................................... 594,000 546,000 529,500 Repayment of revolving loans....................................... (365,500) (775,000) (725,000) Borrowings on mortgages and notes payable.......................... 76,707 218,162 332,693 Repayment of mortgages and notes payable........................... (176,918) (168,260) (321,261) Net change in deferred financing costs............................. 555 (2,985) (3,928) --------- --------- --------- Net cash used in financing activities......................... (212,123) (472,328) (389,929) --------- --------- --------- Net (decrease)/increase in cash and cash equivalents............... (104,204) 70,284 3,051 Cash and cash equivalents at beginning of the period............... 104,780 34,496 31,445 --------- --------- --------- Cash and cash equivalents at end of the period..................... $ 576 $ 104,780 $ 34,496 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest............................................. $ 125,624 $ 134,976 $ 150,364 ========= ========= =========
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, 2001, 2000 and 1999 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:
2001 2000 1999 ------- -------- --------- Assets: Net real estate assets.................................... $ 6,516 $(56,055) $(78,012) Cash and cash equivalents................................. 40 -- (4,719) Accounts receivable and other............................. -- -- (2,975) Investment in unconsolidated affiliates................... -- 48,054 13,830 Notes receivable.......................................... -- 6,372 32,695 ------- -------- -------- Total Assets.......................................... $ 6,556 $ (1,629) $(39,181) ======= ======== ======== Liabilities: Mortgages and notes payable............................... 3,922 -- (58,531) Accounts payable, accrued expenses and other liabilities.. 73 -- 7,604 ------- -------- -------- Total Liabilities..................................... 3,995 -- (50,927) ------- -------- -------- Net Assets......................................... $ 2,561 $ (1,629) $ 11,746 ======= ======== ========
See accompanying notes to consolidated financial statements. F-7 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 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") that operates in the southeastern and midwestern United States. The Company's wholly-owned assets include: 498 in-service office, industrial and retail properties; 213 apartment units; 1,327 acres of undeveloped land suitable for future development; and an additional 20 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, 2001, the Company owned 87.7% 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 has elected and expects to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for income taxes related to REIT taxable income to be distributed to stockholders. Minority interest represents Common Units in the Operating Partnership owned by various individuals and entities other than the Company. The Operating Partnership is the entity that owns substantially all of the Company's properties and through which the Company, as the sole general partner, conducts substantially all of its operations. Per share information is calculated using the weighted average number of shares of Common Stock outstanding (including common share equivalents). In addition, minority interest includes equity of consolidated real estate partnerships which are owned by various individuals and entities other than the Company. 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 using 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, 2001, none of the Company's assets were considered impaired. As of December 31, 2001, the Company had 524,000 square feet of office properties and 208 acres of land under contract for sale in various transactions totaling $118.3 million. These real estate assets have a carrying value of $82.0 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 Restricted cash includes security deposits for the Company's commercial properties and construction-related escrows. In addition, the Company maintains escrow and reserve funds for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements. INVESTMENTS IN UNCONSOLIDATED AFFILIATES As required by GAAP, investments in unconsolidated affiliates are accounted for using the equity method of accounting because the Company does not control these joint venture entities. These investments are initially recorded at cost, as investments in unconsolidated affiliates, and are subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on the Company's balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated affiliates over 40 years. 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, 2001, to maintain qualification as a REIT, the Company was required to distribute to stockholders at least 90% of REIT taxable income, excluding capital gains. 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, 2001, the wholly-owned properties (excluding apartment units) were leased to 2,974 tenants in 14 geographic locations. The Company's tenants engage in a wide variety of businesses. There is no dependence upon any single tenant. 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 11, 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. 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 142 becomes effective beginning January 1, 2002. Adoption of these standards is not expected to have a material adverse effect on the Company's liquidity, financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment of disposal of long-lived assets. This standard harmonizes the accounting for impaired assets and resolves some of the implementation issues as originally described in SFAS No. 121. The new standard becomes effective for the year ending December 31, 2002. Adoption of this pronouncement is not expected to have a material impact on the Company's liquidity, financial position or results of operations. RECLASSIFICATIONS Certain amounts in the December 31, 2000 and 1999 Financial Statements have been reclassified to conform to the December 31, 2001 presentation. These reclassifications had no material effect on net income or stockholders' equity as previously reported. 2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES During the past several years, the Company has formed various joint ventures with unrelated investors. The Company has retained minority equity interests ranging from 12.50% to 50.00% in these joint ventures. In accordance with GAAP, the Company has accounted for its joint venture activity using the equity method of accounting, as the Company does not control these joint ventures. As a result, the assets and liabilities of the Company's joint ventures are not included on its balance sheet. The Company's joint ventures have approximately $587.6 million of outstanding debt. All of the joint venture debt is non-recourse to the Company except (1) in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and material misrepresentations and (2) with respect to $8.7 million of construction debt related to the MG-HIW Rocky Point, F-10 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES - Continued LLC, which has been initially guaranteed in part by the Company subject to a pro rata indemnity from the Company's joint venture partner. The Company's guarantee of the MG-HIW Rocky Point, LLC debt represented 50.0% of the outstanding loan balance at December 31, 2001 and will decrease to 15.0% in the first quarter of 2002. The following is a summary of the various joint ventures in which the Company has a minority equity interest, including the names of the unrelated investors, the value of the property contributed to the joint venture, the debt obtained by the joint venture, the cash proceeds received by the Company and the ownership percentage of the Company in each joint venture. In connection with its merger with J.C. Nichols in July of 1998, the Company acquired a 49.0% interest in Board of Trade Investment Company, a 30.0% interest in Kessinger Hunter, LLC, and a 12.50% interest in 4600 Madison Associates, L.P. The Company is the sole and exclusive property manager of the Board of Trade Investment Company and the 4600 Madison Associates, L.P. joint ventures, for which it received $123,202, $124,396 and $150,737 in fees in 2001, 2000 and 1999, respectively. In addition, Kessinger Hunter, LLC is the sole and exclusive property manager, leasing and sales agent and provides certain construction related services for certain wholly-owned properties of the Company, and received $5.8 million, $7.1 million and $5.7 million for these related services from the Company in 2001, 2000 and 1999, respectively. The Company has adopted the equity method of accounting for these joint ventures. 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 joint venture properties located in the Des Moines area. As a result of the merger, the Company acquired an ownership interest of 50.0% or more in a series of nine joint ventures with R&R Investors (the "Des Moines Joint Ventures"). 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 Joint Ventures such that each would own a 50.0% interest. Accordingly, the Company has adopted the equity method of accounting for its investment in each of the Des Moines Joint Ventures as a result of such reorganization. The impact of the reorganization was immaterial to the consolidated financial statements of the Company. 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 "DLF I Joint Venture"). DLF contributed approximately $56.0 million for a 77.19% interest in the DLF I Joint Venture, and the DLF I Joint Venture borrowed approximately $71.0 million from third-party lenders. The Company retained the remaining 22.81% interest in the DLF I Joint Venture, received net cash proceeds of approximately $124.0 million and is the sole and exclusive property manager and leasing agent of the DLF I Joint Venture's properties, for which the Company received fees of $808,926, $762,670 and $607,000 in 2001, 2000 and 1999, respectively. The Company has adopted the equity method of accounting for its investment in this joint venture. On May 9, 2000, the Company closed a transaction with Dreilander-Fonds 97/26 and 99/32 ("DLF II") pursuant to which the Company 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 and received net cash proceeds of approximately $73.0 million. During 2001 and 2000, DLF II contributed an additional $10.7 million in cash to the DLF II Joint Venture. As a result, the Company decreased its ownership percentage to 42.93% as of December 31, 2001. The Company is the sole and exclusive property manager and leasing agent of the DLF II Joint Venture's properties, for which the Company received fees of $491,200 and $208,600 in 2001 and 2000, respectively. The Company has adopted the equity method of accounting for this joint venture. F-11 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES - Continued 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 80.0% 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. During 2001, the Company contributed a 39,000 square feet development project to the first joint venture for $5.1 million. The Company retained a 20.0% interest and the joint venture borrowed an additional $3.7 million under its existing debt agreement with a third party. 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. The Company is the sole and exclusive developer of these properties, and received $553,270 and $263,549 in development fees in 2001 and 2000, respectively. In addition, the Company is the sole and exclusive property manager and leasing agent for the properties in all of these joint ventures and received fees of $1.5 million and $73,793 in 2001 and 2000, respectively. The Company has adopted the equity method of accounting for all of the joint ventures with Miller Global. In connection with one of the joint ventures with Miller Global, the Company guaranteed Miller Global, which has an 80.0% interest in the joint venture, a minimum internal rate of return on $50.0 million of Miller Global's equity. If the minimum internal rate of return is not achieved upon the sale of the assets or winding up of the joint venture, Miller Global would receive a disproportionately greater interest of the cash proceeds related to the assets subject to the internal rate of return guarantee. Based upon the current operating performance of the assets and the Company's estimate of the residual value of the subject assets, the estimated internal rate of return for Miller Global with respect to those assets exceeds the minimum required return. As a result, the Company does not currently expect that its interest in the joint venture will be adjusted upon the sale of the subject assets or the winding up of the joint venture as a result of the internal rate of return guarantee. Additionally, during 1999 and 2001, the Company closed two transactions with Highwoods-Markel Associates, LLC and Concourse Center Associates, LLC pursuant to which the Company sold or contributed certain office properties to newly created limited partnerships. Unrelated investors contributed cash for a 50.0% ownership interest in the joint ventures. The Company retained the remaining 50.0% interest, received net cash proceeds and is the sole and exclusive property manager and leasing agent of the joint venture's properties, for which the Company received fees of $53,636 and $31,152 in 2001 and 2000, respectively. The Company has adopted the equity method of accounting for both of these joint ventures. F-12 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES -- Continued The following tables set forth information regarding the Company's joint venture activity as recorded on the joint venture's books at December 31, 2001 and 2000 ($ in thousands):
December 31, 2001 December 31, 2000 ------------------------------------ ---------------------------------- Percent Total Total Total Total Owned Assets Debt Liabilities Assets Debt Liabilities ----------- --------- -------- -------------- -------- -------- ------------- Balance Sheet Data: Board of Trade Investment Company............. 49.00% $ 7,372 $ 1,076 $ 1,258 $ 7,634 $ 1,222 $ 1,479 Dallas County Partners /(1)/...... 50.00% 44,786 35,495 40,967 44,041 34,568 40,055 Dallas County Partners II /(1)/... 50.00% 19,891 24,601 25,778 17,881 25,517 26,747 Fountain Three /(1)/.............. 50.00% 37,218 26,049 33,200 30,159 22,630 26,485 Kessinger/Hunter, LLC............. 30.00% 16,225 -- 802 15,914 -- 678 4600 Madison Associates, LP....... 12.50% 23,972 17,955 18,624 24,980 18,538 19,135 Schweiz-Deutschland-USA DreilanderBeteiligung Objekt DLF 98/29-Walker Fink-KG. 22.81% 143,960 69,113 70,979 144,737 69,958 71,506 Dreilander-Fonds 97/26 and 99/32.. 42.93%/(2)/ 122,820 60,000 62,422 119,129 56,485 58,000 RRHWoods, LLC /(1)/............... 50.00% 82,740 66,038 69,098 82,704 67,539 70,965 Highwoods-Markel Associates, LLC.. 50.00% 16,436 11,625 12,563 16,977 11,625 12,525 MG-HIW, LLC....................... 20.00% 353,531 242,240 247,950 347,358 238,567 240,956 MG-HIW Peachtree Corners III, LLC. 50.00% 3,503 2,299 2,445 2,667 1,572 1,572 MG-HIW Rocky Point, LLC........... 50.00% 28,212 17,322 19,695 4,595 -- 261 MG-HIW Metrowest I, LLC........... 50.00% 1,600 -- -- 1,506 -- -- MG-HIW Metrowest II, LLC.......... 50.00% 8,683 3,763 4,034 3,764 -- 821 Concourse Center Associates, LLC 50.00% 14,551 10,000 10,016 -- -- -- --------- --------- ---------- --------- --------- ---------- Total $ 925,500 $ 587,576 $ 619,831 $ 864,046 $ 548,221 $ 571,185 ========= ========= ========== ========= ========= ==========
For the Year Ended December 31, 2001 -------------------------------------------------------------- Operating Depr/ Net Income/ Revenue Expense Interest Amort (Loss) -------- ------------- --------- --------- ----------- Income Statement Data: Board of Trade Investment Company............. $ 2,524 $ 1,666 $ 90 $ 311 $ 457 Dallas County Partners /(1)/....... 11,148 4,905 2,715 1,883 1,645 Dallas County Partners II /(1)/.... 7,614 2,750 2,550 1,066 1,248 Fountain Three /(1)/............... 6,747 2,912 2,109 1,676 50 Kessinger/Hunter, LLC.............. 12,897 10,210 -- 469 2,218 4600 Madison Associates, LP........ 4,726 2,084 1,294 1,589 (241) Schweiz-Deutschland-USA DreilanderBeteiligung Objekt DLF 98/29-Walker Fink-KG........................ 20,305 5,474 4,712 3,288 6,831 Dreilander-Fonds 97/26 and 99/32...................... 17,691 4,159 4,589 3,239 5,704 RRHWoods, LLC /(1)/................ 14,632 6,950 3,454 3,298 930 Highwoods-Markel Associates, LLC................ 3,215 1,811 965 668 (229) MG-HIW, LLC........................ 50,457 17,584 15,418 8,701 8,754 MG-HIW Peachtree Corners III, LLC............... 1 38 -- -- (37) MG-HIW Rocky Point, LLC............ 18 -- -- -- 18 MG-HIW Metrowest I, LLC............ -- 21 -- -- (21) MG-HIW Metrowest II, LLC........... 52 67 -- 26 (41) Concourse Center Associates, LLC................ 66 16 41 -- 9 --------- --------- --------- -------- -------- Total $ 152,093 $ 60,647 $ 37,937 $ 26,214 $ 27,295 ========= ========= ========= ======== ======== For the Year Ended December 31, 2000 ------------------------------------------------------------ Operating Depr/ Net Income/ Revenue Expense Interest Amort (Loss) ------- ------- -------- ----- ----------- Income Statement Data: Board of Trade Investment Company.............. $ 2,688 $ 1,708 $ 95 $ 274 $ 611 Dallas County Partners /(1)/....... 9,375 4,567 2,555 1,762 491 Dallas County Partners II /(1)/.... 5,752 2,329 2,640 1,062 (279) Fountain Three /(1)/............... 5,779 2,191 1,739 1,333 516 Kessinger/Hunter, LLC.............. 13,146 10,004 -- 519 2,623 4600 Madison Associates, LP........ 4,438 1,885 1,343 1,516 (306) Schweiz-Deutschland-USA DreilanderBeteiligung Objekt DLF 98/29-Walker Fink-KG........................ 19,889 5,074 4,768 3,156 6,891 Dreilander-Fonds 97/26 and 99/32...................... 8,021 1,913 1,999 1,390 2,719 RRHWoods, LLC /(1)/................ 12,422 6,367 4,034 3,243 (1,222) Highwoods-Markel Associates, LLC................ 2,592 786 793 289 724 MG-HIW, LLC........................ 1,610 563 811 289 (53) MG-HIW Peachtree Corners III, LLC............... -- -- -- -- -- MG-HIW Rocky Point, LLC............ -- -- -- -- -- MG-HIW Metrowest I, LLC............ -- -- -- -- -- MG-HIW Metrowest II, LLC........... -- -- -- -- -- Concourse Center Associates, LLC................ -- -- -- -- -- --------- --------- --------- -------- -------- Total $ 85,712 $ 37,387 $ 20,777 $ 14,833 $ 12,715 ========= ========= ========= ======== ========
- ------------------------ /(1)/ Des Moines Joint Ventures /(2)/ The Company decreased its ownership percentage from 47.05% at December 31, 2000 to 42.93% at December 31, 2001. F-13 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. MORTGAGES AND NOTES PAYABLE The Company's mortgages and notes payable consisted of the following at December 31, 2001 and 2000: 2001 2000 ------------ ------------ ($ in thousands) Mortgage and loans payable: 9.0% mortgage loan due 2005 .................. $ 36,929 $ 37,697 8.1% mortgage loan due 2005 .................. 28,693 29,328 8.2% mortgage loan due 2007 .................. 69,868 71,183 7.8% mortgage loan due 2009 .................. 91,449 92,840 7.9% mortgage loan due 2009 .................. 91,491 92,861 7.8% mortgage loan due 2010 .................. 134,966 136,836 6.0% to 10.5% mortgage loans due between 2001 and 2022 ............................. 82,747 129,736 Industrial Revenue Bonds due 2015 ............ -- 37,000 Variable rate mortgage loan due 2001 ......... -- 8,199 Secured Revolving Loan due 2003 .............. 3,922 -- ---------- ---------- 540,065 635,680 ---------- ---------- Unsecured indebtedness: 6.75% notes due 2003 ......................... $ 100,000 $ 100,000 8.0% notes due 2003 .......................... 146,500 146,500 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 Put Option Notes due 2011 /(1)/ .............. 100,000 100,000 MOPPRS due 2013 /(2)/ ........................ 125,000 125,000 7.5% notes due 2018 .......................... 200,000 200,000 Term loan due 2002 ........................... 19,165 19,839 Unsecured Revolving Loan due 2003 ............ 228,500 -- ---------- ---------- 1,179,165 951,339 ---------- ---------- Total ..................................... $1,719,230 $1,587,019 ========== ========== The aggregate maturities of the mortgages and notes payable at December 31, 2001 are as follows: Year of Maturity Principal Amount - ---------------- ---------------- ($ in thousands) 2002........................................ $ 46,829 2003........................................ 490,044 /(2)/ 2004........................................ 12,731 /(1)/ 2005........................................ 79,605 2006........................................ 122,296 Thereafter.................................. 967,725 ----------- $ 1,719,230 =========== - --------------- /(1)/ On June 24, 1997, a trust formed by the Operating Partnership sold $100.0 million of Exercisable Put Option Securities due June 15, 2004 ("X-POS"), which represent fractional undivided beneficial interest in the trust. The assets of the trust consist of, among other things, $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the "Put Option Notes"), issued by the Operating Partnership. The Put Option Notes bear an interest rate of 7.19% from the date of issuance through June 15, 2004. After June 15, 2004, the interest rate to maturity on such Put Option Notes will be 6.39% plus the applicable spread determined as of June 15, 2004. In connection with the initial issuance of the Put Option Notes, a counterparty was granted an option to purchase the Put Option Notes from the trust on June 15, 2004 at 100.0% of the principal amount. If the counterparty elects not to exercise this option, the Operating Partnership would be required to repurchase the Put Option Notes from the trust on June 15, 2004 at 100.0% of the principal amount plus accrued and unpaid interest. /(2)/ 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% from the date of issuance through F-14 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. MORTGAGES AND NOTES PAYABLE -- Continued January 31, 2003. After January 31, 2003, the interest rate to maturity on such MOPPRS will be 5.715% plus the applicable spread determined as of January 31, 2003. In connection with the initial issuance of the MOPPRS, a counterparty was granted a remarketing option to purchase the MOPPRS from the holders thereof on January 31, 2003 at 100.0% of the principal amount. If the counterparty elects not to exercise this option, the Operating Partnership would be required to repurchase the MOPPRS from the holders on January 31, 2003 at 100.0% of the principal amount plus accrued and unpaid interest. SECURED INDEBTEDNESS The mortgage and loans payable and the secured revolving loan were secured by real estate assets with an aggregate carrying value of $923.0 million at December 31, 2001. UNSECURED INDEBTEDNESS The Operating Partnership's unsecured notes of $931.5 million bear coupon interest rates from 6.75% to 8.125% with interest payable semi-annually in arrears. The premium and discount related to the issuance of the unsecured notes is being amortized over the life of the respective notes as an adjustment to interest expense. All of the unsecured notes, except for the MOPPRS and Put Option Notes, are redeemable at any time at the option of the Company, subject to certain conditions including the payment of make-whole amounts. The Company currently has a $300.0 million unsecured revolving loan (with $228.5 million outstanding at December 31, 2001) that matures in December 2003 and a $55.2 million secured revolving loan (with $3.9 million outstanding at December 31, 2001) that matures in March 2003. The Company's unsecured revolving loan also includes a $150.0 million competitive sub-facility. Depending upon the corporate credit ratings assigned to the Company from time to time by the various rating agencies, the Company's unsecured revolving loan bears variable rate interest at a spread above LIBOR ranging from 0.70% to 1.55% and the Company's secured revolving loan bears variable rate interest at a spread above LIBOR ranging from 0.55% to 1.50%. The Company currently has a credit rating of BBB- assigned by Standard & Poor's, a credit rating of BBB assigned by Fitch Inc. and a credit rating of Baa2 assigned by Moody's Investor Service. As a result, interest currently accrues on borrowings under the Company's unsecured revolving loan at an average rate of LIBOR plus 85 basis points and under the Company's secured revolving loan at an average rate of LIBOR plus 75 basis points. In addition, the Company is currently required to pay an annual facility fee equal to .20% of the total commitment on the unsecured revolving loan. The terms of each of the Company's revolving loans and the indenture that governs the Operating Partnership's outstanding unsecured notes require the Company to comply with various operating and financial covenants and performance ratios. The Company is currently in compliance with all such requirements. 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 two revolving loans bear interest at variable rates. The Company's long-term debt, which consists of secured and unsecured long-term financings and the issuance of unsecured 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. F-15 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. MORTGAGES AND NOTES PAYABLE -- Continued The following table sets forth information regarding the Company's interest rate hedge contract as of December 31, 2001 ($ in thousands): Notional Maturity Fixed Fair Market Type of Hedge Amount Date Reference Rate Rate Value - ------------- ------ --------- -------------- ------- ----------- Swap $19,165 6/10/02 1-Month LIBOR + 0.75% 6.95% $ (411) 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 $1,003,159, ($206,894) and $304,720 in 2001, 2000 and 1999, respectively, and were recorded as increases/(decreases) to interest expense. In addition, the Company is exposed to certain losses in the event of non-performance by the counterparty under the interest rate hedge contract. The Company expects the counterparty, which is a major financial institution, to perform fully under the contract. However, if the counterparty was to default on its obligations under the interest rate hedge contract, the Company could be required to pay the full rates on its debt, even if such rates were in excess of the rate in the contract. OTHER INFORMATION Total interest capitalized was approximately $16,947,000, $23,669,000, and $29,147,000 in 2001, 2000 and 1999, 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 40.0% to 85.0% 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 200.0% 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 an executive compensation program which allows executive officers to participate in a long term incentive plan which includes annual grants of stock options, restricted shares and grants of units in the Shareholder Value Plan. The stock options vest ratably over four years. The restricted shares vest 50.0% after three years and 50.0% after five years. The restricted share 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: F-16 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 4. EMPLOYEE BENEFIT PLANS - Continued 2001 ---------- Restricted shares outstanding at January 1, 2001...... 104,945 Number of restricted shares awarded................... 89,910 Restricted shares repurchased or cancelled............ (5,249) ---------- Restricted shares outstanding at December 31, 2001.... 189,606 ========== Annual expense, net................................... $1,036,000 ========== Average fair value per share.......................... $ 24.82 ========== 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 100.0% 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 25.0% 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 15.0% discount. Payouts will generally be made five years after the end of the calendar year in which units of phantom stock were credited. The units of phantom stock are recorded at market value at the date of grant as unearned compensation and amortized over the five year period. 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 2001, 2000 and 1999, the Company contributed $648,509, $955,303 and $763,319, respectively, to the 401(k) savings plan. Administrative expenses of the plan are paid by the Company. EMPLOYEE STOCK PURCHASE PLAN In August 1997, the Company instituted an Employee Stock Purchase Plan for all active employees. At the end of each three-month offering period, each participant's account balance is applied to acquire shares of Common Stock at 85.0% of the market value of the Common Stock, calculated as the lower of the average closing price on the New York Stock Exchange on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. A participant can contribute up to 25.0% of their pay. Employees purchased 40,935 and 55,593 shares of Common Stock under the Employee Stock Purchase Plan during the years ended December 31, 2001 and 2000, respectively. 5. RENTAL INCOME The Company's real estate assets are leased to tenants under operating leases, substantially all of which expire over the next 10 years. The minimum rental amounts under the leases are generally either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Generally, the leases also require that the tenants reimburse the Company for increases in certain costs above the base year costs. F-17 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 5. RENTAL INCOME - Continued Expected future minimum rents to be received over the next five years and thereafter from tenants for leases in effect at December 31, 2001, are as follows ($ in thousands): 2002........................ $ 428,611 2003........................ 377,999 2004........................ 321,962 2005........................ 264,185 2006........................ 209,805 Thereafter.................. 728,696 ----------- $ 2,331,258 =========== 6. RELATED PARTY TRANSACTIONS 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. The Company has advanced $788,000 to an officer and director related to certain expenses paid by the Company on behalf of the officer and director. 7. STOCKHOLDERS' EQUITY COMMON STOCK DISTRIBUTIONS Distributions paid on Common Stock were $2.31, $2.25 and $2.19 per share for the years ended December 31, 2001, 2000 and 1999, respectively. For federal income tax purposes, the following table summarizes the estimated taxability of distributions paid: 2001 2000 1999 ------ ------ ------ Per share: Ordinary income..................... $ 1.81 $ 1.67 $ 1.70 Capital gains....................... .33 .58 .49 Return of capital................... .17 -- -- ------ ------ ------ Total............................ $ 2.31 $ 2.25 $ 2.19 ====== ====== ====== The Company's tax returns for the year ended December 31, 2001 have not been filed, and the taxability information for 2001 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, 2001, the tax basis of the Company's assets was $2.8 billion. On January 29, 2002, the Board of Directors declared a Common Stock distribution of $.585 per share payable on February 21, 2002, to stockholders of record on February 8, 2002. F-18 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. STOCKHOLDERS' EQUITY -- Continued 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 June 19, 2001, the Company repurchased in a privately negotiated transaction 20,055 of these shares at $922.50 per share, for a total purchase price of $18.5 million. For each Series A Preferred Share repurchased by the Company, one equivalent Series A Preferred Unit is retired. 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 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 F-19 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. STOCKHOLDERS' EQUITY -- Continued 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. STOCK REPURCHASES On April 25, 2001, the Company announced that its Board of Directors has authorized the repurchase of up to an additional 5.0 million shares of Common Stock and Common Units. As of February 19, 2002, the Company has repurchased 1.4 million shares of Common Stock and Common Units at a weighted purchase price of $24.49 per share and a total purchase price of $33.1 million under this new repurchase program. In determining whether or not to repurchase additional capital stock, the Company will consider, among other factors, the effect of the repurchases on its liquidity and the price of its Common Stock. On June 19, 2001, the Company repurchased in a privately negotiated transaction 20,055 Series A Preferred Shares at $922.50 per share, for a total purchase price of $18.5 million. For each Series A Preferred Share repurchased by the Company, one equivalent Series A Preferred Unit in the Operating Partnership was retired. 8. DERIVATIVE FINANCIAL INSTRUMENTS On January 1, 2001, the Company adopted Financial Accounting Standards Board Statement (SFAS) No. 133/138, "Accounting for Derivative Instruments and Hedging Activities", as amended. This statement 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 the derivative will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in Accumulated Other Comprehensive Loss ("AOCL") until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized in earnings. In connection with the adoption of SFAS 133/138 in January 2001, the Company recorded a net transition adjustment of $555,962 of unrealized loss in interest and other income and a net transition adjustment of $125,000 F-20 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 8. DERIVATIVE FINANCIAL INSTRUMENTS -- Continued in AOCL. Adoption of the standard also resulted in the Company recognizing $127,000 of derivative instrument liabilities and a reclassification of approximately $10.6 million of deferred financing costs from past cashflow hedging relationships from other assets to AOCL. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cashflows and to lower overall borrowing costs. To achieve these objectives, the Company enters into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate the Company's interest rate risk with respect to various debt instruments. The Company does not hold these derivatives for trading or speculative purposes. On the date that the Company enters into a derivative contract, it designates the derivative as (1) a hedge of the variability of cash flows that are to be received or paid in connection with a recognized liability (a "cash flow" hedge), or (2) an instrument that is held as a non-hedge derivative. Changes in the fair value of highly effective cash flow hedges, to the extent that the hedge is effective, are recorded in accumulated other comprehensive loss, until earnings are affected by the hedged transaction (i.e. until periodic settlements of a variable-rate liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the transaction) is recorded in current-period earnings. Changes in the fair value of non-hedging instruments are reported in current-period earnings. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to (1) specific assets and liabilities on the balance sheet or (2) forecasted transactions. The Company also assesses and documents, both at the hedging instrument's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively. All of the Company's derivatives are designated as cashflow hedges at December 31, 2001. The effective portion of the cumulative loss on the derivative instruments was $9.4 million at December 31, 2001 and was reported as a component of AOCL in stockholders' equity and recognized into earnings in the same period or periods during which the hedged transaction affects earnings (as the underlying debt is paid down). The Company expects that the portion of the cumulative loss recorded in AOCL at December 31, 2001 associated with the derivative instruments which will be recognized within the next 12 months will be approximately $1.6 million. The ineffective portion of the Company's derivatives' changes in fair value has resulted in a loss of $554,000 for the year ended December 31, 2001 which is included in interest and other income on the Consolidated Statements of Income. Derivative liabilities totaling approximately $411,000 related to the Company's interest rate swap agreement, with a notional amount of $19.2 million, are recorded in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets at December 31, 2001. The fair value of our interest rate swap agreement was $(411,000) at December 31, 2001. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. F-21 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 9. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss represents net income plus the results of certain non-stockholders' equity changes not reflected in the Consolidated Statements of Income. The components of accumulated other comprehensive loss are as follows ($ in thousands):
December 31, December 31, 2001 2000 ------------ ----------- Net Income......................................................... $131,211 $133,487 Accumulated other comprehensive loss: Unrealized derivative losses on cashflow hedges................... (411) -- Reclassification of past hedging relationships.................... (10,597) -- Amortization of past hedging relationships........................ 1,567 -- -------- -------- Total accumulated comprehensive loss............................. (9,441) -- -------- -------- Total comprehensive income....................................... $121,770 $133,487 ======== ========
10. EARNINGS PER SHARE FASB Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is computed using the weighted average number of shares of Common Stock and the dilutive effect of options, warrants and convertible securities outstanding, using the "treasury stock" method. Earnings per share data are required for all periods for which an income statement or summary of earnings is presented, including summaries outside the basic financial statements. All earnings per share amounts for all periods presented have, where appropriate, been restated to conform to the FASB Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share:
2001 2000 1999 ---------- ---------- ---------- ($ in thousands, except per share amounts) Numerator: Income before minority interest and extraordinary item........ $ 150,873 $ 157,189 $ 166,213 Non-convertible preferred stock dividends /(4)/............... (31,500) (32,580) (32,580) Minority interest............................................. (18,948) (18,991) (20,779) General partner's portion of extraordinary item............... (714) (4,711) (7,341) ---------- ---------- ---------- Numerator for basic earnings per share -- income available to common shareholders...................................... $ 99,711 $ 100,907 $ 105,513 Effect of dilutive securities: Minority interest........................................ -- -- -- Minority interest portion of extraordinary item.......... -- -- -- --------- --------- --------- -- -- -- Numerator for diluted earnings per share -- net income available to common shareholders - after assumed conversions................................................... $ 99,711 $ 100,907 $ 105,513 Denominator: Denominator for basic earnings per share -- weighted average shares....................................... 54,228 59,175 61,443 Effect of dilutive securites: Employee stock options /(4)/............................. 337 162 78 Warrants /(4)/........................................... 6 10 8 Common Units converted................................... -- -- -- --------- --------- --------- Dilutive potential common shares.............................. 343 172 86 Denominator for diluted earnings per share -- adjusted weighted average shares and assumed conversions...... 54,571 59,347 61,529 Basic earnings per share........................................... $ 1.84 $ 1.70 $ 1.72 ========= ========= ========= Diluted earnings per share......................................... $ 1.83 /(1)/ $ 1.70 /(2)/ $ 1.71 /(3)/ ========= ========= =========
F-22 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 10. EARNINGS PER SHARE -- Continued - -------------- /(1)/ 7.6 million Common Units and the related $18.9 million in minority interest, net of $88,000 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)/ 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. /(3)/ 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. /(4)/ For additional disclosures regarding outstanding preferred stock, the employee stock options and the warrants, see Notes 4, 7 and 11. The number of potentially convertible shares of common stock related to warrants and stock options are as follows:
December 31, December 31, 2001 2000 ------------ ------------ Outstanding warrants............................................... 843,035 843,035 Outstanding stock options.......................................... 3,854,624 3,273,658 Possible future issuance under stock option plan................... 1,776,587 2,401,540 ------------ ------------ 6,474,246 6,518,233 ============ ============
As of December 31, 2001, the Company had 147,108,178 common shares available to be issued. 11. STOCK OPTIONS AND WARRANTS As of December 31, 2001, 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- F-23 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 11. STOCK OPTIONS AND WARRANTS -- Continued 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 2001 was estimated at the dates of the grant using the following weighted average assumptions: risk-free interest rates ranging between 5.76% and 6.11%, dividend yield of 9.00%, expected volatility of 17.2% and a weighted average expected life of the options of four years. 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%, expected volatility of 21.5% 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%, expected volatility of 22.0% 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 2001, 2000 and 1999 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:
Year ended December 31, -------------------------------------- 2001 2000 1999 --------- --------- ---------- ($ in thousands, except per share amounts) Net income available for common shareholders -- as reported........ $ 99,711 $100,907 $105,513 Net income available for common shareholders -- pro forma.......... $ 97,396 $ 98,468 $103,181 Net income per share -- basic (as reported)........................ $ 1.84 $ 1.71 $ 1.72 Net income per share -- diluted (as reported)...................... $ 1.83 $ 1.70 $ 1.71 Net income per share -- basic (pro forma).......................... $ 1.80 $ 1.66 $ 1.68 Net income per share -- diluted (pro forma)........................ $ 1.79 $ 1.66 $ 1.68
The following table summarizes information about employees' and Board of Directors' stock options outstanding at December 31, 2001, 2000 and 1999:
Options Outstanding -------------------------- Weighted Average Number Exercise of Shares Price ----------- --------- 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 granted........................................................... 741,883 25.02 Options canceled.......................................................... (119,123) 26.98 Options exercised......................................................... (41,794) 18.27 ----------- -------- Balances at December 31, 2001............................................. 3,854,624 $ 23.38 =========== ========
F-24 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 11. STOCK OPTIONS AND WARRANTS -- Continued
Options Exercisable -------------------------- Weighted Average Number Exercise of Shares Price ----------- ----------- December 31, 1999......................................................... 1,227,004 $ 26.47 December 31, 2000......................................................... 1,242,629 $ 24.45 December 31, 2001......................................................... 1,712,626 $ 23.76
Exercise prices for options outstanding as of December 31, 2001 ranged from $9.54 to $30.70. The weighted average remaining contractual life of those options is 7.1 years. Using the Black-Scholes options valuation model, the weighted average fair value of options granted during 2001, 2000 and 1999 was $1.11, $0.90 and $0.68, respectively. WARRANTS In connection with various acquisitions in 1997, 1996 and 1995, the Company issued warrants to purchase shares of Common Stock. The following table sets forth information regarding warrants outstanding as of December 31, 2001:
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. 12. COMMITMENTS AND CONTINGENCIES LAND LEASES 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 $2,200,000 depending on the exercise date. F-25 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 12. COMMITMENTS AND CONTINGENCIES -- Continued The obligation for future minimum lease payments is as follows ($ in thousands): 2002.................... $ 1,221 2003.................... 1,203 2004.................... 1,204 2005.................... 1,206 2006.................... 1,183 Thereafter.............. 47,639 ---------- $ 53,656 ==========
LITIGATION 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 $101.7 million as of December 31, 2001. The amounts remaining to be paid under these contracts as of December 31, 2001 totaled $30.5 million. The Company has entered into various contracts under which it is committed to acquire eight acres of land over a three year period for an aggregate purchase price of approximately $628,000. CAPITAL EXPENDITURES The Company presently has no plans for major capital improvements to the existing properties, other than normal recurring building improvements, tenant improvements and lease commissions. ENVIRONMENTAL MATTERS Substantially all of the Company's in-service properties have been subjected to Phase I environmental assessments (and, in certain instances, Phase II environmental assessments). Such assessments and/or updates have not revealed, nor is management aware of, any environmental liability that management believes would have a material adverse effect on the accompanying consolidated financial statements. 13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair values were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2001 were as follows: F-26 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Carrying Fair Amount Value ------------- ------------ ($ in thousands) Cash and cash equivalents....................... $ 576 $ 576 Accounts and notes receivable................... $ 67,420 $ 67,420 Mortgages and notes payable..................... $(1,719,230) $(1,714,534) Interest rate hedge contract.................... $ (411) $ (411)
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, 2001, for similar types of borrowing arrangements. The carrying amounts of the Company's variable rate borrowings approximate fair value. The fair value of the Company's interest rate hedge contract represents the estimated amount the Company would receive or pay to terminate or replace the financial instrument at current market rates. Disclosures about the fair value of financial instruments are based on relevant information available to the Company at December 31, 2001. 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. 14. ACQUISITIONS AND DISPOSITIONS 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. During 2000, the Company contributed to joint ventures or sold approximately 8.2 million rentable square feet of office, industrial and retail properties and 272 acres of development land for gross proceeds of $801.1 million. The Company recorded a gain of $4.7 million related to these dispositions. During 2001, the Company contributed to joint ventures or sold approximately 425,000 rentable square feet of office and industrial properties, 215.7 acres of development land and 1,672 Apartment Units for gross proceeds of $180.3 million. The Company recorded a gain of $16.2 million related to these dispositions. Since December 31, 2001 through February 19, 2002, the Company has sold 128,000 square feet of office properties and 43.0 acres of development land for gross proceeds of $22.1 million. 15. SEGMENT INFORMATION The sole business of the Company is the acquisition, development and operation of rental real estate properties. The Company operates office, industrial and retail properties and apartment units. There are no material intersegment transactions. The Company's chief operating decision maker ("CDM") assesses and measures operating results based upon property level net operating income. The operating results for the individual assets within each property type have been aggregated since the CDM evaluates operating results and allocates resources on a property-by-property basis within the various property types. F-27 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 15. SEGMENT INFORMATION -- Continued The accounting policies of the segments are the same as those described in Note 1. Further, all operations are within the United States and no tenant comprises more than 10% of consolidated revenues. The following table summarizes the rental income, net operating income and assets for each reportable segment for the years ended December 31, 2001, 2000 and 1999 ($ in thousands):
Year Ended December 31 -------------------------------------- 2001 2000 1999 ---------- --------- -------- Rental Income: Office segment............................................. $ 413,539 $ 445,223 $ 466,027 Industrial segment......................................... 47,046 44,559 51,168 Retail segment............................................. 37,734 36,127 32,799 Apartment segment.......................................... 8,531 17,474 16,822 ---------- ---------- ---------- Total Rental Income........................................ $ 506,850 $ 543,383 $ 566,816 ========== ========== ========== Net Operating Income: Office segment............................................. 282,734 $ 310,955 $ 319,209 Industrial segment......................................... 38,940 37,417 42,361 Retail segment............................................. 25,319 25,054 21,685 Apartment segment.......................................... 4,915 10,190 9,486 ---------- ---------- ---------- Total Net Operating Income................................. $ 351,908 $ 383,616 $ 392,741 Reconciliation to income before minority interest and extraordinary item: Equity in earnings of unconsolidated affiliates............ 8,911 3,863 1,185 Cost of unsuccessful transactions.......................... -- -- (1,500) Gain on disposition of land and depreciable assets......... 16,172 4,659 8,679 Interest and other income.................................. 24,854 19,185 16,934 Interest expense........................................... (108,501) (112,827) (117,134) General and administrative expenses........................ (21,404) (21,864) (22,345) Depreciation and amortization.............................. (121,067) (119,443) (112,347) ---------- ---------- ---------- Income before minority interest and extraordinary item..... $ 150,873 $ 157,189 $ 166,213 ========== ========== ========== At December 31 -------------------------------------- 2001 2000 1999 ---------- ---------- ---------- Total Assets: Office segment............................................. $2,859,876 $2,661,914 $3,002,953 Industrial segment......................................... 343,606 299,660 435,022 Retail segment............................................. 263,622 273,023 258,853 Apartment segment.......................................... 10,397 118,144 118,549 Corporate and other........................................ 170,785 348,861 200,820 ---------- ---------- ---------- Total Assets............................................... $3,648,286 $3,701,602 $4,016,197 ========== ========== ==========
F-28 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 16. SELECTED QUARTERLY FINANCIAL DATA (Unaudited): Selected quarterly financial data for the years ended December 31, 2001 and 2000 are as follows ($ in thousands):
For the year ended December 31, 2001 ----------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter Total ------------- -------------- ------------- -------------- -------- Total Revenue........................... $ 137,267 $ 135,566 $ 134,141 $ 133,641 $ 540,615 ---------- --------- --------- --------- --------- Income before gain on disposition of land and depreciable assets, minority interest and extraordinary item............... 36,954 35,707 35,452 26,588 134,701 Gain on disposition of land and depreciable assets................ 7,071 5,670 3,357 74 16,172 ---------- --------- --------- --------- --------- Income before minority interest and extraordinary item............... 44,025 41,377 38,809 26,662 150,873 Minority interest....................... (5,251) (5,095) (4,820) (3,782) (18,948) Extraordinary item -- loss on early extinguishment of debt........ (193) (325) -- (196) (714) ---------- --------- --------- --------- --------- Net income.............................. 38,581 35,957 33,989 22,684 131,211 Dividends on preferred stock............ (8,145) (7,929) (7,713) (7,713) (31,500) ---------- --------- --------- --------- --------- Net income available for common shareholders.................. $ 30,436 $ 28,028 $ 26,276 $ 14,971 $ 99,711 ========== ========= ========= ========= ========= Net income per common share -- basic: Income before extraordinary item.................. $ 0.54 $ 0.53 $ 0.49 $ 0.29 $ 1.85 Extraordinary item -- loss on early extinguishment of debt............................. -- (0.01) -- -- (0.01) ---------- --------- --------- --------- --------- Net income........................... $ 0.54 $ 0.52 $ 0.49 $ 0.29 $ 1.84 ========== ========= ========= ========= ========= Net income per common share -- diluted: Income before extraordinary item.................. $ 0.54 $ 0.52 $ 0.49 $ 0.29 $ 1.84 Extraordinary item -- loss on early extinguishment of debt............................. -- (0.01) -- -- (0.01) ---------- --------- --------- --------- --------- Net income........................... $ 0.54 $ 0.51 $ 0.49 $ 0.29 $ 1.83 ========== ========= ========= ========= =========
F-29 HIGHWOODS PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 16. SELECTED QUARTERLY FINANCIAL DATA (Unaudited): -- Continued ($ in thousands)
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. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 12/31/2001 (In Thousands)
Cost Capitalized subsequent Initial Cost to Acquistion ------------ --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - ------------------------------------- ----------- --------- -------------- -------- -------------- --------- ---------------- Atlanta, GA Two Point Royal 20060 Atlanta 1,793 14,951 - 373 400 North Business Park 20070 Atlanta 979 6,112 - 241 50 Glenlake 20080 Atlanta 2,500 20,000 - 285 6348 Northeast Expressway 20090 Atlanta 277 1,629 - 107 6438 Northeast Expressway 20100 Atlanta 181 2,225 - 122 Bluegrass Lakes I 20110 Atlanta 816 3,775 - (11) Bluegrass Place I 20130 Atlanta 491 2,016 - 30 Bluegrass Place II 20140 Atlanta 412 2,529 - 41 Bluegrass Valley 20150 Atlanta 1,363 - - 3,641 Bluegrass Land Site V10 20160 Atlanta 1,823 - - - Bluegrass Land Site V14 20170 Atlanta 2,365 - - - 1700 Century Circle 28330 Atlanta - 2,456 - - 1700 Century Center 20180 Atlanta 1,115 3,148 - 567 1800 Century Boulevard 20190 Atlanta 1,441 28,939 - 857 1875 Century Boulevard 20200 Atlanta - 8,790 - 483 1900 Century Boulevard 20210 Atlanta - 4,721 - 815 2200 Century Parkway 20220 Atlanta - 14,274 - 1,667 2400 Century Center 20230 Atlanta - 14,970 - 50 2600 Century Parkway 20240 Atlanta - 10,254 - 1,162 2635 Century Parkway 20250 Atlanta - 21,083 - 1,379 2800 Century Parkway 20260 Atlanta - 19,963 - 670 Chattahoochee Avenue 20270 Atlanta 248 1,817 - 285 Chastain Place I 20280 Atlanta 472 3,011 - 952 Chastain Place II 20290 Atlanta 607 2,097 - 16 Chastain Place III 20300 Atlanta 539 1,662 - (1) Corporate Lakes 20320 Atlanta 1,275 7,227 - 589 Cosmopolitan North 20330 Atlanta 2,855 4,155 - 1,328 Century Plaza I 20340 Atlanta 1,290 8,425 - 1,091 Century Plaza II 20350 Atlanta 1,380 7,589 - 363 Century Plaza III 20360 Atlanta 570 - 293 - EKA Chemical 20400 Atlanta 609 9,883 - 3 1035 Fred Drive 20410 Atlanta 270 1,239 - 38 5125 Fulton Industrial Drive 20430 Atlanta 578 3,116 - 92 Gwinnett Distribution Center 20470 Atlanta 1,128 5,943 - 415 Kennestone Corporate Center 20480 Atlanta 518 4,874 - 309 La Vista Business Park 20490 Atlanta 821 5,244 - 673 Norcross I & II 20500 Atlanta 326 1,979 - 103 Nortel 20510 Atlanta 3,342 32,109 - 14 Newpoint Place I 20520 Atlanta 825 3,799 - 20 Newpoint Place II 20530 Atlanta 1,436 3,321 47 1,536 Newpoint Place III 20540 Atlanta 661 1,866 - 705 Newpoint Place Land 20550 Atlanta 187 - 1,141 10 Oakbrook I 20570 Atlanta (6) 873 4,948 - 273 Oakbrook II 20580 Atlanta (6) 1,579 8,388 - 1,299 Oakbrook III 20590 Atlanta (6) 1,480 8,388 - 339 Oakbrook IV 20600 Atlanta (6) 953 5,400 - 401 Oakbrook V 20610 Atlanta (6) 2,206 12,501 - 898 Oakbrook Summit 20620 Atlanta 950 6,572 - 706 Oxford Lake Business Center 20630 Atlanta 855 7,014 - 259 Peachtree Corners Land 20650 Atlanta 1,232 - - Southside Distribution Center 20690 Atlanta 810 1,219 - 3,391 Highwoods Center I at Tradeport 20720 Atlanta 305 3,299 - 118 Highwoods Center II at Tradeport 20710 Atlanta 635 3,474 - 757 Highwoods Center III at Tradeport 28590 Atlanta 402 2,121 3 123 Tradeport Land 20730 Atlanta 5,726 - 23 Gross Amount at Which Life on Carried at Close of Period Which -------------------------- Building & Accumulated Date of Depreciation Land Improvements Total(12) Depreciation Construction is Computed -------- ---------------- ----------- -------------- -------------- ------------- Atlanta, GA Two Point Royal 1,793 15,324 17,117 1,634 1997 5-40 yrs. 400 North Business Park 979 6,353 7,332 794 1985 5-40 yrs. 50 Glenlake 2,500 20,285 22,785 2,193 1997 5-40 yrs. 6348 Northeast Expressway 277 1,736 2,013 217 1978 5-40 yrs. 6438 Northeast Expressway 181 2,347 2,528 295 1981 5-40 yrs. Bluegrass Lakes I 816 3,764 4,580 477 1999 5-40 yrs. Bluegrass Place I 491 2,046 2,537 225 1995 5-40 yrs. Bluegrass Place II 412 2,570 2,982 282 1996 5-40 yrs. Bluegrass Valley 1,363 3,641 5,004 232 2000 5-40 yrs. Bluegrass Land Site V10 1,823 - 1,823 - 1999 5-40 yrs. Bluegrass Land Site V14 2,365 - 2,365 - 1999 5-40 yrs. 1700 Century Circle - 2,456 2,456 64 1983 5-40 yrs. 1700 Century Center 1,115 3,715 4,830 732 1972 5-40 yrs. 1800 Century Boulevard 1,441 29,796 31,237 3,829 1975 5-40 yrs. 1875 Century Boulevard - 9,273 9,273 1,222 1976 5-40 yrs. 1900 Century Boulevard - 5,536 5,536 932 1971 5-40 yrs. 2200 Century Parkway - 15,941 15,941 2,397 1971 5-40 yrs. 2400 Century Center - 15,020 15,020 2,588 1998 5-40 yrs. 2600 Century Parkway - 11,416 11,416 1,503 1973 5-40 yrs. 2635 Century Parkway - 22,462 22,462 3,048 1980 5-40 yrs. 2800 Century Parkway - 20,633 20,633 2,555 1983 5-40 yrs. Chattahoochee Avenue 248 2,102 2,350 415 1970 5-40 yrs. Chastain Place I 472 3,963 4,435 987 1997 5-40 yrs. Chastain Place II 607 2,113 2,720 435 1998 5-40 yrs. Chastain Place III 539 1,661 2,200 284 1999 5-40 yrs. Corporate Lakes 1,275 7,816 9,091 1,204 1988 5-40 yrs. Cosmopolitan North 2,855 5,483 8,338 1,039 1980 5-40 yrs. Century Plaza I 1,290 9,516 10,806 589 1981 5-40 yrs. Century Plaza II 1,380 7,952 9,332 487 1984 5-40 yrs. Century Plaza III 863 - 863 - 1984 5-40 yrs. EKA Chemical 609 9,886 10,495 937 1998 5-40 yrs. 1035 Fred Drive 270 1,277 1,547 159 1973 5-40 yrs. 5125 Fulton Industrial Drive 578 3,208 3,786 423 1973 5-40 yrs. Gwinnett Distribution Center 1,128 6,358 7,486 876 1991 5-40 yrs. Kennestone Corporate Center 518 5,183 5,701 664 1985 5-40 yrs. La Vista Business Park 821 5,917 6,738 882 1973 5-40 yrs. Norcross I & II 326 2,082 2,408 262 1970 5-40 yrs. Nortel 3,342 32,123 35,465 3,045 1998 5-40 yrs. Newpoint Place I 825 3,819 4,644 1,006 1998 5-40 yrs. Newpoint Place II 1,483 4,857 6,340 417 1999 5-40 yrs. Newpoint Place III 661 2,571 3,232 456 1998 5-40 yrs. Newpoint Place Land 1,328 10 1,338 - N/A N/A Oakbrook I 873 5,221 6,094 759 1981 5-40 yrs. Oakbrook II 1,579 9,687 11,266 1,787 1983 5-40 yrs. Oakbrook III 1,480 8,727 10,207 1,325 1984 5-40 yrs. Oakbrook IV 953 5,801 6,754 831 1985 5-40 yrs. Oakbrook V 2,206 13,399 15,605 2,114 1985 5-40 yrs. Oakbrook Summit 950 7,278 8,228 1,048 1981 5-40 yrs. Oxford Lake Business Center 855 7,273 8,128 858 1985 5-40 yrs. Peachtree Corners Land 1,232 - 1,232 - N/A N/A Southside Distribution Center 810 4,610 5,420 571 1988 5-40 yrs. Highwoods Center I at Tradeport 305 3,417 3,722 550 1999 5-40 yrs. Highwoods Center II at Tradeport 635 4,231 4,866 503 1999 5-40 yrs. Highwoods Center III at Tradeport 405 2,244 2,649 7 2001 5-40 yrs. Tradeport Land 5,726 23 5,749 1 N/A N/A
F-31
Cost Capitalized subsequent Initial Cost to Acquistion ----------------------- --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - ---------------------------------- ----------- ------------- -------------- ------- -------------- ---------- --------------- Tradeport Place I 20740 Atlanta 557 2,669 - 184 Tradeport Place II 20750 Atlanta 557 3,456 - 59 Tradeport Place III 20760 Atlanta - - 668 3,835 Tradeport Place IV 28260 Atlanta 661 3,182 - (12) Baltimore, MD Sportsman Club Land 20770 Baltimore 24,700 - - - Charlotte, NC - Ridgefield 20030 Charlotte 793 - - - 4101 Stuart Andrew Boulevard 20800 Charlotte 70 510 - 265 4105 Stuart Andrew Boulevard 20810 Charlotte 26 189 - 34 4109 Stuart Andrew Boulevard 20820 Charlotte 87 636 - 72 4201 Stuart Andrew Boulevard 20830 Charlotte 110 809 - 88 4205 Stuart Andrew Boulevard 20840 Charlotte 134 979 - 63 4209 Stuart Andrew Boulevard 20850 Charlotte 91 665 - 106 4215 Stuart Andrew Boulevard 20860 Charlotte 133 978 - 94 4301 Stuart Andrew Boulevard 20870 Charlotte 232 1,702 - 171 4321 Stuart Andrew Boulevard 20880 Charlotte 73 534 - 42 4601 Park Square 20890 Charlotte 2,601 7,802 - 322 Alston & Bird 20900 Charlotte 2,362 5,379 4 40 First Citizens Building 20910 Charlotte 647 5,528 - 699 Twin Lakes Distribution Center 20920 Charlotte 2,816 6,570 - 1 Mallard Creek I 20930 Charlotte 1,248 4,142 - 605 Mallard Creek III 20940 Charlotte 845 4,762 - 140 Mallard Creek IV 20950 Charlotte 348 1,152 - 4 Mallard Creek V 20960 Charlotte 1,665 8,738 - 2,145 Mallard Creek VI 20970 Charlotte 839 - - Oakhill Land 20990 Charlotte 2,796 - - Oakhill Business Park English Oak 21000 Charlotte (6) 750 4,248 - 300 Oakhill Business Park Laurel Oak 21010 Charlotte (6) 471 2,671 - 405 Oakhill Business Park Live Oak 21020 Charlotte 1,403 5,611 - 1,152 Oakhill Business Park Scarlet Oak 21030 Charlotte (6) 1,073 6,078 - 545 Oakhill Business Park Twin Oak 21040 Charlotte (6) 1,243 7,044 - 653 Oakhill Business Park Willow Oak 21050 Charlotte (6) 442 2,505 - 890 Oakhill Business Park Water Oak 21060 Charlotte (6) 1,623 9,196 - 933 Pinebrook 21070 Charlotte 846 4,607 - 387 One Parkway Plaza Building 21080 Charlotte 1,110 4,741 - 884 Two Parkway Plaza Building 21090 Charlotte 1,694 6,777 - 1,428 Three Parkway Plaza Building 21100 Charlotte (3) 1,570 6,282 - 815 Six Parkway Plaza Building 21110 Charlotte - 2,438 - 531 Seven Parkway Plaza Building 21120 Charlotte - 4,648 - 253 Eight Parkway Plaza Building 21130 Charlotte - 4,698 - 203 Nine Parkway Plaza Building 21140 Charlotte - 6,008 - 40 Eleven Parkway Plaza Building 21150 Charlotte - 2,328 160 219 Twelve Parkway Plaza Building 21160 Charlotte 112 1,489 - 302 Fourteen Parkway Plaza Building 21170 Charlotte 483 6,077 - 963 385 Land 22420 Charlotte 1,801 - - - University Center 28400 Charlotte 1,296 216 (7) University Center - Land 28410 Charlotte 7,840 - - - Oakhill Land 28700 Charlotte 1,148 - - - Columbia, SC Centerpoint I 21270 Columbia 1,313 7,441 - 437 Centerpoint II 21280 Columbia 1,183 8,724 1 12 Centerpoint V 21290 Columbia 265 1,279 - 341 Centerpoint VI 21300 Columbia 276 - - Fontaine I 21310 Columbia 1,219 6,907 - 1,842 Fontaine II 21320 Columbia 941 5,335 - 792 Fontaine III 21330 Columbia 853 4,833 - 94 Fontaine V 21340 Columbia 395 2,237 - 19 Piedmont Triad, NC - - Concourse Center 1 21360 Piedmont Triad 946 7,646 (946) (7,646) ECPI 21370 Piedmont Triad 431 2,522 (431) (2,522) Bissell Land 21380 Piedmont Triad 990 - (990) - 6348 Burnt Poplar 21390 Piedmont Triad 721 2,883 - 26 6350 Burnt Poplar 21400 Piedmont Triad 339 1,365 - 64 Chimney Rock A/B 21410 Piedmont Triad 1,610 3,757 1 510 Chimney Rock C 21420 Piedmont Triad 604 1,408 - 6 Gross Amount at Which Life on Carried at Close of Period Which -------------------------- Building & Accumulated Date of Depreciation Land Improvements Total(12) Depreciation Construction is Computed -------- ---------------- ----------- -------------- -------------- ------------- Tradeport Place I 557 2,853 3,410 420 1999 5-40 yrs. Tradeport II 557 3,515 4,072 581 1999 5-40 yrs. Tradeport III 668 3,835 4,503 275 1999 5-40 yrs. Tradeport IV 661 3,170 3,831 - 2001 5-40 yrs. Baltimore, MD Sportsman Club Land 24,700 - 24,700 - N/A N/A Charlotte, NC Ridgefield 793 - 793 - N/A N/A 4101 Stuart Andrew Boulevard 70 775 845 266 1984 5-40 yrs. 4105 Stuart Andrew Boulevard 26 223 249 52 1984 5-40 yrs. 4109 Stuart Andrew Boulevard 87 708 795 136 1984 5-40 yrs. 4201 Stuart Andrew Boulevard 110 897 1,007 174 1982 5-40 yrs. 4205 Stuart Andrew Boulevard 134 1,042 1,176 199 1982 5-40 yrs. 4209 Stuart Andrew Boulevard 91 771 862 168 1982 5-40 yrs. 4215 Stuart Andrew Boulevard 133 1,072 1,205 210 1982 5-40 yrs. 4301 Stuart Andrew Boulevard 232 1,873 2,105 359 1982 5-40 yrs. 4321 Stuart Andrew Boulevard 73 576 649 108 1982 5-40 yrs. 4601 Park Square 2,601 8,124 10,725 792 1972 5-40 yrs. Alston & Bird 2,366 5,419 7,785 534 1965 5-40 yrs. First Citizens Building 647 6,227 6,874 1,390 1989 5-40 yrs. Twin Lakes Distribution Center 2,816 6,571 9,387 588 1991 5-40 yrs. Mallard Creek I 1,248 4,747 5,995 501 1986 5-40 yrs. Mallard Creek III 845 4,902 5,747 469 1990 5-40 yrs. Mallard Creek IV 348 1,156 1,504 105 1993 5-40 yrs. Mallard Creek V 1,665 10,883 12,548 1,023 1999 5-40 yrs. Mallard Creek VI 839 - 839 - N/A N/A Oakhill Land 2,796 - 2,796 - N/A N/A Oakhill Business Park English Oak 750 4,548 5,298 644 1984 5-40 yrs. Oakhill Business Park Laurel Oak 471 3,076 3,547 554 1984 5-40 yrs. Oakhill Business Park Live Oak 1,403 6,763 8,166 1,211 1989 5-40 yrs. Oakhill Business Park Scarlet Oak 1,073 6,623 7,696 1,051 1982 5-40 yrs. Oakhill Business Park Twin Oak 1,243 7,697 8,940 1,191 1985 5-40 yrs. Oakhill Business Park Willow Oak 442 3,395 3,837 813 1982 5-40 yrs. Oakhill Business Park Water Oak 1,623 10,129 11,752 1,794 1985 5-40 yrs. Pinebrook 846 4,994 5,840 654 1986 5-40 yrs. One Parkway Plaza Building 1,110 5,625 6,735 997 1982 5-40 yrs. Two Parkway Plaza Building 1,694 8,205 9,899 2,043 1983 5-40 yrs. Three Parkway Plaza Building 1,570 7,097 8,667 1,378 1984 5-40 yrs. Six Parkway Plaza Building - 2,969 2,969 746 1996 5-40 yrs. Seven Parkway Plaza Building - 4,901 4,901 757 1985 5-40 yrs. Eight Parkway Plaza Building - 4,901 4,901 747 1986 5-40 yrs. Nine Parkway Plaza Building - 6,048 6,048 918 1984 5-40 yrs. Eleven Parkway Plaza 160 2,547 2,707 387 1999 5-40 yrs. Twelve Parkway Plaza 112 1,791 1,903 203 1999 5-40 yrs. Fourteen Parkway Plaza Building 483 7,040 7,523 733 1999 5-40 yrs. 385 Land 1,801 - 1,801 - N/A N/A University Center 1,296 209 1,505 4 2001 5-40 yrs. University Center - Land 7,840 - 7,840 - N/A N/A Oakhill Land 1,148 - 1,148 - N/A N/A Columbia, SC Centerpoint I 1,313 7,878 9,191 1,118 1988 5-40 yrs. Centerpoint II 1,184 8,736 9,920 1,530 1996 5-40 yrs. Centerpoint V 265 1,620 1,885 356 1997 5-40 yrs. Centerpoint VI 276 - 276 - N/A N/A Fontaine I 1,219 8,749 9,968 1,089 1985 5-40 yrs. Fontaine II 941 6,127 7,068 1,416 1987 5-40 yrs. Fontaine III 853 4,927 5,780 696 1988 5-40 yrs. Fontaine V 395 2,256 2,651 298 1990 5-40 yrs. Piedmont Triad, NC Concourse Center 1 - - - 1999 5-40 yrs. ECPI - - - 2000 5-40 yrs. Bissell Land - - - - N/A N/A 6348 Burnt Poplar 721 2,909 3,630 501 1990 5-40 yrs. 6350 Burnt Poplar 339 1,429 1,768 250 1992 5-40 yrs. Chimney Rock A/B 1,611 4,267 5,878 445 1981 5-40 yrs. Chimney Rock C 604 1,414 2,018 136 1983 5-40 yrs.
F-32
Cost Capitalized subsequent Initial Cost to Acquistion ----------------------- --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - --------------------------------- --------- -------------- -------------- -------- ------------- -------- ---------------- Chimney Rock D 21430 Piedmont Triad 236 550 - 53 Chimney Rock E 21440 Piedmont Triad 1,692 3,948 1 55 Chimney Rock F 21450 Piedmont Triad 1,431 3,338 1 3 Chimney Rock G 21460 Piedmont Triad 1,044 2,435 1 12 Deep River Corporate Center 21470 Piedmont Triad 1,033 5,855 - 318 Airpark East-Copier Consultants 21480 Piedmont Triad (2) 252 1,008 (29) 124 Airpark East-Building 1 21490 Piedmont Triad (2) 377 1,510 - 160 Airpark East-Building 2 21500 Piedmont Triad (2) 461 1,842 - 31 Airpark East-Building 3 21510 Piedmont Triad (2) 321 1,283 - 153 Airpark East-HewlettPackard 21520 Piedmont Triad (2) 149 727 315 337 Airpark East-Inacom Building 21530 Piedmont Triad (2) 106 478 159 294 Airpark East-Simplex 21540 Piedmont Triad (2) 103 526 168 260 Airpark East-Building A 21550 Piedmont Triad (2) 541 2,913 (33) 676 Airpark East-Building B 21560 Piedmont Triad (2) 779 3,200 (43) 433 Airpark East-Building C 21570 Piedmont Triad (2) 2,384 9,535 - 1,721 Airpark East-Building D 21580 Piedmont Triad (2) 271 3,213 579 730 Airpark East-Service Center 1 21610 Piedmont Triad (2) 275 1,099 (39) 134 Airpark East-Service Center 2 21620 Piedmont Triad (2) 222 889 (31) 119 Airpark East-Service Center 3 21630 Piedmont Triad (2) 304 1,214 - 65 Airpark East-Service Center 4 21640 Piedmont Triad (2) 224 898 - 186 Airpark East-Service Court 21650 Piedmont Triad (2) 194 774 (24) 57 Airpark East-Warehouse 1 21660 Piedmont Triad (2) 384 1,535 (29) 99 Airpark East-Warehouse 2 21670 Piedmont Triad (2) 372 1,488 - 99 Airpark East-Warehouse 3 21680 Piedmont Triad (2) 370 1,480 (30) 55 Airpark East-Warehouse 4 21690 Piedmont Triad (2) 657 2,628 - 182 Airpark East-Highland 21700 Piedmont Triad (2) 175 699 (30) 376 Inman Road Land 21830 Piedmont Triad 2,363 - - 7906 Industrial Village Road 21840 Piedmont Triad 62 455 - 23 7908 Industrial Village Road 21850 Piedmont Triad 62 455 - 34 7910 Industrial Village Road 21860 Piedmont Triad 62 455 - 50 Jefferson Pilot Land 21870 Piedmont Triad 11,199 - - - Airpark North-DC1 21880 Piedmont Triad (2) 723 2,891 134 229 Airpark North-DC2 21890 Piedmont Triad (2) 1,094 4,375 203 107 Airpark North-DC3 21900 Piedmont Triad (2) 378 1,511 70 215 Airpark North-DC4 21910 Piedmont Triad (2) 377 1,508 70 141 Airpark North Land 21920 Piedmont Triad 804 - (804) - 2606 Phoenix Drive-100 Series 21940 Piedmont Triad 63 466 - 3 2606 Phoenix Drive-200 Series 21950 Piedmont Triad 63 466 - 89 2606 Phoenix Drive-300 Series 21960 Piedmont Triad 31 229 - 125 2606 Phoenix Drive-400 Series 21970 Piedmont Triad 52 382 - 23 2606 Phoenix Drive-500 Series 21980 Piedmont Triad 64 471 - 24 2606 Phoenix Drive-600 Series 21990 Piedmont Triad 78 575 - 31 2606 Phoenix Drive-700 Series 22000 Piedmont Triad - 533 - 203 2606 Phoenix Drive-800 Series 22010 Piedmont Triad 2,308 214 Highwoods Park Building 1 28670 Piedmont Triad 1,980 7,273 12 237 500 Radar Road 22110 Piedmont Triad 202 1,484 - 124 502 Radar Road 22120 Piedmont Triad 39 285 - 80 504 Radar Road 22130 Piedmont Triad 39 285 - 15 506 Radar Road 22140 Piedmont Triad 39 285 - 14 Regency One-Piedmont Center 22150 Piedmont Triad 515 2,347 - 578 Regency Two-Piedmont Center 22160 Piedmont Triad 435 1,859 - 531 Sears Cenfact 22170 Piedmont Triad 861 3,446 (31) 348 Airpark South Warehouse 1 22210 Piedmont Triad 537 2,934 8 (423) Airpark South Warehouse 2 22220 Piedmont Triad 733 2,548 11 (36) Airpark South Warehouse 3 22230 Piedmont Triad 599 2,365 - - Airpark South Warehouse 4 22240 Piedmont Triad 489 2,175 7 244 Airpark South Warehouse 6 22250 Piedmont Triad 1,690 3,915 26 6 Airpark West 1 22270 Piedmont Triad (3) 954 3,817 - 847 Airpark West 2 22280 Piedmont Triad (3) 887 3,536 (3) 528 Airpark West 4 22290 Piedmont Triad (3) 226 903 - 186 Airpark West 5 22300 Piedmont Triad (3) 242 966 - 160 Airpark West 6 22310 Piedmont Triad (3) 326 1,308 - 163 7327 West Friendly Avenue 22320 Piedmont Triad 60 441 - 22 7339 West Friendly Avenue 22330 Piedmont Triad 63 465 - 41 7341 West Friendly Avenue 22340 Piedmont Triad 113 831 - 134 7343 West Friendly Avenue 22350 Piedmont Triad 72 531 - 27 7345 West Friendly Avenue 22360 Piedmont Triad 66 485 - 25 7347 West Friendly Avenue 22370 Piedmont Triad 97 709 - 84 7349 West Friendly Avenue 22380 Piedmont Triad 53 388 - 17 7351 West Friendly Avenue 22390 Piedmont Triad 106 778 - 30 Gross Amount at Which Life on Carried at Close of Period Which -------------------------- Building & Accumulated Date of Depreciation Description Land Improvements Total(12) Depreciation Construction is Computed - --------------------------------- -------- --------------- ----------- -------------- -------------- ------------- Chimney Rock D 236 603 839 98 1983 5-40 yrs. Chimney Rock E 1,693 4,003 5,696 384 1985 5-40 yrs. Chimney Rock F 1,432 3,341 4,773 319 1987 5-40 yrs. Chimney Rock G 1,045 2,447 3,492 232 1987 5-40 yrs. Deep River Corporate Center 1,033 6,173 7,206 997 1989 5-40 yrs. Airpark East-Copier Consultants 223 1,132 1,355 212 1990 5-40 yrs. Airpark East-Building 1 377 1,670 2,047 331 1990 5-40 yrs. Airpark East-Building 2 461 1,873 2,334 325 1986 5-40 yrs. Airpark East-Building 3 321 1,436 1,757 282 1986 5-40 yrs. Airpark East-HewlettPackard 464 1,064 1,528 280 1996 5-40 yrs. Airpark East-Inacom Building 265 772 1,037 252 1996 5-40 yrs. Airpark East-Simplex 271 786 1,057 213 1997 5-40 yrs. Airpark East-Building A 508 3,589 4,097 833 1986 5-40 yrs. Airpark East-Building B 736 3,633 4,369 808 1988 5-40 yrs. Airpark East-Building C 2,384 11,256 13,640 2,093 1990 5-40 yrs. Airpark East-Building D 850 3,943 4,793 993 1997 5-40 yrs. Airpark East-Service Center 1 236 1,233 1,469 284 1985 5-40 yrs. Airpark East-Service Center 2 191 1,008 1,199 199 1985 5-40 yrs. Airpark East-Service Center 3 304 1,279 1,583 263 1985 5-40 yrs. Airpark East-Service Center 4 224 1,084 1,308 219 1985 5-40 yrs. Airpark East-Service Court 170 831 1,001 169 1990 5-40 yrs. Airpark East-Warehouse 1 355 1,634 1,989 306 1985 5-40 yrs. Airpark East-Warehouse 2 372 1,587 1,959 314 1985 5-40 yrs. Airpark East-Warehouse 3 340 1,535 1,875 276 1986 5-40 yrs. Airpark East-Warehouse 4 657 2,810 3,467 547 1988 5-40 yrs. Airpark East-Highland 145 1,075 1,220 147 1990 5-40 yrs. Inman Road Land 2,363 - 2,363 - N/A N/A 7906 Industrial Village Road 62 478 540 78 1985 5-40 yrs. 7908 Industrial Village Road 62 489 551 95 1985 5-40 yrs. 7910 Industrial Village Road 62 505 567 93 1985 5-40 yrs. Jefferson Pilot Land 11,199 - 11,199 - N/A N/A Airpark North - DC1 857 3,120 3,977 552 1986 5-40 yrs. Airpark North - DC2 1,297 4,482 5,779 793 1987 5-40 yrs. Airpark North - DC3 448 1,726 2,174 427 1988 5-40 yrs. Airpark North - DC4 447 1,649 2,096 346 1988 5-40 yrs. Airpark North Land - - - - N/A N/A 2606 Phoenix Drive-100 Series 63 469 532 75 1989 5-40 yrs. 2606 Phoenix Drive-200 Series 63 555 618 100 1989 5-40 yrs. 2606 Phoenix Drive-300 Series 31 354 385 81 1989 5-40 yrs. 2606 Phoenix Drive-400 Series 52 405 457 72 1989 5-40 yrs. 2606 Phoenix Drive-500 Series 64 495 559 94 1989 5-40 yrs. 2606 Phoenix Drive-600 Series 78 606 684 115 1989 5-40 yrs. 2606 Phoenix Drive-700 Series - 736 736 132 1988 5-40 yrs. 2606 Phoenix Drive-800 Series - 2,522 2,522 65 5-40 yrs. Highwoods Park Building 1 1,992 7,510 9,502 23 2001 5-40 yrs. 500 Radar Road 202 1,608 1,810 309 1981 5-40 yrs. 502 Radar Road 39 365 404 99 1986 5-40 yrs. 504 Radar Road 39 300 339 53 1986 5-40 yrs. 506 Radar Road 39 299 338 51 1986 5-40 yrs. Regency One-Piedmont Center 515 2,925 3,440 635 1996 5-40 yrs. Regency Two-Piedmont Center 435 2,390 2,825 714 1996 5-40 yrs. Sears Cenfact 830 3,794 4,624 637 1989 5-40 yrs. Airpark South Warehouse 1 545 2,511 3,056 385 1998 5-40 yrs. Airpark South Warehouse 2 744 2,512 3,256 160 1999 5-40 yrs. Airpark South Warehouse 3 599 2,365 2,964 115 1999 5-40 yrs. Airpark South Warehouse 4 496 2,419 2,915 290 1999 5-40 yrs. Airpark South Warehouse 6 1,716 3,921 5,637 275 1999 5-40 yrs. Airpark West 1 954 4,664 5,618 1,078 1984 5-40 yrs. Airpark West 2 884 4,064 4,948 1,026 1985 5-40 yrs. Airpark West 4 226 1,089 1,315 255 1985 5-40 yrs. Airpark West 5 242 1,126 1,368 243 1985 5-40 yrs. Airpark West 6 326 1,471 1,797 329 1985 5-40 yrs. 7327 West Friendly Avenue 60 463 523 75 1987 5-40 yrs. 7339 West Friendly Avenue 63 506 569 93 1989 5-40 yrs. 7341 West Friendly Avenue 113 965 1,078 195 1988 5-40 yrs. 7343 West Friendly Avenue 72 558 630 96 1988 5-40 yrs. 7345 West Friendly Avenue 66 510 576 88 1988 5-40 yrs. 7347 West Friendly Avenue 97 793 890 172 1988 5-40 yrs. 7349 West Friendly Avenue 53 405 458 73 1988 5-40 yrs. 7351 West Friendly Avenue 106 808 914 143 1988 5-40 yrs.
F-33
Cost Capitalized subsequent Initial Cost to Acquistion -------------------- --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - ---------------------------------------------- ----- -------------- ------------ ------ ------------ ------ ------------ 7353 West Friendly Avenue 22400 Piedmont Triad 123 901 - 16 7355 West Friendly Avenue 22410 Piedmont Triad 72 525 - 23 150 Stratford 26180 Piedmont Triad 2,777 11,459 - 536 ALO 26190 Piedmont Triad 177 986 - 8 Chesapeake 26200 Piedmont Triad (3) 1,236 4,944 - 7 Forsyth Corporate Center 26210 Piedmont Triad (6) 326 1,850 - 678 The Knollwood-370 26230 Piedmont Triad (2) 1,819 7,451 - 513 The Knollwood-380 26240 Piedmont Triad (2) 2,977 11,912 - 903 The Knollwood -380 Retail 26260 Piedmont Triad (2) - 1 - 141 Robinhood 26280 Piedmont Triad 290 1,159 (290) (1,159) 101 Stratford 26290 Piedmont Triad 1,205 6,810 - 620 160 Stratford - Land 28370 Piedmont Triad 1,327 - - - Consolidated Center/ Building I 26300 Piedmont Triad 625 2,126 - 89 Consolidated Center/ Building II 26310 Piedmont Triad 625 4,376 - 151 Consolidated Center/ Building III 26320 Piedmont Triad 680 3,522 - 55 Consolidated Center/ Building IV 26330 Piedmont Triad 376 1,624 - 216 5100 Indiana Avenue 26440 Piedmont Triad 490 1,143 (490) (1,143) Madison Park - Building 5610 26460 Piedmont Triad 211 493 - - Madison Park - Building 5620 26470 Piedmont Triad 941 2,196 - 1 Madison Park - Building 5630 26480 Piedmont Triad 1,486 3,468 - 25 Madison Park - Building 5635 26490 Piedmont Triad 893 2,083 - 441 Madison Park - Building 5640 26500 Piedmont Triad 3,632 8,476 - 35 Madison Park - Building 5650 26510 Piedmont Triad 1,081 2,522 - 1 Madison Park - Building 5660 26520 Piedmont Triad 1,910 4,456 - 10 Madison Park - Building 5655 26530 Piedmont Triad 5,891 13,753 - 1 711 Almondridge 26550 Piedmont Triad 301 702 - 26 710 Almondridge 26560 Piedmont Triad 1,809 4,221 523 5,284 500 Northridge 26570 Piedmont Triad 1,789 4,174 - 6 520 Northridge 26580 Piedmont Triad 1,645 3,876 - 243 531 Northridge Warehouse 26590 Piedmont Triad 4,992 11,648 - 174 531 Northridge Office 26600 Piedmont Triad 766 1,788 - 1 540 Northridge 26610 Piedmont Triad 2,038 4,755 - 479 550 Northridge 26620 Piedmont Triad 472 1,102 - 154 US Airways 26630 Piedmont Triad (6) 2,625 14,824 - 209 University Commercial Center-Landmark 3 26660 Piedmont Triad 429 1,771 - 171 University Commercial Center-Archer 4 26670 Piedmont Triad 514 2,058 - 201 University Commercial Center-Service Center 1 26680 Piedmont Triad 276 1,155 - 93 University Commercial Center-Service Center 2 26690 Piedmont Triad 215 859 - 127 University Commercial Center-Service Center 3 26700 Piedmont Triad 167 668 - 149 University Commercial Center-Warehouse 1 26710 Piedmont Triad 203 812 - 9 University Commercial Center-Warehouse 2 26720 Piedmont Triad 196 786 - 14 Westpoint Business Park-BMF 26730 Piedmont Triad 795 3,181 - 4 Westpoint Business Park-Luwabahnson 26740 Piedmont Triad 346 1,384 - 1 Westpoint Business Park-3 & 4 26750 Piedmont Triad 120 480 - 38 Westpoint Business Park Land 26760 Piedmont Triad 1,861 - 1 Westpoint Business Park-Wp 11 26780 Piedmont Triad 393 1,570 - 86 Westpoint Business Park-Wp 12 26790 Piedmont Triad 382 1,531 - 72 Westpoint Business Park-Wp 13 26800 Piedmont Triad 297 1,192 - 43 Westpoint Business Park-Fairchild 26810 Piedmont Triad 640 2,577 - 25 Westpoint Business Park-Warehouse 5 26820 Piedmont Triad 178 590 - 529 Enterprise Warehouse I 28420 Piedmont Triad 487 2,960 - 23 Brigham Road - Land 28710 Piedmont Triad 7,249 - - - Greenville, SC 385 Land 22420 Greenville 1,800 - - Bank of America Plaza 22430 Greenville 642 9,349 - 2,042 MetLife @ Brookfield 28490 Greenville 1,023 8,336 8 1,868 Brookfield Plaza 22440 Greenville (6) 1,489 8,437 - 1,024 Brookfield-Jacobs-Sirrine 22450 Greenville 3,022 17,125 - 24 Brookfield YMCA 22460 Greenville 33 189 - 19 IKON at Patewood 22470 Greenville 1,413 1,401 - 2,783 Patewood I 22480 Greenville 942 5,016 - 72 Patewood II 22490 Greenville 942 5,018 - 285 Patewood III 22500 Greenville (6) 835 4,733 - 158 Patewood IV 22510 Greenville (6) 1,210 6,856 - 132 Patewood V 22520 Greenville (6) 1,677 9,503 - 110 Patewood VI 22530 Greenville 2,375 9,643 - (25) 770 Pelham Road 22540 Greenville 705 2,778 - 52 Patewood Business Center 22550 Greenville 1,312 7,436 - 332 Gross Amount at Which Life on Carried at Close of Period Which --------------------------- Building & Accumulated Date of Depreciation Description JDE City Land Improvements Total(12) Depreciation Construction is Computed - --------------------------------- ----- -------------- ------ ------------ --------- ------------ ------------ ------------ 7353 West Friendly Avenue 22400 Piedmont Triad 123 917 1,040 149 1988 5-40 yrs. 7355 West Friendly Avenue 22410 Piedmont Triad 72 548 620 93 1988 5-40 yrs. 150 Stratford 26180 Piedmont Triad 2,777 11,995 14,772 2,199 1991 5-40 yrs. ALO 26190 Piedmont Triad 177 994 1,171 38 1998 5-40 yrs. Chesapeake 26200 Piedmont Triad 1,236 4,951 6,187 853 1993 5-40 yrs. Forsyth Corporate Center 26210 Piedmont Triad 326 2,528 2,854 590 1985 5-40 yrs. The Knollwood-370 26230 Piedmont Triad 1,819 7,964 9,783 1,535 1994 5-40 yrs. The Knollwood-380 26240 Piedmont Triad 2,977 12,815 15,792 2,481 1990 5-40 yrs. The Knollwood -380 Retail 26260 Piedmont Triad - 142 142 70 1995 5-40 yrs. Robinhood 26280 Piedmont Triad - - - - 1989 5-40 yrs. 101 Stratford 26290 Piedmont Triad 1,205 7,430 8,635 792 1986 5-40 yrs. 160 Stratford - Land 28370 Piedmont Triad 1,327 - 1,327 - N/A N/A Consolidated Center/ Building I 26300 Piedmont Triad 625 2,215 2,840 236 1983 5-40 yrs. Consolidated Center/ Building II 26310 Piedmont Triad 625 4,527 5,152 497 1983 5-40 yrs. Consolidated Center/ Building III 26320 Piedmont Triad 680 3,577 4,257 369 1989 5-40 yrs. Consolidated Center/ Building IV 26330 Piedmont Triad 376 1,840 2,216 282 1989 5-40 yrs. 5100 Indiana Avenue 26440 Piedmont Triad - - - - 1982 5-40 yrs. Madison Park - Building 5610 26460 Piedmont Triad 211 493 704 44 1988 5-40 yrs. Madison Park - Building 5620 26470 Piedmont Triad 941 2,197 3,138 196 1983 5-40 yrs. Madison Park - Building 5630 26480 Piedmont Triad 1,486 3,493 4,979 310 1983 5-40 yrs. Madison Park - Building 5635 26490 Piedmont Triad 893 2,524 3,417 372 1986 5-40 yrs. Madison Park - Building 5640 26500 Piedmont Triad 3,632 8,511 12,143 758 1985 5-40 yrs. Madison Park - Building 5650 26510 Piedmont Triad 1,081 2,523 3,604 226 1984 5-40 yrs. Madison Park - Building 5660 26520 Piedmont Triad 1,910 4,466 6,376 398 1984 5-40 yrs. Madison Park - Building 5655 26530 Piedmont Triad 5,891 13,754 19,645 1,230 1987 5-40 yrs. 711 Almondridge 26550 Piedmont Triad 301 728 1,029 80 1988 5-40 yrs. 710 Almondridge 26560 Piedmont Triad 2,332 9,505 11,837 538 1989 5-40 yrs. 500 Northridge 26570 Piedmont Triad 1,789 4,180 5,969 382 1988 5-40 yrs. 520 Northridge 26580 Piedmont Triad 1,645 4,119 5,764 394 1988 5-40 yrs. 531 Northridge Warehouse 26590 Piedmont Triad 4,992 11,822 16,814 1,055 1989 5-40 yrs. 531 Northridge Office 26600 Piedmont Triad 766 1,789 2,555 162 1989 5-40 yrs. 540 Northridge 26610 Piedmont Triad 2,038 5,234 7,272 444 1987 5-40 yrs. 550 Northridge 26620 Piedmont Triad 472 1,256 1,728 185 1989 5-40 yrs. US Airways 26630 Piedmont Triad 2,625 15,033 17,658 1,554 970-1987 5-40 yrs. University Commercial Center- Landmark 3 26660 Piedmont Triad 429 1,942 2,371 377 1985 5-40 yrs. University Commercial Center- Archer 4 26670 Piedmont Triad 514 2,259 2,773 463 1986 5-40 yrs. University Commercial Center- Service Center 1 26680 Piedmont Triad 276 1,248 1,524 249 1983 5-40 yrs. University Commercial Center- Service Center 2 26690 Piedmont Triad 215 986 1,201 224 1983 5-40 yrs. University Commercial Center- Service Center 3 26700 Piedmont Triad 167 817 984 143 1984 5-40 yrs. University Commercial Center- Warehouse 1 26710 Piedmont Triad 203 821 1,024 141 1983 5-40 yrs. University Commercial Center- Warehouse 2 26720 Piedmont Triad 196 800 996 138 1983 5-40 yrs. Westpoint Business Park-BMF 26730 Piedmont Triad 795 3,185 3,980 547 1986 5-40 yrs. Westpoint Business Park- Luwabahnson 26740 Piedmont Triad 346 1,385 1,731 239 1990 5-40 yrs. Westpoint Business Park-3 & 4 26750 Piedmont Triad 120 518 638 94 1988 5-40 yrs. Westpoint Business Park Land 26760 Piedmont Triad 1,861 1 1,862 - 5-40 yrs. Westpoint Business Park-Wp 11 26780 Piedmont Triad 393 1,656 2,049 311 1988 5-40 yrs. Westpoint Business Park-Wp 12 26790 Piedmont Triad 382 1,603 1,985 280 1988 5-40 yrs. Westpoint Business Park-Wp 13 26800 Piedmont Triad 297 1,235 1,532 213 1988 5-40 yrs. Westpoint Business Park-Fairchild 26810 Piedmont Triad 640 2,602 3,242 446 1990 5-40 yrs. Westpoint Business Park-Warehouse5 26820 Piedmont Triad 178 1,119 1,297 348 1995 5-40 yrs. Enterprise Warehouse I 28420 Piedmont Triad 487 2,983 3,470 - 5-40 yrs. Brigham Road - Land 28710 Piedmont Triad 7,249 - 7,249 - N/A N/A Greenville, SC 385 Land 22420 Greenville 1,800 - 1,800 - N/A N/A Bank of America Plaza 22430 Greenville 642 11,391 12,033 1,709 1973 5-40 yrs. MetLife @ Brookfield 28490 Greenville 1,031 10,204 11,235 105 2001 5-40 yrs. Brookfield Plaza 22440 Greenville 1,489 9,461 10,950 1,614 1987 5-40 yrs. Brookfield-Jacobs-Sirrine 22450 Greenville 3,022 17,149 20,171 2,278 1990 5-40 yrs. Brookfield YMCA 22460 Greenville 33 208 241 39 1990 5-40 yrs. IKON at Patewood 22470 Greenville 1,413 4,184 5,597 816 1998 5-40 yrs. Patewood I 22480 Greenville 942 5,088 6,030 627 1985 5-40 yrs. Patewood II 22490 Greenville 942 5,303 6,245 731 1987 5-40 yrs. Patewood III 22500 Greenville 835 4,891 5,726 777 1989 5-40 yrs. Patewood IV 22510 Greenville 1,210 6,988 8,198 916 1989 5-40 yrs. Patewood V 22520 Greenville 1,677 9,613 11,290 1,353 1990 5-40 yrs. Patewood VI 22530 Greenville 2,375 9,618 11,993 1,615 1999 5-40 yrs. 770 Pelham Road 22540 Greenville 705 2,830 3,535 274 1989 5-40 yrs. Patewood Business Center 22550 Greenville 1,312 7,768 9,080 1,140 1983 5-40 yrs.
F-34
Cost Capitalized subsequent Initial Cost to Acquistion --------------------- -------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - ------------------------------------------- ------- -------------- -------------- ------- --------------- --------- --------------- Highwoods Properties (HPI) HPI Rental Houses 27980 Kansas City - 949 - 39 HPI St. Charles Apartments 27990 Kansas City 29 165 - (11) HPI 4900 Main St 28010 Kansas City 3,202 - - - HPI Challenger 28030 Kansas City 19,000 19,095 - - - HPI JCN Land 28040 Kansas City 871 - - - Highwood Services Inc. (HSI) Romac 28140 Tampa 1,256 17,950 - - International Place 3 22880 Memphis - 25,761 - - Jacksonville, FL 9A Land 22640 Jacksonville 4,446 - - - Belfort Park VI - Land 22700 Jacksonville 594 - - - Belfort Park VII - Land 22710 Jacksonville 1,941 - - - Shawnee Mission, KS Corinth Square North Shops 26900 Shawnee Mission (4) 2,693 10,772 - 630 Corinth Shops South 26910 Shawnee Mission (4) 1,043 4,172 - 125 Fairway Shops 26930 Shawnee Mission 2,533 673 2,694 - 191 Prairie Village Rest & Bank 27050 Shawnee Mission - - - 1,372 Prairie Village Shops 27060 Shawnee Mission 3,289 13,157 - 3,042 Shannon Valley Shopping Center 27120 Shawnee Mission 6,091 1,669 6,678 - 1,877 Brymar Building 27470 Shawnee Mission 329 1,317 - 23 Corinth Executive Building 27490 Shawnee Mission 514 2,054 - 675 Corinth Office Building 27510 Shawnee Mission 774 529 2,116 - 365 Fairway North 27540 Shawnee Mission 753 3,013 - 468 Fairway West 27550 Shawnee Mission 2,775 851 3,402 - 425 Land - Kansas 27630 Shawnee Mission 14,893 - - - Nichols Building 27670 Shawnee Mission 820 490 1,959 - 210 Prairie Village Office Center 27760 Shawnee Mission 749 2,997 - 364 Kansas City, MO 4900 Main 27410 Kansas City - 12,809 - 167 63rd & Brookside 27420 Kansas City 71 283 - 29 Brookside Shopping Center 26850 Kansas City 2,002 8,602 154 875 Coach House North 27230 Kansas City 1,604 9,092 (1,604) (9,092) Coach House South 27240 Kansas City 3,707 21,008 (3,707) (21,008) Coach Lamp 27250 Kansas City 870 4,929 (870) (4,929) Colonial Shops 26880 Kansas City 138 550 - 78 Corinth Gardens 27220 Kansas City 283 1,603 (283) (1,603) Corinth Paddock 27260 Kansas City 1,050 5,949 (1,050) (5,949) Corinth Place 27270 Kansas City 639 3,623 (639) (3,623) Country Club Plaza - 48th & Penn 26830 Kansas City (5) 418 3,765 - 1,866 Country Club Plaza - Balcony Office 27440 Kansas City (5) 65 585 - 211 Country Club Plaza - Balcony Retail 26840 Kansas City (5) 889 8,002 - 4,756 Country Club Plaza - Court of the Penguins 26870 Kansas City (5) 566 5,091 - 2,464 Country Club Plaza - Esplanade Office 27530 Kansas City (5) 375 3,374 - 295 Country Club Plaza - Esplanade Retail 26920 Kansas City (5) 748 6,734 - 3,587 Country Club Plaza - Halls Block 26970 Kansas City (5) 275 2,478 - 2,647 Country Club Plaza - Macy Block 26990 Kansas City (5) 504 4,536 - 1,680 Country Club Plaza - Millcreek Office 27650 Kansas City (5) 79 717 - 234 Country Club Plaza - Millcreek Retail 27000 Kansas City (5) 602 5,422 - 2,310 Country Club Plaza - Nichols Block Office 27680 Kansas City (5) 74 668 - 83 Country Club Plaza - Nichols Retail 27010 Kansas City (5) 600 5,402 - 1,809 Country Club Plaza - Plaza Central 27030 Kansas City (5) 405 3,649 - (1,774) Country Club Plaza - Seville Shops West 27100 Kansas City (5) 300 2,696 - 12,788 Country Club Plaza - Seville Square 27110 Kansas City (5) - 20,973 - 2,048 Country Club Plaza - Swanson Block 27130 Kansas City (5) 949 8,537 - 2,975 Country Club Plaza - Theatre Office 27950 Kansas City (5) 242 2,179 - 497 Country Club Plaza - Theatre Retail 27150 Kansas City (5) 1,197 10,769 - 6,136 Country Club Plaza - Time Office 27960 Kansas City (5) 199 1,792 - 676 Country Club Plaza - Time Retail 27160 Kansas City (5) 1,292 11,627 - 3,673 Country Club Plaza - Triangle Block 27170 Kansas City (5) 308 2,771 - (79) Country Club Plaza - Valencia Place Office 27970 Kansas City (5) 1,530 27,548 - 8,552 Country Club Plaza - Valencia Place Retail 27190 Kansas City (5) - 2,245 441 15,041 Ground Leases Retail KH 26950 Kansas City 677 - - - Kenilworth 27290 Kansas City 2,160 12,240 (2,160) (12,240) Land - Missouri 27660 Kansas City 3,794 190 (434) - Land Under Ground Leases Retail 26940 Kansas City 9,789 114 (8,688) (114) Gross Amount at Which Life on Carried at Close of Period Which ---------- Building & Accumulated Date of Depreciation Description Land Improvements Total(12) Depreciation Construction is Computed - -------------------------------------------- ---------- --------------- ------------ -------------- --------------- -------------- Highwoods Properties (HPI) HPI Rental Houses - 988 988 83 1960 5-40 yrs. HPI St. Charles Apartments 29 154 183 14 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. HPI JCN Land 871 - 871 - N/A N/A Highwood Services Inc. (HSI) Romac 1,256 17,950 19,206 - 2001 5-40 yrs. International Place 3 - 25,761 25,761 - 2001 5-40 yrs. Jacksonville, FL 9A Land 4,446 - 4,446 - N/A N/A Belfort Park VI - Land 594 - 594 - N/A N/A Belfort Park VII - Land 1,941 - 1,941 - N/A N/A Shawnee Mission, KS Corinth Square North Shops 2,693 11,402 14,095 1,017 1962 5-40 yrs. Corinth Shops South 1,043 4,297 5,340 384 1953 5-40 yrs. Fairway Shops 673 2,885 3,558 305 1940 5-40 yrs. Prairie Village Rest & Bank - 1,372 1,372 44 1948 5-40 yrs. Prairie Village Shops 3,289 16,199 19,488 1,474 1948 5-40 yrs. Shannon Valley Shopping Center 1,669 8,555 10,224 912 1988 5-40 yrs. Brymar Building 329 1,340 1,669 128 1968 5-40 yrs. Corinth Executive Building 514 2,729 3,243 308 1973 5-40 yrs. Corinth Office Building 529 2,481 3,010 213 1960 5-40 yrs. Fairway North 753 3,481 4,234 404 1985 5-40 yrs. Fairway West 851 3,827 4,678 443 1983 5-40 yrs. Land - Kansas 14,893 - 14,893 - N/A N/A Nichols Building 490 2,169 2,659 237 1978 5-40 yrs. Prairie Village Office Center 749 3,361 4,110 350 1960 5-40 yrs. Kansas City, MO 4900 Main - 12,976 12,976 1,199 1986 5-40 yrs. 63rd & Brookside 71 312 383 31 1919 5-40 yrs. Brookside Shopping Center 2,156 9,477 11,633 833 1919 5-40 yrs. Coach House North - - - - 1986 5-40 yrs. Coach House South - - - - 1984 5-40 yrs. Coach Lamp - - - - 1961 5-40 yrs. Colonial Shops 138 628 766 64 1907 5-40 yrs. Corinth Gardens - - - - 1961 5-40 yrs. Corinth Paddock - - - - 1973 5-40 yrs. Corinth Place - - - - 1987 5-40 yrs. Country Club Plaza - 48th & Penn 418 5,631 6,049 597 1948 5-40 yrs. Country Club Plaza - Balcony Office 65 796 861 87 1928 5-40 yrs. Country Club Plaza - Balcony Retail 889 12,758 13,647 1,081 1925 5-40 yrs. Country Club Plaza - Court of the Penguins 566 7,555 8,121 677 1945 5-40 yrs. Country Club Plaza - Esplanade Office 375 3,669 4,044 309 1945 5-40 yrs. Country Club Plaza - Esplanade Retail 748 10,321 11,069 902 1928 5-40 yrs. Country Club Plaza - Halls Block 275 5,125 5,400 280 1964 5-40 yrs. Country Club Plaza - Macy Block 504 6,216 6,720 513 1926 5-40 yrs. Country Club Plaza - Millcreek Office 79 951 1,030 97 1925 5-40 yrs. Country Club Plaza - Millcreek Retail 602 7,732 8,334 865 1920 5-40 yrs. Country Club Plaza - Nichols Block Office 74 751 825 95 1938 5-40 yrs. Country Club Plaza - Nichols Retail 600 7,211 7,811 616 1930 5-40 yrs. Country Club Plaza - Plaza Central 405 1,875 2,280 653 1958 5-40 yrs. Country Club Plaza - Seville Shops West 300 15,484 15,784 1,119 1999 5-40 yrs. Country Club Plaza - Seville Square - 23,021 23,021 1,356 1999 5-40 yrs. Country Club Plaza - Swanson Block 949 11,512 12,461 969 1967 5-40 yrs. Country Club Plaza - Theatre Office 242 2,676 2,918 255 1928 5-40 yrs. Country Club Plaza - Theatre Retail 1,197 16,905 18,102 1,572 1928 5-40 yrs. Country Club Plaza - Time Office 199 2,468 2,667 226 1945 5-40 yrs. Country Club Plaza - Time Retail 1,292 15,300 16,592 1,336 1929 5-40 yrs. Country Club Plaza - Triangle Block 308 2,692 3,000 387 1925 5-40 yrs. Country Club Plaza - Valencia Place Office 1,530 36,100 37,630 1,750 1999 5-40 yrs. Country Club Plaza - Valencia Place Retail 441 17,286 17,727 673 1999 5-40 yrs. Ground Leases Retail KH 677 - 677 - N/A N/A Kenilworth - - - - 1965 5-40 yrs. Land - Missouri 3,360 190 3,550 16 N/A 5-40 yrs. Land Under Ground Leases Retail 1,101 - 1,101 - N/A N/A
Cost Capitalized subsequent Initial Cost to Acquistion ------------------------ --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - ------------------------------------- ----------- --------- -------------- -------- -------------- --------- ---------------- Mission Valley 27310 Kansas City 576 3,266 (576) (3,266) Neptune Apartments 27320 Kansas City 4,298 1,073 6,079 - 215 One Ward Parkway 27720 Kansas City 666 2,663 - 651 Park Plaza 27740 Kansas City (5) 1,352 5,409 1,275 Parklane 27330 Kansas City 273 1,548 - 135 Parkway Building 27770 Kansas City 395 1,578 - 289 Plaza Savings South 27040 Kansas City (5) 357 3,211 - 2,690 Red Bridge Shops 27080 Kansas City 1,091 4,364 - 642 Regency House 27350 Kansas City 1,853 10,500 (1,853) (10,500) Somerset 27920 Kansas City 30 122 - - Sulgrave 27370 Kansas City 2,621 14,855 (2,621) (14,855) Two Brush Creek 27940 Kansas City 961 3,845 - 285 Wornall Road Apartments 27400 Kansas City 30 171 - 21 Memphis, TN Atrium I & II 22810 Memphis 1,530 6,121 40 512 Centrum 22820 Memphis 1,013 5,488 - 354 The Colonnade 22830 Memphis 1,300 7,994 - 1 Hickory Hill Medical Plaza 22840 Memphis 398 2,256 - 131 3400 Players Club Parkway 22850 Memphis (6) 1,005 5,515 - 10 International Place 2 22860 Memphis 4,847 27,469 - 1,301 Kirby Centre 22870 Memphis 525 2,973 (525) (2,973) 6000 Poplar Ave 28290 Memphis 2,340 11,385 - (85) 6060 Poplar Ave 28300 Memphis 1,980 8,677 - 26 Shadow Creek I 28310 Memphis 973 5,493 - 1,537 Shadow Creek II 28650 Memphis 723 6,041 11 (247) Southwind Building A 22890 Memphis 996 5,643 - 295 Southwind Building B 22900 Memphis 1,356 7,684 - 422 Southwind Building C 22920 Memphis (6) 1,070 5,924 - - Southwind Building D 22910 Memphis 744 6,232 - (36) Norfolk, VA Greenbrier Business Center 22570 Norfolk 936 5,305 - 177 Hampton Center Two 22590 Norfolk 945 6,567 (945) (6,567) Riverside II 22580 Norfolk 2 9,148 964 (9,148) Nashville, TN 3322 West End 22930 Nashville 3,021 27,266 4 507 3401 Westend 22940 Nashville 6,103 23,343 (1,147) (594) 5310 Maryland Way 22950 Nashville 1,923 7,360 (368) (1,036) Hickory Trace 22960 Nashville 1,164 4,321 - 245 SouthPointe 22970 Nashville 1,655 9,059 - (1) BNA Corporate Center 22980 Nashville 10,814 - 22,588 - (1,554) Caterpillar Financial Center 22990 Nashville 5,120 31,553 - 10,946 Century City Plaza I 23000 Nashville 903 3,612 - 642 Cool Springs Land 23010 Nashville 7,645 - - - Cool Springs I 23030 Nashville 1,983 13,854 - 1,345 Cool Springs II 23020 Nashville 2,285 15,535 - 837 Eastpark I, II, & III 23040 Nashville 3,137 11,842 (766) (475) Highwoods Plaza I 23090 Nashville 1,772 9,029 - 241 Highwoods Plaza II 23100 Nashville 1,448 6,948 - 1,590 Harpeth on the Green II 23110 Nashville 1,419 5,677 1 769 Harpeth on the Green III 23120 Nashville 1,658 6,633 2 500 Harpeth on the Green IV 23130 Nashville 1,709 6,835 5 904 Harpeth on The Green V 23140 Nashville 662 5,771 - 23 Lakeview Ridge I 23150 Nashville 2,179 7,545 (411) (1,107) Lakeview Ridge II 23160 Nashville 605 5,883 - (40) Lakeview Ridge III 23170 Nashville 1,073 9,708 - 2,099 The Ramparts at Brentwood 28320 Nashville 2,394 12,806 - (516) Seven Springs - Land I 28500 Nashville 3,115 - - - Seven Springs - Land II 28620 Nashville 1,778 - - - Sparrow Building 23190 Nashville 1,262 5,047 - 318 Winners Circle 23210 Nashville 1,495 7,072 2 645 Westwood South 23220 Nashville 2,106 10,517 - 670 Orlando, FL Sunport Center 23230 Orlando 1,505 9,777 - 107 Oakridge Office Park 23240 Orlando 4,700 18,761 - 853 Gross Amount at Which Life on Carried at Close of Period Which -------------------------- Building & Accumulated Date of Depreciation Land Improvements Total(12) Depreciation Construction is Computed -------- ---------------- ----------- -------------- -------------- ------------- Mission Valley - - - - 1964 5-40 yrs. Neptune Apartments 1,073 6,294 7,367 548 1988 5-40 yrs. One Ward Parkway 666 3,314 3,980 444 1980 5-40 yrs. Park Plaza 1,352 6,684 8,036 624 1983 5-40 yrs. Parklane 273 1,683 1,956 143 1924 5-40 yrs. Parkway Building 395 1,867 2,262 252 1906-1910 5-40 yrs. Plaza Savings South 357 5,901 6,258 492 1948 5-40 yrs. Red Bridge Shops 1,091 5,006 6,097 492 1959 5-40 yrs. Regency House - - - - 1960 5-40 yrs. Somerset 30 122 152 11 1998 5-40 yrs. Sulgrave - - - - 1967 5-40 yrs. Two Brush Creek 961 4,130 5,091 428 1983 5-40 yrs. Wornall Road Apartments 30 192 222 16 1918 5-40 yrs. Memphis, TN Atrium I & II 1,570 6,633 8,203 898 1984 5-40 yrs. Centrum 1,013 5,842 6,855 726 1979 5-40 yrs. The Colonnade 1,300 7,995 9,295 1,313 1998 5-40 yrs. Hickory Hill Medical Plaza 398 2,387 2,785 327 1988 5-40 yrs. 3400 Players Club Parkway 1,005 5,525 6,530 1,204 1997 5-40 yrs. International Place 2 4,847 28,770 33,617 4,423 1988 5-40 yrs. Kirby Centre - - - - 1984 5-40 yrs. 6000 Poplar Ave 2,340 11,300 13,640 301 1985 5-40 yrs. 6060 Poplar Ave 1,980 8,703 10,683 235 1987 5-40 yrs. Shadow Creek I 973 7,030 8,003 380 2000 5-40 yrs. Shadow Creek II 734 5,794 6,528 19 2001 5-40 yrs. Southwind Building A 996 5,938 6,934 882 1991 5-40 yrs. Southwind Building B 1,356 8,106 9,462 1,230 1990 5-40 yrs. Southwind Building C 1,070 5,924 6,994 690 1998 5-40 yrs. Southwind Building D 744 6,196 6,940 746 1999 5-40 yrs. Norfolk, VA Greenbrier Business Center 936 5,482 6,418 744 1984 5-40 yrs. Hampton Center Two - - - 1999 5-40 yrs. Riverside II 966 - 966 - 1999 5-40 yrs. Nashville, TN 3322 West End 3,025 27,773 30,798 1,546 1986 5-40 yrs. 3401 Westend 4,956 22,749 27,705 3,845 1982 5-40 yrs. 5310 Maryland Way 1,555 6,324 7,879 898 1994 5-40 yrs. Hickory Trace 1,164 4,566 5,730 41 N/A N/A SouthPointe 1,655 9,058 10,713 1,859 1998 5-40 yrs. BNA Corporate Center - 21,034 21,034 3,309 1985 5-40 yrs. Caterpillar Financial Center 5,120 42,499 47,619 2,213 1999 5-40 yrs. Century City Plaza I 903 4,254 5,157 801 1987 5-40 yrs. Cool Springs Land 7,645 - 7,645 - N/A N/A Cool Springs II 2,285 16,372 18,657 306 N/A N/A Cool Springs I 1,983 15,199 17,182 2,052 1999 5-40 yrs. Eastpark I, II, & III 2,371 11,367 13,738 1,953 1978 5-40 yrs. Highwoods Plaza I 1,772 9,270 11,042 2,199 1996 5-40 yrs. Highwoods Plaza II 1,448 8,538 9,986 2,131 1997 5-40 yrs. Harpeth on the Green II 1,420 6,446 7,866 979 1984 5-40 yrs. Harpeth on the Green III 1,660 7,133 8,793 1,054 1987 5-40 yrs. Harpeth on the Green IV 1,714 7,739 9,453 1,282 1989 5-40 yrs. Harpeth on The Green V 662 5,794 6,456 1,176 1998 5-40 yrs. Lakeview Ridge I 1,768 6,438 8,206 928 1986 5-40 yrs. Lakeview Ridge II 605 5,843 6,448 1,288 1998 5-40 yrs. Lakeview Ridge III 1,073 11,807 12,880 1,168 1999 5-40 yrs. The Ramparts at Brentwood 2,394 12,290 14,684 284 1986 5-40 yrs. Seven Springs - Land I 3,115 - 3,115 - N/A N/A Seven Springs - Land II 1,778 - 1,778 - N/A N/A Sparrow Building 1,262 5,365 6,627 710 1982 5-40 yrs. Winners Circle 1,497 7,717 9,214 848 1987 5-40 yrs. Westwood South 2,106 11,187 13,293 1,314 1999 5-40 yrs. Orlando, FL Sunport Center 1,505 9,884 11,389 1,050 1990 5-40 yrs. Oakridge Office Park 4,700 19,614 24,314 2,201 1966-1992 5-40 yrs.
F-36
Cost Capitalized subsequent Initial Cost to Acquistion ---------------------- -------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - --------------------------------------- ------- -------------- -------------- ------- -------------- --------- --------------- Lake Mary Land 23340 Orlando 9,156 - 5 In Charge Institute 23380 Orlando 501 2,085 - 708 MetroWest Center Land 23390 Orlando 1,344 7,618 - 441 Hard Rock Cafe 23460 Orlando 1,305 3,570 (1,305) (2,409) MetroWest Land 23470 Orlando 3,044 - - - Capital Plaza Land 23520 Orlando 3,075 - - - Interlachen Village 23560 Orlando 1,995 1,100 2,689 - 143 Research Triangle, NC Corporate Property 11000 Research Triangle 21,769 31,738 Blue Ridge I 23610 Research Triangle 722 4,538 - 1,096 Blue Ridge II 23600 Research Triangle 463 1,485 - (6) 3600 Glenwood Avenue 23640 Research Triangle - 10,994 - - 3645 Trust Drive - One North Commerce Center 23650 Research Triangle 520 2,949 268 460 3737 Glenwood Avenue 23660 Research Triangle - 15,889 - 2,438 4401 Research Commons 23720 Research Triangle 1,249 8,929 - 6,265 4800 North Park 23740 Research Triangle 2,678 17,673 - 1,454 4900 North Park 23750 Research Triangle 1,274 770 1,989 - 301 5000 North Park 23760 Research Triangle (6) 1,010 4,697 - 1,752 5200 Greens Dairy-One North Commerce Center 23770 Research Triangle 169 959 - 168 5220 Greens Dairy-One North Commerce Center 23780 Research Triangle 382 2,165 - 292 Amica 23810 Research Triangle 289 1,517 - 91 Arcadis 28580 Research Triangle 828 - - - Arrowwood 23820 Research Triangle 955 3,406 - 665 Aspen Building 23830 Research Triangle 560 2,088 - 556 4300 Six Forks Road 23850 Research Triangle - 15,504 - 4,263 Capital Center Land 23870 Research Triangle 851 - Cedar East 23880 Research Triangle 563 2,491 - 501 Cedar West 23890 Research Triangle 563 2,475 - 784 CentreGreen One - Weston 28200 Research Triangle 1,677 7,133 70 1,632 CentreGreen Two - Weston 28440 Research Triangle 1,763 7,478 42 467 CentreGreen Three Land - Weston 28690 Research Triangle 2,226 - - - CentreGreen Five Land - Weston 28680 Research Triangle 3,402 - - - Inveresk Land Parcel 2 23900 Research Triangle 657 - - - Inveresk Land Parcel 3 23910 Research Triangle 548 - - - Cape Fear 23950 Research Triangle 131 - - 2,715 Creekstone Crossings 23960 Research Triangle 728 3,841 - 274 Catawba 23980 Research Triangle 125 1,635 - 355 Cottonwood 23990 Research Triangle 609 3,253 - 33 Cypress 24000 Research Triangle 567 1,729 - 441 GlenLake Land 28120 Research Triangle 3,860 - - - Dogwood 24010 Research Triangle 766 2,777 - 23 EPA Annex 24020 Research Triangle 2,601 10,920 - 183 Global Software 24040 Research Triangle (6) 465 7,471 - 93 Hawthorn 24050 Research Triangle 904 3,782 - 274 Pulse Athletic Club at Highwoods 24060 Research Triangle 142 524 - 2,516 Holiday Inn Reservations Center 24070 Research Triangle 867 2,735 - 135 Healthsource 24090 Research Triangle 1,294 10,593 10 1,696 Highwoods Tower One 24100 Research Triangle (6) 203 16,914 - 890 Highwoods Tower Two 24110 Research Triangle 365 20,164 - 1,651 Highwoods Centre-Weston 24120 Research Triangle 532 7,902 - (128) Ironwood 24130 Research Triangle 319 1,276 - 451 Kaiser 24140 Research Triangle 133 3,625 - 873 Laurel 24150 Research Triangle 884 2,524 - 689 Highwoods Office Center North Land 24170 Research Triangle 1,458 49 - Highwoods Office Center South Land 24180 Research Triangle 4,917 - - Leatherwood 24190 Research Triangle 213 851 - 509 Maplewood 24210 Research Triangle 149 2,928 - 662 Creekstone Park 24230 Research Triangle 796 - (647) - Northpark - Wake Forest 24240 Research Triangle 405 - 93 3,982 Northpark Land - Wake Forest 24250 Research Triangle 1,586 - - ParkWest One - Weston 28450 Research Triangle 374 2,938 4 314 ParkWest Two - Weston 28460 Research Triangle 488 2,642 4 490 ParkWest Three - Land - Weston 28470 Research Triangle 465 - - - Phase I - One North Commerce Center 24260 Research Triangle 768 4,353 - 482 W Building - One North Commerce Center 24270 Research Triangle 1,163 6,592 - 1,795 Overlook 24280 Research Triangle 398 10,401 - 668 Pamlico 24290 Research Triangle 269 - 20 11,087 Raleigh Corp Center Lot D 24320 Research Triangle 1,211 - - Red Oak 24330 Research Triangle 389 6,086 - 436 Gross Amount at Which Life on Carried at Close of Period Which ---------- Building & Accumulated Date of Depreciation Description Land Improvements Total(12) Depreciation Construction is Computed - ---------------------------------------------- ---------- --------------- ------------ -------------- --------------- -------------- Lake Mary Land 9,156 5 9,161 1 N/A N/A In Charge Institute 501 2,793 3,294 164 2000 5-40 yrs. MetroWest Center Land 1,344 8,059 9,403 1,147 1988 5-40 yrs. Hard Rock Cafe - 1,161 1,161 - 1998 5-40 yrs. MetroWest Land 3,044 - 3,044 - N/A N/A Capital Plaza Land 3,075 - 3,075 - N/A N/A Interlachen Village 1,100 2,832 3,932 327 1987 5-40 yrs. Research Triangle, NC Corporate Property 21,769 31,738 53,507 6,238 - 5-40 yrs. Blue Ridge II 463 1,479 1,942 570 1988 5-40 yrs. Blue Ridge I 722 5,634 6,356 1,398 1982 5-40 yrs. 3600 Glenwood Avenue - 10,994 10,994 1,317 1986 5-40 yrs. 3645 Trust Drive - One North Commerce Center 788 3,409 4,197 461 1984 5-40 yrs. 3737 Glenwood Avenue - 18,327 18,327 1,344 1999 5-40 yrs. 4401 Research Commons 1,249 15,194 16,443 5,616 1987 5-40 yrs. 4800 North Park 2,678 19,127 21,805 3,699 1985 5-40 yrs. 4900 North Park 770 2,290 3,060 566 1984 5-40 yrs. 5000 North Park 1,010 6,449 7,459 1,700 1980 5-40 yrs. 5200 Greens Dairy-One North Commerce Center 169 1,127 1,296 172 1984 5-40 yrs. 5220 Greens Dairy-One North Commerce Center 382 2,457 2,839 409 1984 5-40 yrs. Amica 289 1,608 1,897 369 1983 5-40 yrs. Arcadis 828 - 828 - N/A N/A Arrowwood 955 4,071 5,026 1,048 1979 5-40 yrs. Aspen Building 560 2,644 3,204 679 1980 5-40 yrs. 4300 Six Forks Road - 19,767 19,767 1,859 1995 5-40 yrs. Capital Center Land 851 - 851 - N/A N/A Cedar East 563 2,992 3,555 710 1981 5-40 yrs. Cedar West 563 3,259 3,822 929 1981 5-40 yrs. CentreGreen One - Weston 1,747 8,765 10,512 545 2000 5-40 yrs. CentreGreen Two - Weston 1,805 7,945 9,750 180 2001 5-40 yrs. CentreGreen Three Land - Weston 2,226 - 2,226 - N/A N/A CentreGreen Five Land - Weston 3,402 - 3,402 - N/A N/A Inveresk Land Parcel 2 657 - 657 - N/A N/A Inveresk Land Parcel 3 548 - 548 - N/A N/A Cape Fear 131 2,715 2,846 1,888 1979 5-40 yrs. Creekstone Crossings 728 4,115 4,843 703 1990 5-40 yrs. Catawba 125 1,990 2,115 1,295 1980 5-40 yrs. Cottonwood 609 3,286 3,895 631 1983 5-40 yrs. Cypress 567 2,170 2,737 539 1980 5-40 yrs. GlenLake Land 3,860 - 3,860 - N/A N/A Dogwood 766 2,800 3,566 532 1983 5-40 yrs. EPA Annex 2,601 11,103 13,704 1,917 1966 5-40 yrs. Global Software 465 7,564 8,029 2,073 1996 5-40 yrs. Hawthorn 904 4,056 4,960 2,186 1987 5-40 yrs. Pulse Athletic Club at Highwoods 142 3,040 3,182 521 1998 5-40 yrs. Holiday Inn Reservations Center 867 2,870 3,737 570 1984 5-40 yrs. Healthsource 1,304 12,289 13,593 2,075 1996 5-40 yrs. Highwoods Tower One 203 17,804 18,007 4,989 1991 5-40 yrs. Highwoods Tower Two 365 21,815 22,180 516 2001 5-40 yrs. Highwoods Centre-Weston 532 7,774 8,306 1,161 1998 5-40 yrs. Ironwood 319 1,727 2,046 496 1978 5-40 yrs. Kaiser 133 4,498 4,631 1,944 1988 5-40 yrs. Laurel 884 3,213 4,097 690 1982 5-40 yrs. Highwoods Office Center North Land 1,458 49 1,507 17 N/A N/A Highwoods Office Center South Land 4,917 - 4,917 - N/A N/A Leatherwood 213 1,360 1,573 459 1979 5-40 yrs. Maplewood 149 3,590 3,739 122 N/A 5-40 yrs. Creekstone Park 149 - 149 - N/A N/A Northpark - Wake Forest 498 3,982 4,480 734 1997 5-40 yrs. Northpark Land - Wake Forest 1,586 - 1,586 - N/A N/A ParkWest One - Weston 378 3,252 3,630 51 2001 5-40 yrs. ParkWest Two - Weston 492 3,132 3,624 99 2001 5-40 yrs. ParkWest Three - Land - Weston 465 - 465 - N/A N/A Phase I - One North Commerce Center 768 4,835 5,603 761 1981 5-40 yrs. W Building - One North Commerce Center 1,163 8,387 9,550 1,543 1983 5-40 yrs. Overlook 398 11,069 11,467 1,371 1999 5-40 yrs. Pamlico 289 11,087 11,376 3,890 1980 5-40 yrs. Raleigh Corp Center Lot D 1,211 - 1,211 - N/A N/A Red Oak 389 6,522 6,911 825 1999 5-40 yrs.
F-37
Cost Capitalized subsequent Initial Cost to Acquistion ------------ --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - -------------------------------- ----------- ----------------- -------------- -------- -------------- --------- ---------------- Rexwoods Center I 24350 Research Triangle (3) 775 - 103 3,917 Rexwoods Center II 24360 Research Triangle 355 - 7 1,905 Rexwoods Center III 24370 Research Triangle 886 - 34 2,923 Rexwoods Center IV 24380 Research Triangle (3) 586 - - 3,676 Rexwoods Center V 24390 Research Triangle (6) 1,301 5,979 - 93 Riverbirch 24400 Research Triangle (6) 448 - 21 4,565 Six Forks Center I 24430 Research Triangle 666 2,663 - 600 Six Forks Center II 24440 Research Triangle 1,086 4,345 - 929 Six Forks Center III 24450 Research Triangle (6) 862 4,411 - 587 Smoketree Tower 24460 Research Triangle 2,353 11,802 - 2,275 South Square I 24470 Research Triangle 606 3,785 - 1,063 South Square II 24480 Research Triangle 525 4,710 - 427 Sycamore 24490 Research Triangle (6) 255 5,830 - 73 Weston - Land 24540 Research Triangle 6,337 - - - Willow Oak 24550 Research Triangle (6) 458 4,685 - 1,875 Richmond, VA Airport Center I 24570 Richmond 708 4,374 - 1,016 Airport Center II 24580 Richmond 362 2,896 - 310 Capital One Building I 24590 Richmond 1,278 10,690 - 314 Capital One Building II 24600 Richmond 477 3,946 - 243 Capital One Building III 24610 Richmond 1,278 11,515 - (171) Capital One Parking Deck 24620 Richmond - 2,288 - 141 1309 E. Cary Street 24630 Richmond 171 685 - 100 4900 Cox Road 24640 Richmond 1,324 5,305 - 675 Technology Park 1 24650 Richmond 541 2,166 - 391 Development Opportunity Strip 28340 Richmond 45 - - - East Shore I 24660 Richmond - 1,254 953 5,301 East Shore II 24670 Richmond 907 6,662 - 114 East Shore III 24680 Richmond - 2,220 1,319 4,520 East Shore IV 28390 Richmond 2,345 - 261 - Grove Park I 24690 Richmond 349 2,685 364 3,159 Grove Park II 24700 Richmond 983 - - Highwoods Distribution Center 24710 Richmond 517 5,714 - 545 Highwoods One 24720 Richmond (6) 1,846 8,613 - 2,008 Highwoods Two 24730 Richmond 785 5,170 - 1,375 Highwoods Five 24760 Richmond 806 4,948 - 947 Sadler & Cox Land 24770 Richmond 1,745 - - Highwoods Plaza 24790 Richmond 907 4,937 - 1,025 Highwoods Commons 24800 Richmond 547 4,342 (26) (42) Innsbrook Centre 24810 Richmond 914 6,768 - 216 Innslake Center 28560 Richmond 791 4,730 - 587 Liberty Mutual 24820 Richmond 3,067 1,205 4,819 - 680 Mercer Plaza 24830 Richmond 1,556 12,350 - 1 Markel American 24840 Richmond 1,372 8,667 - 949 North Park 24850 Richmond 2,163 8,659 - 655 North Shore Commons A 24860 Richmond 1,344 10,447 - 1,085 North Shore Commons B - Land 24870 Richmond 1,810 - - - North Shore Commons C - Land 24880 Richmond 1,667 - - - Hamilton Beach 24890 Richmond 1,086 4,344 - 475 Pavillion - Richmond 24900 Richmond 401 - (401) - One Shockoe Plaza 24910 Richmond - 19,324 - (3,954) Pickles Land 28240 Richmond 1,276 - - - Stony Point I 24930 Richmond 1,384 11,445 - 1,251 Stony Point II 24940 Richmond 1,561 10,949 - 1,773 Stony Point III 28430 Richmond 1,181 8,131 - 1,059 Stony Point F Land 24950 Richmond 2,589 - - - Technology Park 2 24960 Richmond 264 1,058 - 99 Vantage Place A 24980 Richmond 203 811 - 178 Vantage Place B 24990 Richmond 233 931 - 152 Vantage Place C 25000 Richmond 235 940 - 186 Vantage Place D 25010 Richmond 218 873 - 211 Vantage Pointe 25020 Richmond 1,089 4,354 - 599 Waterfront Plaza 25030 Richmond 585 2,347 - 750 West Shore I 25040 Richmond 358 1,431 - 69 West Shore II 25050 Richmond 545 2,181 - 57 West Shore III 25060 Richmond 961 3,601 - 1,370 Virginia Mutual 28250 Richmond 1,301 6,034 - (219) South Florida Gross Amount at Which Life on Carried at Close of Period Which -------------------------- Building & Accumulated Date of Depreciation Land Improvements Total(12) Depreciation Construction is Computed -------- ---------------- ----------- -------------- -------------- ------------- Rexwoods Center I 878 3,917 4,795 1,257 1990 5-40 yrs. Rexwoods Center II 362 1,905 2,267 418 1993 5-40 yrs. Rexwoods Center III 920 2,923 3,843 794 1992 5-40 yrs. Rexwoods Center IV 586 3,676 4,262 1,111 1995 5-40 yrs. Rexwoods Center V 1,301 6,072 7,373 1,110 1998 5-40 yrs. Riverbirch 469 4,565 5,034 1,678 1987 5-40 yrs. Six Forks Center I 666 3,263 3,929 623 1982 5-40 yrs. Six Forks Center II 1,086 5,274 6,360 923 1983 5-40 yrs. Six Forks Center III 862 4,998 5,860 1,065 1987 5-40 yrs. Smoketree Tower 2,353 14,077 16,430 3,351 1984 5-40 yrs. South Square I 606 4,848 5,454 1,030 1988 5-40 yrs. South Square II 525 5,137 5,662 1,069 1989 5-40 yrs. Sycamore 255 5,903 6,158 1,333 1997 5-40 yrs. Weston - Land 6,337 - 6,337 - N/A N/A Willow Oak 458 6,560 7,018 2,161 1995 5-40 yrs. Richmond, VA Airport Center I 708 5,390 6,098 949 1997 5-40 yrs. Airport Center II 362 3,206 3,568 371 1998 5-40 yrs. Capital One Building I 1,278 11,004 12,282 984 1999 5-40 yrs. Capital One Building II 477 4,189 4,666 349 1999 5-40 yrs. Capital One Building III 1,278 11,344 12,622 913 1999 5-40 yrs. Capital One Parking Deck - 2,429 2,429 139 1999 5-40 yrs. 1309 E. Cary Street 171 785 956 139 1987 5-40 yrs. 4900 Cox Road 1,324 5,980 7,304 867 1991 5-40 yrs. Technology Park 1 541 2,557 3,098 476 1991 5-40 yrs. Development Opportunity Strip 45 - 45 - N/A N/A East Shore I 953 6,555 7,508 327 N/A N/A East Shore II 907 6,776 7,683 902 1999 5-40 yrs. East Shore III 1,319 6,740 8,059 380 1999 5-40 yrs. East Shore IV 2,606 - 2,606 - N/A N/A Grove Park I 713 5,844 6,557 1,104 1997 5-40 yrs. Grove Park II 983 - 983 - N/A N/A Highwoods Distribution Center 517 6,259 6,776 563 1999 5-40 yrs. Highwoods One 1,846 10,621 12,467 2,499 1996 5-40 yrs. Highwoods Two 785 6,545 7,330 1,204 1997 5-40 yrs. Highwoods Five 806 5,895 6,701 888 1998 5-40 yrs. Sadler & Cox Land 1,745 - 1,745 - N/A N/A Highwoods Plaza 907 5,962 6,869 264 2000 5-40 yrs. Highwoods Commons 521 4,300 4,821 435 1999 5-40 yrs. Innsbrook Centre 914 6,984 7,898 353 1989 5-40 yrs. Innslake Center 791 5,317 6,108 15 2001 5-40 yrs. Liberty Mutual 1,205 5,499 6,704 966 1990 5-40 yrs. Mercer Plaza 1,556 12,351 13,907 637 1984 5-40 yrs. Markel American 1,372 9,616 10,988 1,120 1998 5-40 yrs. North Park 2,163 9,314 11,477 1,437 1989 5-40 yrs. North Shore Commons A 1,344 11,532 12,876 218 5-40 yrs. North Shore Commons B - Land 1,810 - 1,810 - N/A N/A North Shore Commons C - Land 1,667 - 1,667 - N/A N/A Hamilton Beach 1,086 4,819 5,905 784 1986 5-40 yrs. Pavillion - Richmond - - - - N/A N/A One Shockoe Plaza - 15,370 15,370 2,310 1996 5-40 yrs. Pickles Land 1,276 - 1,276 - N/A N/A Stony Point I 1,384 12,696 14,080 1,640 1990 5-40 yrs. Stony Point II 1,561 12,722 14,283 1,306 1999 5-40 yrs. Stony Point III 1,181 9,190 10,371 193 5-40 yrs. Stony Point F Land 2,589 - 2,589 - N/A N/A Technology Park 2 264 1,157 1,421 205 1991 5-40 yrs. Vantage Place A 203 989 1,192 236 1987 5-40 yrs. Vantage Place B 233 1,083 1,316 246 1988 5-40 yrs. Vantage Place C 235 1,126 1,361 245 1987 5-40 yrs. Vantage Place D 218 1,084 1,302 269 1988 5-40 yrs. Vantage Pointe 1,089 4,953 6,042 904 1990 5-40 yrs. Waterfront Plaza 585 3,097 3,682 706 1988 5-40 yrs. West Shore I 358 1,500 1,858 234 1995 5-40 yrs. West Shore II 545 2,238 2,783 328 1995 5-40 yrs. West Shore III 961 4,971 5,932 1,039 1997 5-40 yrs. Virginia Mutual 1,301 5,815 7,116 196 1996 5-40 yrs. South Florida
F-38
Cost Capitalized subsequent Initial Cost to Acquistion ------------ --------------------------- 2001 Building & Building & Description JDE City Encumberance Land Improvements Land Improvements - ------------------------------------- ----------- ------------- -------------- -------- -------------- --------- ---------------- The 1800 Eller Drive Building 25080 South Florida - 9,724 - 491 Tampa, FL 5400 Gray Street 25100 Tampa 350 295 5 Atrium 25120 Tampa 1,639 9,286 (287) 2,230 Bay View Commons Land 25200 Tampa 200 - - - Bay View Office Centre 25210 Tampa 1,304 5,964 - 396 Bay Vista Gardens 25220 Tampa 447 4,777 - 26 Bay Vista Gardens II 25230 Tampa 1,328 6,981 134 396 Bay Vista Office Building 25250 Tampa 935 4,480 - 516 Bay Vista Retail 25260 Tampa 283 1,135 - 116 Countryside Place 25270 Tampa 843 3,731 - 146 Clearwater Point 25280 Tampa 317 1,531 (317) (1,531) Cypress Center Land 25320 Tampa 1,456 - - - Cypress Commons 25330 Tampa 1,211 11,488 - 120 Cypress Center I 25340 Tampa 3,171 12,635 - 13 Cypress Center III 25350 Tampa 1,190 7,690 - 18 Cypress West 25360 Tampa 2,020 615 4,988 - 775 Brookwood Day Care Center 25370 Tampa 61 347 - 28 Expo Building 25380 Tampa 171 969 (171) (969) Feathersound Corporate Center II 25400 Tampa 2,191 800 7,282 - 550 Firemans Fund Building 25410 Tampa 500 4,107 - 103 Fireman's Fund Land 25420 Tampa 1,002 - - Federated Land 25450 Tampa 6,028 - (6,028) - Horizon 25460 Tampa (1) - 6,114 - 554 Highwoods Preserve I 25470 Tampa - 2,268 1,618 23,368 Highwoods Preserve II 25480 Tampa 42 274 1,517 Highwoods Preserve III 25490 Tampa - 1,524 1,488 21,140 Highwoods Preserve IV 25500 Tampa 1,639 16,355 - 8,576 Highwoods Preserve V 25510 Tampa 1,440 21,189 - (68) Highwoods Plaza 25530 Tampa 545 4,650 - 1,462 Highwoods Preserve Land 25540 Tampa 5,403 - - Romac 28140 Tampa - - - - LakePointe I 25640 Tampa (1) 2,000 20,376 - 6,324 LakePointe II 25660 Tampa (1) 2,100 31,390 - 552 Lakeside 25650 Tampa (1) - 7,272 - 123 Northside Square Office 25720 Tampa 601 3,601 - 220 Northside Square Office/Retail 25730 Tampa 800 2,808 - 86 One Harbour Place 28180 Tampa (3) 2,015 25,252 - 531 Parkside 25740 Tampa (1) - 9,193 - 373 Pavilion 25750 Tampa (1) - 16,022 - 516 Pavilion Parking Garage 25760 Tampa - 5,618 - - 380 Park Place 25770 Tampa 1,508 6,782 - 722 REO Building 25790 Tampa 795 4,484 - 292 Registry I 25800 Tampa 744 4,216 - 648 Registry II 25810 Tampa 908 5,147 - 532 Registry Square 25820 Tampa 344 1,951 - 167 Sabal Business Center I 25840 Tampa 375 2,127 - 234 Sabal Business Center II 25850 Tampa 342 1,935 - 142 Sabal Business Center III 25860 Tampa 290 1,642 - 49 Sabal Business Center IV 25870 Tampa 819 4,638 - 222 Sabal Business Center V 25880 Tampa 1,026 5,813 - 242 Sabal Business Center VI 25890 Tampa 1,609 9,116 - 101 Sabal Business Center VII 25900 Tampa 1,519 8,605 - 81 Sabal Lake Building 25910 Tampa 572 3,241 - 152 Sabal Industrial Park Land 25920 Tampa 488 - - Sabal Park Plaza 25930 Tampa 611 3,460 - 416 Sabal Tech Center 25940 Tampa 548 3,107 - 97 Summit Office Building 25950 Tampa 579 2,749 - 13 Spectrum 25960 Tampa (1) 1,450 14,173 - 298 Sabal Pavilion I 25970 Tampa 660 8,633 304 2,686 Sabal Pavilion II 25980 Tampa 533 - - USF&G 26130 Tampa 1,366 7,742 - 1,391 Westshore Square 26140 Tampa 2,721 1,130 5,155 - 224 653,279 2,674,368 (6,978) 300,851 ======================================================= Gross Amount at Which Life on Carried at Close of Period Which -------------------------- Building & Accumulated Date of Depreciation Land Improvements Total(12) Depreciation Construction is Computed -------- ---------------- ----------- -------------- -------------- ------------- The 1800 Eller Drive Building - 10,215 10,215 573 1983 5-40 yrs. Tampa, FL 5400 Gray Street 350 300 650 32 1973 5-40 yrs. Atrium 1,352 11,516 12,868 1,463 1989 5-40 yrs. Bay View Commons Land 200 - 200 - N/A N/A Bay View Office Centre 1,304 6,360 7,664 660 1982 5-40 yrs. Bay Vista Gardens 447 4,803 5,250 471 1982 5-40 yrs. Bay Vista Gardens II 1,462 7,377 8,839 960 1997 5-40 yrs. Bay Vista Office Building 935 4,996 5,931 648 1982 5-40 yrs. Bay Vista Retail 283 1,251 1,534 140 1987 5-40 yrs. Countryside Place 843 3,877 4,720 449 1988 5-40 yrs. Clearwater Point - - - - 1981 5-40 yrs. Cypress Center Land 1,456 - 1,456 - N/A N/A Cypress Commons 1,211 11,608 12,819 1,912 1985 5-40 yrs. Cypress Center I 3,171 12,648 15,819 2,411 1982 5-40 yrs. Cypress Center III 1,190 7,708 8,898 533 1983 5-40 yrs. Cypress West 615 5,763 6,378 708 1985 5-40 yrs. Brookwood Day Care Center 61 375 436 53 1986 5-40 yrs. Expo Building - - - - 1981 5-40 yrs. Feathersound Corporate Center II 800 7,832 8,632 1,018 1986 5-40 yrs. Firemans Fund Building 500 4,210 4,710 478 1982 5-40 yrs. Fireman's Fund Land 1,002 - 1,002 - N/A N/A Federated Land - - - - N/A Horizon - 6,668 6,668 708 1980 5-40 yrs. Highwoods Preserve I 1,618 25,636 27,254 1,439 1999 5-40 yrs. Highwoods Preserve II 42 1,791 1,833 153 2001 5-40 yrs. Highwoods Preserve III 1,488 22,664 24,152 1,027 1999 5-40 yrs. Highwoods Preserve IV 1,639 24,931 26,570 764 1999 5-40 yrs. Highwoods Preserve V 1,440 21,121 22,561 270 2001 5-40 yrs. Highwoods Plaza 545 6,112 6,657 226 1999 5-40 yrs. Highwoods Preserve Land 5,403 - 5,403 - N/A N/A Romac - - - - N/A N/A LakePointe I 2,000 26,700 28,700 1,728 1999 5-40 yrs. Lakeside - 7,395 7,395 776 1978 5-40 yrs. LakePointe II 2,100 31,942 34,042 3,431 1986 5-40 yrs. Northside Square Office 601 3,821 4,422 439 1986 5-40 yrs. Northside Square Office/Retail 800 2,894 3,694 317 1986 5-40 yrs. One Harbour Place 2,015 25,783 27,798 977 1985 5-40 yrs. Parkside - 9,566 9,566 1,007 1979 5-40 yrs. Pavilion - 16,538 16,538 1,742 1982 5-40 yrs. Pavilion Parking Garage - 5,618 5,618 308 1999 5-40 yrs. 380 Park Place 1,508 7,504 9,012 152 N/A N/A REO Building 795 4,776 5,571 529 1983 5-40 yrs. Registry I 744 4,864 5,608 718 1985 5-40 yrs. Registry II 908 5,679 6,587 852 1987 5-40 yrs. Registry Square 344 2,118 2,462 293 1988 5-40 yrs. Sabal Business Center I 375 2,361 2,736 355 1982 5-40 yrs. Sabal Business Center II 342 2,077 2,419 349 1984 5-40 yrs. Sabal Business Center III 290 1,691 1,981 236 1984 5-40 yrs. Sabal Business Center IV 819 4,860 5,679 655 1984 5-40 yrs. Sabal Business Center V 1,026 6,055 7,081 826 1988 5-40 yrs. Sabal Business Center VI 1,609 9,217 10,826 1,227 1988 5-40 yrs. Sabal Business Center VII 1,519 8,686 10,205 1,153 1990 5-40 yrs. Sabal Lake Building 572 3,393 3,965 529 1986 5-40 yrs. Sabal Industrial Park Land 488 - 488 - N/A N/A Sabal Park Plaza 611 3,876 4,487 768 1987 5-40 yrs. Sabal Tech Center 548 3,204 3,752 425 1989 5-40 yrs. Summit Office Building 579 2,762 3,341 269 1988 5-40 yrs. Spectrum 1,450 14,471 15,921 1,625 1984 5-40 yrs. Sabal Pavilion I 964 11,319 12,283 921 1998 5-40 yrs. Sabal Pavilion II 533 - 533 - N/A N/a USF&G 1,366 9,133 10,499 1,802 1988 5-40 yrs. Westshore Square 1,130 5,379 6,509 535 1976 5-40 yrs. 646,301 2,975,219 3,621,520 377,201 =========================================================
F-39
Initial Cost ------------------------ 2001 Building & Description JDE City Encumberance Land Improvements - ------------------------------------- ----------- --------- -------------- -------- -------------- (1) These assets are pledged as collateral for a $69,868,000 first mortgage loan. (2) These assets are pledged as collateral for an $44,479,000 first mortgage loan. (3) These assets are pledged as collateral for a $28,693,000 first mortgage loan. (4) These assets are pledged as collateral for a $7,504,000 first mortgage loan. (5) These assets are pledged as collateral for a $134,966,000 first mortgage loan. (6) These assets are pledged as collateral for a $182,939,000 first mortgage loan. Cost Capitalized subsequent Gross Amount at Which Life on to Acquistion Carried at Close of Period Which - --------------------------- -------------------------- Building & Building & Accumulated Date of Depreciation Land Improvements Land Improvements Total(12) Depreciation Construction is Computed - --------- ---------------- -------- --------------- ----------- -------------- -------------- -------------
F-40 HIGHWOODS PROPERTIES INC. NOTE TO SCHEDULE III (In Thousands) As of December 31, 2001, 2000, and 1999 A summary of activity for Real estate and accumulated depreciation is as follows
December 31, ------------------------------------------ 2001 2000 1999 ---------- ---------- ---------- Real Estate: Balance at beginning of year .................................................. 3,443,117 3,768,234 4,025,472 Additions Acquisitions, Development and Improvments .................................. 336,678 403,012 507,475 Cost of real estate sold ................................................... (158,275) (728,129) (764,713) ---------- ---------- ---------- Balance at close of year (a) .................................................. 3,621,520 3,443,117 3,768,234 ========== ========== ========== Accumulated Depreciaition Balance at beginning of year .................................................. 280,772 237,979 167,989 Depreciation expense ....................................................... 104,789 103,435 99,386 Real estate sold ........................................................... (8,360) (60,642) (29,396) ---------- ---------- ---------- Balance at close of year (b) .................................................. 377,201 280,772 237,979 ========== ========== ==========
- -------------------------------------------------------------------------------- (a) Reconciliation of total cost to balance sheet caption at December 31, 2001, 2000, and 1999 (in Thousands)
2001 2000 1999 ---------- ---------- ---------- Total per schedule III ........................................................... 3,621,520 3,443,117 3,768,234 Constuction in progress exclusive of land included in schedule III .............................................. 108,118 87,622 186,925 Furniture, fixtures and equipment ................................................ 19,398 11,433 7,917 Property held for sale ........................................................... (83,325) (133,303) (51,603) ---------- ---------- ---------- Total real estate assets at cost ................................................. 3,665,711 3,408,869 3,911,473 ========== ========== ==========
- -------------------------------------------------------------------------------- (b) Reconciliation of total Accumulated Depreciation to balance sheet caption at December 31, 2001, 2000, and 1999 (in Thousands)
2001 2000 1999 ---------- ---------- ---------- Total per Schedule III ........................................................... 377,201 280,772 237,979 Accumulated Depreciation - furniture, fixtures and equipment...................... 9,649 5,317 2,799 Property held for sale ........................................................... (1,294) (5,479) (2,643) ---------- ---------- ---------- Total accumulated depreciation ................................................... 385,556 280,610 238,135 ========== ========== ==========
F-41 EX-23 3 dex23.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 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, 2002 with respect to the consolidated financial statement and schedule of Highwoods Properties, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001. /s/ ERNST & YOUNG LLP Raleigh, North Carolina March 21, 2002 -----END PRIVACY-ENHANCED MESSAGE-----