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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, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ______________ to _______________
Commission file number 000-21731
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
North Carolina 56-1869557
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- -------------------------------------------------------------------------------
6 3/4% Notes due December 1, 2003................. New York Stock Exchange
7% Notes due December 1, 2006..................... 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 value of the Common Units held by nonaffiliates of the
registrant (based on the closing price on the New York Stock Exchange of a share
of Common Stock of Highwoods Properties, Inc., the general partner of the
registrant) on December 31, 2002 was $120,873,342.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Securities Exchange Act). Yes ___ No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Highwoods Properties, Inc. in connection
with its Annual Meeting of Shareholders to be held May 19, 2003, are
incorporated by reference in Part III, Items 10, 11 and 13 of this Form 10-K.
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HIGHWOODS REALTY LIMITED PARTNERSHIP
TABLE OF CONTENTS
ITEM NO. PAGE NO.
- -------- --------
PART I
1. Business............................................................. 3
2. Properties........................................................... 7
3. Legal Proceedings.................................................... 15
4. Submission of Matters to a Vote of Security Holders.................. 15
X. Executive Officers of the Registrant................................. 16
PART II
5. Market for Registrant's Equity and Related Security Holder Matters... 17
6. Selected Financial Data.............................................. 18
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 19
7A. Quantitative and Qualitative Disclosures About Market Risk........... 38
8. Financial Statements and Supplementary Data.......................... 38
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 38
PART III
10. Directors and Executive Officers of the Registrant................... 39
11. Executive Compensation............................................... 39
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters..................................... 39
13. Certain Relationships and Related Transactions....................... 39
14. Controls and Procedures.............................................. 39
PART IV
15. Exhibits, Financial Statement Schedule and Reports on Form 8-K....... 41
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 Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed equity REIT that began operations through a
predecessor in 1978. 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, 2002, we:
. owned 493 in-service office, industrial and retail properties,
encompassing approximately 37.1 million rentable square feet and 213
apartment units;
. owned an interest (50.0% or less) in 77 in-service office and
industrial properties, encompassing approximately 7.5 million
rentable square feet and 418 apartment units;
. owned 1,308 acres of undeveloped land suitable for future
development; and
. were developing an additional five properties, which will encompass
approximately 616,000 rentable square feet (including one property
encompassing 285,000 rentable square feet that we are developing
with a 50.0% joint venture partner).
The following summarizes our capital recycling program during the past
three years ended December 31, 2002:
2002 2001 2000
------- ------- -------
OFFICE, INDUSTRIAL AND RETAIL PROPERTIES
(rentable square feet in thousands)
Dispositions ................................................ (2,270) (268) (4,743)
Contributions to Joint Ventures ............................. -- (118) (2,199)
Developments Placed In-Service............................... 2,214 1,351 3,480
Redevelopment................................................ (52) -- --
Acquisitions................................................. -- 72 669
------- ------- -------
NET CHANGE........................................................ (108) 1,037 (2,793)
======= ======= =======
APARTMENT PROPERTIES
(in units)
Dispositions................................................. -- (1,672) --
======= ======= =======
In addition to the above capital recycling activity, the Company
repurchased $4.8 million, $148.8 million and $101.8 million of Common Stock and
Common Units during 2002, 2001 and 2000, respectively, and $18.5 million of
Preferred Stock during 2001. This represents aggregate purchases of $273.9
million of Common Stock, Common Units and Preferred Stock since January 1, 2000.
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, 2002, the Company owned
88.4% 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 of
Common Stock.
3
The Company was incorporated in Maryland in 1994. The Operating Partnership
was formed in North Carolina in 1994. Our executive offices are located at 3100
Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and our telephone
number is (919) 872-4924. We maintain offices in each of our primary markets.
OPERATING STRATEGY
Geographic Diversification. Since the Company's initial public offering in
1994, we have significantly reduced our dependence on any particular market. We
initially owned only a limited number of office properties in North Carolina,
most of which were in the Research Triangle. Today, including our various joint
ventures, our portfolio includes primarily office properties throughout the
Southeast and retail and office properties in Kansas City, Missouri including
one significant mixed retail and office property.
Capital Recycling Program. 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. Through
our capital recycling program, we generally seek to:
. engage in the development of office and industrial projects in our
existing geographic markets, primarily in suburban business parks;
. acquire selective suburban office and industrial properties in our
existing geographic markets at prices below replacement cost that
offer attractive returns; and
. selectively dispose of non-core properties or other properties the
sale of which can generate attractive returns.
Our capital recycling activities benefit from our local market presence and
knowledge. Our division officers have significant real estate experience in
their respective markets. Based on this experience, we are in a better position
to evaluate capital recycling opportunities than many of our competitors. 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 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 properties or other properties
which can be sold at attractive returns; and
4
. the sale or contribution of our wholly-owned properties, development
projects and development land to strategic joint ventures formed with
unrelated investors.
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, 2002, the Operating Partnership employed 554 persons.
RISK FACTORS
An investment in our securities 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.
Adverse conditions in the real estate market may adversely affect our cash
flows from operations. 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;
. difficulty in leasing or re-leasing space quickly or on favorable terms;
. 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 or certain key tenants to
pay rent.
Future acquisitions and development activities 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 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.
5
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.
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.
Our insurance coverage on our properties may be inadequate. We carry
comprehensive insurance on all of our properties, including insurance for
liability, fire and flood. Insurance companies currently, however, limit
coverage against certain types of losses, such as losses due to terrorist acts,
named wind storms and toxic mold. Thus 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 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. Our existing
insurance policies expire on June 30, 2003. We anticipate renewing these
existing policies at that time.
Our use of debt to finance our operations could have a material adverse
effect on our cash flow and ability to make distributions. We are subject to
risks normally associated with debt financing, such as the insufficiency of cash
flow to meet required payment obligations, difficulty in complying with
financial ratios and other covenants and the inability to refinance existing
indebtedness. Approximately $295.3 million of principal payments on our existing
long-term debt is due in 2003 (this amount is adjusted for the refinancing of
the MOPPRS in February 2003. For a detailed maturity schedule regarding our
long-term debt, see "Management's Discussion and Analysis of Results of
Operations - Liquidity and Capital Resources - Capitalization."). If we fail to
comply with the financial ratios and other covenants under our existing debt
instruments, including our revolving loans, we would likely not be able to
borrow any further amounts under these instruments, which could adversely affect
our ability to fund our operations, and our lenders could accelerate any debt
outstanding thereunder. 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. Any such refinancing could also impose tighter financial ratios
and other covenants that could restrict our ability to take actions that could
otherwise be in our stockholders' best interest, such as funding new development
activity, making opportunistic acquisitions, repurchasing our securities or
paying distributions. 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 on our cash flow and ability to make distributions.
We may need to borrow money or sell assets in order to make required
distributions. In order for the Company to make the distributions required to
maintain its REIT status, we may need to borrow funds. To obtain the favorable
tax treatment associated with REIT qualification, the Company generally will be
required to distribute to stockholders at least 90.0% of its annual REIT taxable
income, excluding net capital gain. The Company intends 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.
6
ITEM 2. PROPERTIES
GENERAL
As of December 31, 2002, we owned 493 in-service office, industrial and
retail properties, encompassing approximately 37.1 million rentable square feet,
and 213 apartment units. The following table sets forth information about our
wholly-owned in-service properties at December 31, 2002:
PERCENTAGE OF ANNUALIZED RENTAL REVENUE (1)
RENTABLE ------------------------------------------------
MARKET SQUARE FEET OCCUPANCY OFFICE INDUSTRIAL RETAIL TOTAL
- ------ ----------- --------- ------ ---------- ------ --------
Atlanta.................. 6,728,000 83.0% 11.2% 3.2% -- 14.4%
Research Triangle........ 4,340,000 81.9 13.8 0.2 -- 14.0
Kansas City.............. 2,512,000(2) 94.5 4.3 -- 8.6% 12.9
Tampa ................... 4,262,000 67.1(3) 12.2 -- -- 12.2
Piedmont Triad........... 8,371,000 88.9 6.6 4.9 -- 11.5
Nashville................ 2,733,000 87.7 10.1 -- -- 10.1
Richmond................. 2,764,000 95.0 8.4 0.5 -- 8.9
Charlotte................ 1,729,000 84.0 4.8 0.3 -- 5.1
Memphis.................. 1,215,000 80.8 4.3 -- -- 4.3
Greenville............... 1,511,000 86.8 4.2 0.2 -- 4.4
Columbia................. 426,000 67.4 1.1 -- -- 1.1
Orlando.................. 340,000 47.6 0.6 -- -- 0.6
Other.................... 181,000 74.7 0.5 -- -- 0.5
----------- ---- ---- ---- ---- -----
Total.................... 37,112,000 84.0%(3) 82.1% 9.3% 8.6% 100.0%
=========== ==== ==== ==== ==== =====
(1) Annualized Rental Revenue is December 2002 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12, and excludes revenue
associated with the rejected 816,000 square foot Intermedia (WorldCom)
lease on December 31, 2002.
(2) Excludes basement space in the Country Club Plaza property of 527,000
square feet.
(3) The occupancy percentages have been reduced as a result of the rejection of
the 816,000 square foot Intermedia (WorldCom) lease on December 31, 2002.
The impact on Tampa's occupancy and Total occupancy was 19.1% and 2.2%,
respectively.
7
The following table sets forth information about our wholly-owned
in-service and development properties as of December 31, 2002 and 2001:
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------------------- ----------------------------
RENTABLE PERCENT LEASED/ RENTABLE PERCENT LEASED/
SQUARE FEET PRE-LEASED SQUARE FEET PRE-LEASED
----------- --------------- ----------- ---------------
IN-SERVICE
Office................................... 25,342,000 82.3%(1) 24,945,000 91.9%
Industrial............................... 10,242,000 86.2 10,640,000 91.9
Retail (2)............................... 1,528,000 97.0 1,636,000 96.0
---------- ---- ---------- ----
TOTAL.................................. 37,112,000 84.0%(1) 37,221,000 91.9%
========== ==== ========== ====
DEVELOPMENT COMPLETED - NOT STABILIZED
Office................................... 231,000 61.3% 1,490,000 58.4%
Industrial............................... 60,000 50.0 200,000 39.2
Retail................................... -- -- 20,000 90.0
---------- ---- ---------- ----
TOTAL.................................. 291,000 59.0% 1,710,000 56.5%
========== ==== ========== ====
IN-PROCESS
Office .................................. 40,000 0.0% 739,000 74.9%
---------- ---- ---------- ----
TOTAL.................................. 40,000 0.0% 739,000 74.9%
========== ==== ========== ====
TOTAL
Office................................... 25,613,000 27,174,000
Industrial............................... 10,302,000 10,840,000
Retail (2)............................... 1,528,000 1,656,000
---------- ----------
TOTAL.................................. 37,443,000 39,670,000
========== ==========
(1) The occupancy percentages have been reduced as a result of the rejection of
the 816,000 square foot Intermedia (WorldCom) lease on December 31, 2002.
The impact on Office occupancy and Total occupancy was 3.2 % and 2.2%,
respectively.
(2) Excludes basement space in the Country Club Plaza property of 527,000
square feet.
8
CUSTOMERS
The following table sets forth information concerning the 20 largest
customers of our wholly-owned properties as of December 31, 2002, excluding
revenue related to the rejection of the 816,000 square foot Intermedia
(WorldCom) lease on December 31, 2002:
AVERAGE
REMAINING
PERCENT OF TOTAL LEASE
NUMBER RENTABLE ANNUALIZED ANNUALIZED TERM IN
CUSTOMERS OF LEASES SQUARE FEET RENTAL REVENUE (1) RENTAL REVENUE (1) YEARS
- --------- --------- ----------- ------------------ ----------------- ---------
($ IN THOUSANDS)
Federal Government.............................. 62 742,378 $ 14,892 3.38% 4.6
AT&T............................................ 8 617,477 11,669 2.65 4.9
Price Waterhouse Coopers........................ 6 297,795 6,932 1.57 7.3
US Airways...................................... 6 414,059 6,910 1.57 4.9
State of Georgia................................ 10 356,993 6,783 1.54 6.0
Capital One Services............................ 6 361,968 6,329 1.43 5.9
Sara Lee........................................ 10 1,230,534 4,605 1.04 2.4
IBM............................................. 7 216,505 4,453 1.01 2.6
Bell South...................................... 11 212,011 4,441 1.01 1.3
Northern Telecom................................ 1 246,000 3,235 0.73 5.2
WorldCom and Affiliates ........................ 15 166,869 3,206 0.73 3.0
Lockton Companies............................... 1 127,485 3,117 0.71 12.2
Bank of America................................. 23 152,017 3,003 0.68 2.3
Volvo........................................... 5 214,783 2,979 0.68 6.6
Hartford Insurance.............................. 6 134,021 2,900 0.66 3.3
T-Mobile USA.................................... 3 120,561 2,831 0.64 3.5
Business Telecom................................ 4 147,379 2,795 0.63 2.4
Ford Motor Company.............................. 2 126,045 2,609 0.59 7.2
Carlton Fields.................................. 2 95,771 2,475 0.56 1.5
BB&T............................................ 6 157,290 2,431 0.55 7.8
--- ----------- --------- ----- ---
TOTAL........................................... 194 6,137,941 $ 98,595 22.36% 4.8
=== ========== ========= ===== ===
(1) Annualized Rental Revenue is December 2002 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12.
9
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, 2002, 2001 and 2000.
2002 2001
---------------------------------------- ----------------------------------------
OFFICE INDUSTRIAL RETAIL OFFICE INDUSTRIAL RETAIL
----------- ----------- ----------- ----------- ----------- -----------
NET EFFECTIVE RENTS RELATED TO RE-LEASED
SPACE:
Number of lease transactions (signed
leases)................................... 647 137 56 538 107 44
Rentable square footage leased............ 3,201,341 2,208,742 176,528 2,782,331 1,524,276 125,992
Average per rentable square foot over the
lease term:...............................
Base rent.............................. $ 17.15 $ 4.12 $ 21.22 $ 17.24 $ 4.99 $ 21.06
Tenant improvements.................... (1.15) (0.36) (1.52) (1.10) (0.27) (1.16
Leasing commissions.................... (0.68) (0.15) (0.74) (0.70) (0.11) (0.61
Rent concessions....................... (0.26) (0.04) (0.02) (0.06) -- (0.06
----------- ----------- ----------- ----------- ----------- -----------
Effective rent......................... $ 15.06 $ 3.57 $ 18.94 $ 15.38 $ 4.61 $ 19.23
Expense stop (1)....................... (5.25) (0.25) (0.30) (3.84) (0.43) --
----------- ----------- ----------- ----------- ----------- -----------
Equivalent effective net rent.......... $ 9.81 $ 3.32 $ 18.64 $ 11.54 $ 4.18 $ 19.23
=========== =========== =========== =========== =========== ===========
Average term in years..................... 4.0 4.4 6.4 4.8 2.6 7.5
=========== =========== =========== =========== =========== ===========
RENTAL RATE TRENDS:
Average final rate with expense
pass-throughs............................. $ 17.39 $ 4.34 $ 15.82 $ 15.66 $ 4.76 $ 14.08
Average first year cash rental rate....... $ 16.20 $ 4.10 $ 20.67 $ 16.34 $ 4.73 $ 18.06
----------- ----------- ----------- ----------- ----------- -----------
Percentage (decrease)/increase............ (6.84)% (5.53)% 30.69% 4.34% (0.80)% 28.26
=========== =========== =========== =========== =========== ===========
CAPITAL EXPENDITURES RELATED TO RE-LEASED
SPACE:
Tenant Improvements:
Total dollars committed under signed
leased................................. $17,805,616 $ 4,169,066 $ 2,288,953 $17,234,770 $ 1,535,052 $ 1,526,553
Rentable square feet................... 3,201,341 2,208,742 176,528 2,782,331 1,524,276 125,992
----------- ----------- ----------- ----------- ----------- -----------
Per rentable square foot............... $ 5.56 $ 1.89 $ 12.97 $ 6.19 $ 1.01 $ 12.12
=========== =========== =========== =========== =========== ===========
Leasing Commissions:
Total dollars committed under signed
leased................................. $ 4,972,806 $ 1,070,939 $ 382,972 $ 7,648,567 $ 468,962 $ 424,192
Rentable square feet................... 3,201,341 2,208,742 176,528 2,782,331 1,524,276 125,992
----------- ----------- ----------- ----------- ----------- -----------
Per rentable square foot............... $ 1.55 $ 0.48 $ 2.17 $ 2.75 $ 0.31 $ 3.37
=========== =========== =========== =========== =========== ===========
Total:
Total dollars committed under signed
leased................................. $22,778,422 $ 5,240,005 $ 2,671,925 $24,883,337 $ 2,004,013 $ 1,950,745
Rentable square feet................... 3,201,341 2,208,742 176,528 2,782,331 1,524,276 125,992
----------- ----------- ----------- ----------- ----------- -----------
Per rentable square foot............... $ 7.11 $ 2.37 $ 15.14 $ 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 (decrease)/increase............ 4.90% 7.20% 26.60%
=========== =========== ===========
CAPITAL EXPENDITURES RELATED TO RE-LEASED
SPACE:
Tenant Improvements:
Total dollars committed under signed$
leased................................. 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
leased................................. $ 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
leased................................. $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
=========== =========== ===========
(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.
10
The following tables on pages 11 and 12 set forth scheduled lease
expirations for executed leases at our wholly-owned properties (excluding
apartment units) as of December 31, 2002, assuming no tenant exercises renewal
options. The following scheduled lease expirations exclude the rejection of the
816,000 square foot Intermedia (WorldCom) lease on December 31, 2002.
OFFICE PROPERTIES:
AVERAGE PERCENT OF
ANNUAL ANNUALIZED
RENTABLE PERCENTAGE OF ANNUALIZED RENTAL RATE RENTAL REVENUE
SQUARE FEET LEASED RENTAL REVENUE PER SQUARE REPRESENTED
NUMBER OF SUBJECT TO SQUARE FOOTAGE UNDER FOOT FOR BY
LEASE LEASES EXPIRING REPRESENTED BY EXPIRING EXPIRATIONS EXPIRING
EXPIRING EXPIRING LEASES EXPIRING LEASES LEASES (1) LEASES (1)
- ------------- ----------- ------------ ---------------- ---------------- ------------ -------------
($ in thousands)
2003 (2) 761 4,044,936 19.3% $ 70,361 $ 17.39 19.4%
2004 498 2,767,455 13.3 49,612 17.93 13.7
2005 535 3,331,798 16.0 59,293 17.80 16.4
2006 324 2,843,860 13.6 51,583 18.14 14.2
2007 246 2,024,252 9.7 33,864 16.73 9.3
2008 108 1,998,952 9.6 30,851 15.43 8.5
2009 40 838,814 4.0 14,047 16.75 3.9
2010 38 841,052 4.0 17,713 21.06 4.9
2011 40 954,988 4.6 18,576 19.45 5.1
2012 29 685,237 3.3 10,378 15.15 2.9
Thereafter 104 536,623 2.6 6,186 11.53 1.7
--------- ----------- ---------- ------------- ----------- ------------
2,723 20,867,967 100.0% $ 362,464 $ 17.37 100.0%
========= =========== ========== ============= =========== ============
INDUSTRIAL PROPERTIES:
AVERAGE PERCENT OF
ANNUAL ANNUALIZED
RENTABLE PERCENTAGE OF ANNUALIZED RENTAL RATE RENTAL REVENUE
SQUARE FEET LEASED RENTAL REVENUE PER SQUARE REPRESENTED
NUMBER OF SUBJECT TO SQUARE FOOTAGE UNDER FOOT FOR BY
LEASE LEASES EXPIRING REPRESENTED BY EXPIRING EXPIRATIONS EXPIRING
EXPIRING EXPIRING LEASES EXPIRING LEASES LEASES (1) LEASES (1)
- ------------- ----------- ------------ ---------------- ---------------- ------------ -------------
($ in thousands)
2003 (3) 135 1,711,921 19.5% $ 8,204 $ 4.79 20.3%
2004 99 2,508,687 28.7 9,866 3.93 24.4
2005 76 1,099,777 12.5 5,347 4.86 13.2
2006 40 821,554 9.4 4,505 5.48 11.1
2007 38 1,630,860 18.6 6,948 4.26 17.1
2008 11 254,067 2.9 1,498 5.90 3.7
2009 8 318,813 3.6 2,366 7.42 5.8
2010 3 46,508 0.5 349 7.50 0.9
2011 2 35,475 0.4 178 5.02 0.4
2012 2 44,447 0.5 255 5.74 0.6
Thereafter 15 299,619 3.4 1,016 3.39 2.5
--------- ----------- ---------- ------------- ----------- ------------
429 8,771,728 100.0% $ 40,532 $ 4.62 100.0%
========= =========== ========== ============= =========== ============
(1) Annualized Rental Revenue is December 2002 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12.
(2) Includes 195,000 square feet of leases that are on a month-to-month
basis, or 0.8% of total annualized revenue.
(3) Includes 469,000 square feet of leases that are on a month-to-month basis,
or 0.4% of total annualized revenue.
11
RETAIL PROPERTIES:
AVERAGE PERCENT OF
ANNUAL ANNUALIZED
RENTABLE PERCENTAGE OF ANNUALIZED RENTAL RATE RENTAL REVENUE
SQUARE FEET LEASED RENTAL REVENUE PER SQUARE REPRESENTED
NUMBER OF SUBJECT TO SQUARE FOOTAGE UNDER FOOT FOR BY
LEASE LEASES EXPIRING REPRESENTED BY EXPIRING EXPIRATIONS EXPIRING
EXPIRING EXPIRING LEASES EXPIRING LEASES LEASES (1) LEASES (1)
- ------------- ----------- ------------ ---------------- ---------------- ------------ -------------
($ in thousands)
2003 (2) 49 136,326 9.2% $ 2,972 $ 21.80 7.8%
2004 39 207,103 14.0 2,775 13.40 7.3
2005 37 90,821 6.1 2,687 29.59 7.0
2006 33 101,041 6.8 2,621 25.94 6.9
2007 39 116,915 7.9 2,723 23.29 7.1
2008 24 123,459 8.3 4,257 34.48 11.2
2009 23 154,317 10.4 3,555 23.04 9.3
2010 16 89,890 6.1 2,573 28.62 6.7
2011 18 73,392 5.0 2,400 32.70 6.3
2012 10 53,263 3.6 1,908 35.82 5.0
Thereafter 20 335,657 22.6 9,656 28.77 25.4
--------- ----------- ---------- ------------- ----------- ------------
308 1,482,184 100.0% $ 38,127 $ 25.72 100.0%
========= =========== ========== ============= =========== ============
TOTAL:
AVERAGE PERCENT OF
ANNUAL ANNUALIZED
RENTABLE PERCENTAGE OF ANNUALIZED RENTAL RATE RENTAL REVENUE
SQUARE FEET LEASED RENTAL REVENUE PER SQUARE REPRESENTED
NUMBER OF SUBJECT TO SQUARE FOOTAGE UNDER FOOT FOR BY
LEASE LEASES EXPIRING REPRESENTED BY EXPIRING EXPIRATIONS EXPIRING
EXPIRING EXPIRING LEASES EXPIRING LEASES LEASES (1) LEASES (1)
- ------------- ----------- ------------ ---------------- ---------------- ------------ -------------
($ in thousands)
2003 (3) 945 5,893,183 19.0% $ 81,537 $ 13.84 18.5%
2004 636 5,483,245 17.7 62,253 11.35 14.1
2005 648 4,522,396 14.5 67,327 14.89 15.3
2006 397 3,766,455 12.1 58,709 15.59 13.3
2007 323 3,772,027 12.1 43,535 11.54 9.9
2008 143 2,376,478 7.6 36,606 15.40 8.3
2009 71 1,311,944 4.2 19,968 15.22 4.5
2010 57 977,450 3.1 20,635 21.11 4.7
2011 60 1,063,855 3.4 21,154 19.88 4.8
2012 41 782,947 2.5 12,541 16.02 2.8
Thereafter 139 1,171,899 3.8 16,858 14.39 3.8
--------- ----------- ---------- ------------- ----------- ------------
3,460 31,121,879 100.0% $ 441,123 $ 14.17 100.0%
========= =========== ========== ============= =========== ============
(1) Annualized Rental Revenue is December 2002 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12.
(2) Includes 47,000 square feet of leases that are on a month-to-month basis,
or 0.1% of total annualized revenue.
(3) Includes 711,000 square feet of leases that are on a month-to-month basis,
or 1.3% of total annualized revenue.
12
CAPITAL RECYCLING PROGRAM
The following table summarizes our capital recycling program during 2002 ($
in thousands):
DISPOSITION ACTIVITY
BUILDING DATE RENTABLE SALES
PROPERTY MARKET TYPE (1) SOLD SQUARE FEET PRICE
- -------- ------------------ -------- -------- ----------- ------------
Romac Tampa O 01/10/02 128,000 $ 20,200
Parkway Plaza Building Nine Charlotte I 04/04/02 110,000 5,922
Alston & Bird Charlotte O 05/13/02 45,000 8,500
7327 & 7339 West Friendly Avenue Piedmont Triad I 05/21/02 23,000 1,272
International Place III Memphis O 05/23/02 214,000 38,270
Reo Building Tampa O 05/30/02 76,000 5,155
Amica and Arrowwood Research Triangle O 05/31/02 78,000 7,200
4900 Main Building Kansas City O 05/31/02 182,000 29,000
Twin Lakes Distribution Center Charlotte I 10/10/02 347,000 10,350
Brymar Building Kansas City O 10/18/02 56,000 2,535
Eastshore I, II, III & Cat Financial Richmond/Nashville O 11/26/02 538,000 90,034
Oakridge Office Park Orlando O 12/18/02 316,000 22,175
Red Bridge Shops Kansas City R 12/18/02 141,000 7,000
Brookfield YMCA Greenville I 12/31/02 16,000 1,050
----------- -----------
TOTAL 2,270,000 $ 248,663
=========== ===========
(1) O = Office
I = Industrial
R = Retail
JOINT VENTURE ACTIVITY
On June 26, 2002, we acquired our joint venture partner's interest in
MG-HIW Rocky Point, LLC, which owned Harborview Plaza, to bring our ownership
interest in that entity from 50.0% to 100.0%. At that time, we consolidated the
assets and liabilities, and recorded income and expenses of the entity on a
consolidated basis.
On September 11, 2002, we contributed Harborview Plaza to SF-HIW Harborview
Plaza, LP, a newly formed joint venture with a different partner, in exchange
for a 20.0% limited partnership interest and $12.1 million of cash.
13
DEVELOPMENT ACTIVITY
The following wholly-owned development projects were placed in service
during 2002 ($ in thousands):
PLACED IN-SERVICE
MONTH COST A
BUILDING PLACED RENTABLE DECEMBER 31
NAME MARKET TYPE (1) IN-SERVICE SQUARE FEET 2002
- ------------------------------- ----------------- -------- ---------- ----------- -----------
Verizon Wireless Greenville O Jan-02 193,000 $ 15,996
380 Park Place Tampa O Jan-02 82,000 10,064
Innslake Richmond O Feb-02 65,000 7,625
Holden Road Piedmont Triad I Mar-02 64,000 2,621
Centre Green Two Research Triangle O Apr-02 97,000 11,293
Highwoods Tower II Research Triangle O May-02 167,000 25,570
Cool Springs II Nashville O May-02 205,000 23,931
North Shore Commons A Richmond O May-02 115,000 14,702
Stony Point III Richmond O May-02 107,000 11,866
ParkWest One Research Triangle O Jun-02 46,000 4,637
1825 Century Center Atlanta O Jul-02 101,000 15,894
Hickory Trace Nashville O Sep-02 52,000 7,475
Met Life Building at Brookfield Greenville O Sep-02 115,000 13,486
Newpoint IV Atlanta I Oct-02 135,000 5,061
Centre Green Four Research Triangle O Oct-02 100,000 9,682
1501 Highwoods Boulevard Piedmont Triad O Nov-02 98,000 10,313
Shadow Creek II Memphis O Nov-02 81,000 7,284
GlenLake I Research Triangle O Nov-02 158,000 20,320
Granada Shops Kansas City R Nov-02 19,000 4,552
----------- -----------
2,000,000 222,372
=========== ===========
PLACED IN-SERVICE AND SOLD
International Place III Memphis O May-02 214,000 34,000 (2)
----------- -----------
TOTAL 2,214,000 $ 256,372
=========== ===========
(1) O = Office
I = Industrial
R = Retail
(2) Project was sold on May 23, 2002 for $38.3 million.
14
IN-PROCESS
As of December 31, 2002, we were developing three suburban office
properties and one industrial property, totaling 331,000 rentable square feet.
The following table summarizes these development projects. In addition to the
properties described in this table, we are developing with a 50.0% joint venture
partner (and therefore, is not included in the following table) one additional
property totaling 285,000 rentable square feet. At December 31, 2002, this
development project had an aggregate budgeted cost of $69.0 million and was
56.5% pre-leased.
RENTABLE
BUILDING SQUARE ESTIMATED COST AT PRE-LEASING ESTIMATED ESTIMATED
NAME MARKET TYPE (1) FEET COST 12/31/02 PERCENTAGE COMPLETION STABILIZATION
- ---- ----------- -------- ------- --------- -------- ----------- ---------- -------------
($ in thousands)
OFFICE:
Catawba (2) Research
Triangle O 40,000 $ 4,030 $ 2,105 0% 2Q03 2Q04
Seven Springs I (3) Nashville O 131,000 15,556 13,371 76 1Q02 3Q03
801 Raleigh Corporate Research
Center (3) Triangle O 100,000 12,016 9,802 42 4Q02 2Q04
Tradeport V (3) Atlanta I 60,000 2,913 2,851 50 4Q02 4Q03
------- --------- -------- -----------
TOTAL OR WEIGHTED AVERAGE 331,000 $ 34,515 $ 28,129 52%
======= ========= ======== ===========
(1) O = Office
I = Industrial
(2) Redevelopment project in process.
(3) Completed but not stabilized properties, which contributed in the aggregate
$138,000 in net operating income in the fourth quarter of 2002.
DEVELOPMENT LAND
We estimate that we can develop approximately 13.8 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.
We reserved $2.7 million in September 2002 for the probable and estimated
losses related to various legal proceedings from previously completed mergers
and acquisitions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company is the sole general partner of the Operating Partnership. The
following table sets forth information with respect to the Company's executive
officers:
NAME AGE POSITION AND BACKGROUND
- --------------------- ------- ---------------------------------------------------------------------------------
Ronald P. Gibson 58 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 44 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 57 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 49 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 53 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. Mr. Harris is a member of the Advisory Board of Directors at
SouthTrust Bank of Memphis, and Allen & Hoshall, Inc.
Carman J. Liuzzo 42 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 53 Vice President and General Counsel.
Prior to joining us in 1997, Mr. Pridgen was a partner in the law firm of Smith
Helms Mulliss & Moore, L.L.P. and prior to that a partner with Arthur
Andersen & Co. Mr. Pridgen is an attorney and a certified public accountant.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND DISTRIBUTIONS
There is no established public trading market for the Common Units. The
following table sets forth the cash distributions paid per Common Unit during
each quarter.
QUARTER 2002 2001
ENDED: DISTRIBUTIONS DISTRIBUTIONS
- --------- ------------- -------------
March 31.................................. $ .585 $ .57
June 30................................... .585 .57
September 30.............................. .585 .585
December 31............................... .585 .585
To maintain its qualification as a REIT, the Company must distribute to its
stockholders at least 90.0% of REIT taxable income. The following factors will
affect cash flows from operating activities and, accordingly, influence the
decisions of the Company's board of directors regarding distributions by the
Operating Partnership:
. debt service requirements after taking into account debt
covenants and the repayment and restructuring of certain
indebtedness;
. scheduled increases in base rents of existing leases;
. changes in rents attributable to the renewal of existing leases
or replacement leases;
. changes in occupancy rates at existing properties and execution
of leases for newly acquired or developed properties; and
. operating expenses and capital replacement needs.
As of March 7, 2003, there were 168 holders of record of Common Units
(other than the Company).
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Operating Partnership as of and for the years ended December 31, 2002,
2001, 2000, 1999, and 1998 ($ in thousands, except per unit amounts):
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Operating Data:
Rental revenue................................. $ 454,122 $ 469,134 $ 509,669 $ 542,012 $ 479,856
Other income................................... 20,839 30,230 19,959 16,686 12,956
----------- ----------- ----------- ----------- -----------
Total revenue.................................. 474,961 499,364 529,628 558,698 492,812
Rental property operating expenses............. (142,686) (144,443) (148,407) (167,903) (149,829)
Depreciation and amortization.................. (126,636) (113,415) (112,876) (108,000) (88,321)
Interest expense............................... (109,897) (104,473) (108,795) (111,385) (93,959)
Cost of unsuccessful transactions.............. -- -- -- (1,500) (146)
General and administrative (includes $913
nonrecurring compensation expense in 2002).... (23,644) (21,086) (23,069) (22,338) (20,625)
Litigation reserve............................. (2,700) -- -- -- --
Gain on disposition of land and depreciable
assets......................................... 12,250 16,197 4,657 7,997 1,716
----------- ---------- ----------- ----------- -----------
Income from continuing operations.............. 81,648 132,144 141,138 155,569 141,648
Total discontinued operations.................. 26,694 18,823 17,299 11,357 9,487
Extraordinary item - loss on early
extinguishment of debt......................... (378) (714) (4,732) (7,341) (387)
----------- ---------- ----------- ----------- -----------
Net income..................................... 107,964 150,253 153,705 159,585 150,748
Distributions on preferred units............... (30,852) (31,500) (32,580) (32,580) (30,092)
----------- ----------- ----------- ----------- -----------
Net income available for common unitholders.... $ 77,112 $ 118,753 $ 121,125 $ 127,005 $ 120,656
=========== =========== =========== =========== ===========
NET INCOME PER COMMON UNIT - BASIC:
Income from continuing operations............. $ 0.85 $ 1.64 $ 1.62 $ 1.75 $ 1.72
============ ============ ============ ============ ============
Net income..................................... $ 1.29 $ 1.93 $ 1.81 $ 1.81 $ 1.86
============ ============ ============ ============ ============
NET INCOME PER COMMON UNIT - DILUTED:
Income from continuing operations............ $ 0.84 $ 1.63 $ 1.61 $ 1.75 $ 1.71
=========== =========== =========== =========== ===========
Net income................................... $ 1.28 $ 1.92 $ 1.80 $ 1.81 $ 1.85
=========== =========== =========== =========== ===========
Distributions declared per common unit......... $ 2.34 $ 2.31 $ 2.25 $ 2.19 $ 2.10
============ =========== =========== =========== ===========
BALANCE SHEET DATA:
Net real estate assets......................... $ 3,003,919 $ 3,160,308 $ 2,992,084 $ 3,548,688 $ 3,793,630
Total assets................................... 3,345,054 3,588,555 3,661,037 3,972,079 4,247,700
Total mortgages and notes payable.............. 1,489,220 1,672,230 1,568,019 1,719,117 1,906,216
Redeemable operating partnership units......... 520,633 556,975 579,683 597,780 652,893
OTHER DATA:
Cash flows provided by operating activities.... $ 203,008 $ 249,080 $ 257,979 $ 234,443 $ 261,479
Cash flows provided by/(used in) investing
activities..................................... 186,353 (110,801) 251,599 153,986 (953,381)
Cash flows (used in)/provided by financing
activities..................................... (379,425) (239,971) (441,007) (385,210) 713,782
Funds from operations (1)...................... 203,110 237,661 251,929 244,916 211,844
Number of in-service properties................ 493 498 493 563 658
Total rentable square feet..................... 37,112,000 37,221,000 36,183,000 38,976,000 44,642,000
(1) We consider funds from operations ("FFO") to be a useful financial
performance measure of the operating performance of an equity REIT because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures. FFO does not
represent net income or cash flows from operating, investing or financing
activities as defined by Generally Accepted Accounting Principles ("GAAP").
It should not be considered as an alternative to net income as an indicator
of our operating performance or to cash flows as a measure of liquidity.
FFO does not measure whether cash flow is sufficient to fund all cash
needs, including principal amortization, capital improvements and
distributions to stockholders. Further, FFO as disclosed by other REITs may
not be comparable to our calculation of FFO.
18
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;
. 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;
. 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
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed equity REIT that began operations through a
predecessor in 1978. Since our formation in 1994, we have evolved into one of
the largest owners and operators of suburban office, industrial and retail
properties in the southeastern and midwestern United States. The Company
conducts substantially all of its activities through, and substantially all of
its interests in the properties are held directly or indirectly by the Operating
Partnership. At December 31, 2002, we:
. owned 493 in-service office, industrial and retail properties,
encompassing approximately 37.1 million rentable square feet and
213 apartment units;
. owned an interest (50.0% or less) in 77 in-service office and
industrial properties, encompassing approximately 7.5 million
rentable square feet and 418 apartment units;
. owned 1,308 acres of undeveloped land suitable for future
development; and
19
. were developing an additional five properties, which will
encompass approximately 616,000 rentable square feet (including
one property encompassing 285,000 rentable square feet that we
are developing with a 50.0% joint venture partner).
The following summarizes our capital recycling program during the past
three years ending December 31, 2002:
2002 2001 2000
----------- ----------- -----------
OFFICE, INDUSTRIAL AND RETAIL PROPERTIES:
(rentable square feet in thousands)
Dispositions............................. (2,270) (268) (4,743)
Contributions to Joint Ventures.......... -- (118) (2,199)
Developments Placed In-Service........... 2,214 1,351 3,480
Redevelopment............................ (52) -- --
Acquisitions............................. -- 72 669
----------- ----------- -----------
Net Change............................... (108) 1,037 (2,793)
=========== =========== ===========
APARTMENT PROPERTIES:
(in units)
Dispositions............................. -- (1,672) --
=========== =========== ===========
In addition to the above capital recycling activity, the Company
repurchased $4.8 million, $148.8 million and $101.8 million of Common Stock and
Common Units during 2002, 2001 and 2000, respectively, and $18.5 million of
Preferred Stock during 2001. This represents aggregate repurchases of $273.9
million of Common Stock, Common Units and Preferred Stock since January 1, 2000.
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, 2002, the Company owned
88.4% of the Common Units in the Operating Partnership.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of
operations is based upon our Consolidated Financial Statements contained
elsewhere in this Annual Report. Our Consolidated Financial Statements include
the accounts of the Operating Partnership and its majority-controlled
affiliates. For a discussion of our accounting policies with respect to our
investments in unconsolidated affiliates, see "-Investments in Joint Ventures."
The preparation of financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
for the reporting period. Actual results could differ from our estimates.
The estimates used in the preparation of our Consolidated Financial
Statements are described in Note 1 to our Consolidated Financial Statements for
the year ended December 31, 2002. However, certain of our significant accounting
policies are considered critical accounting policies due to the increased level
of assumptions used or estimates made in determining their impact on our
Consolidated Financial Statements. Management has reviewed our critical
accounting policies and estimates with the audit committee of the Company's
board of directors and the Company's independent auditors.
We consider our critical accounting policies to be those used in the
determination of the reported amounts and disclosure related to the following:
. Impairment of long-lived assets;
. Allowance for doubtful accounts;
. Capitalized costs;
. Fair value of derivative instruments;
20
. Rental revenue; and
. Investments in joint ventures.
Impairment of long-lived assets. Real estate and leasehold improvements are
classified as long-lived assets held for sale or as long-lived assets to be held
and used. In accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", we record
assets held for sale at the lower of the carrying amount or fair value less cost
to sell. The impairment loss is the amount by which the carrying amount exceeds
the fair value less cost to sell. With respect to assets classified as held and
used, we periodically review these assets to determine whether our carrying
amount will be recovered from their undiscounted future operating cash flows and
we recognize an impairment loss to the extent we believe the carrying amount is
not recoverable. Our estimates of the undiscounted future operating cash flows
expected to be generated are based on a number of assumptions that are subject
to economic and market uncertainties including, among others, demand for space,
competition for tenants, changes in market rental rates, and costs to operate
each property. As these factors are difficult to predict and are subject to
future events that may alter our assumptions, the undiscounted future operating
cash flows estimated by us in our impairment analyses may not be achieved and we
may be required to recognize future impairment losses on our properties.
Allowance for doubtful accounts. Accounts receivable are reduced by an
allowance for amounts that may become uncollectible in the future. Our
receivable balance is comprised primarily of rents and operating cost recoveries
due from tenants as well as accrued rental rate increases to be received over
the life of the existing leases. We regularly evaluate the adequacy of our
allowance for doubtful accounts considering such factors as the credit quality
of our tenants, delinquent payments, historical trends and current economic
conditions. Actual results may differ from these estimates under different
assumptions or conditions. If our assumptions regarding the collectibility of
accounts receivables prove incorrect, we could experience write-offs of accounts
receivable or accrued straight-line rents receivable in excess of our allowance
for doubtful accounts.
Capitalized costs. Expenditures directly related to both the development of
real estate assets and the leasing of properties are included in net real estate
assets and are stated at cost in the consolidated balance sheets. The
development expenditures include pre-construction costs essential to the
development of properties, development and construction costs, interest costs,
real estate taxes, salaries and other costs incurred during the period of
development. The leasing expenditures include all general and administrative
costs, including salaries incurred in connection with successfully securing
leases on the properties. Estimated costs related to unsuccessful leases are
expensed as incurred. If our assumptions regarding the successful efforts of
development and leasing are incorrect, the resulting adjustments could impact
earnings.
Fair value of derivative instruments. In the normal course of business, we
are exposed to the effect of interest rate changes. We limit our exposure by
following established risk management policies and procedures including the use
of derivatives. To mitigate our exposure to unexpected changes in interest
rates, derivatives are used primarily to hedge against rate movements on our
related debt. We are required to recognize all derivatives as either assets or
liabilities in the consolidated balance sheets and to measure those instruments
at fair value. Changes in fair value will affect either partners' capital or net
income depending on whether the derivative instrument qualifies as a hedge for
accounting purposes.
To determine the fair value of derivative instruments, we use a variety of
methods and assumptions that are based on market conditions and risks existing
at each balance sheet date. For the majority of financial instruments, including
most derivatives, standard market conventions and techniques such as discounted
cash flow analysis, option pricing modes, 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.
Rental revenue. Rental revenue is comprised of base rent; recoveries from
tenants which represent reimbursements for certain costs as provided in the
lease agreements such as real estate taxes, utilities, insurance, common area
maintenance and other recoverable costs, parking and other income and
termination fees which relate to specific tenants, each of whom has paid a fee
to terminate its lease obligation before the end of the contracted term on the
lease.
21
In accordance with GAAP, base rental revenue is recognized on a
straight-line basis over the terms of the respective leases. This means that,
with respect to a particular lease, actual amounts billed in accordance with the
lease during any given period may be higher or lower than the amount of rental
revenue recognized for the period. Accrued straight-line rents receivable
represents the amount by which straight-line rental revenue exceeds rents
currently billed in accordance with lease agreements.
Investments in joint ventures. As of December 31, 2002, our investments in
unconsolidated affiliates consist of one corporation, eight limited liability
companies, four limited partnerships and two general partnerships. We account
for our investments in unconsolidated affiliates under the equity method of
accounting as we exercise significant influence, but do not control these
entities. Our unconsolidated corporation is controlled by an unrelated third
party that owns more than 50.0% of the outstanding voting stock. We have a 50.0%
or less ownership interest in the unconsolidated limited liability companies
and, under the terms of the various operating agreements, do not have any
participating rights. We have a 50.0% or less ownership interest in the
unconsolidated limited partnerships and general partnerships. Although we have
an interest in two unconsolidated general partnerships and are the general
partner in three of the unconsolidated limited partnerships, under the terms of
the various partnership agreements, we do not have control of the major
operating and financial policies of these unconsolidated partnerships.
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 the life of the property, which is generally 40 years.
From time to time, we contribute real estate assets to an unconsolidated
joint venture in exchange for a combination of cash and an equity interest in
the venture. We record a partial gain on the contribution of the real estate
assets to the extent of the third party investor's interest and record a
deferred gain to the extent of our continuing interest in the unconsolidated
joint venture.
22
RESULTS OF OPERATIONS
On January 1, 2002, we adopted Financial Accounting Standards Board
Statement No. 144, "Accounting for the Impairment and Disposal of Long-Lived
Assets", ("SFAS 144"). As described in Note 10 to the Consolidated Financial
Statements, we reclassified the operations and/or gain/(loss) from disposal of
certain properties to discontinued operations if the properties were either sold
during 2002 or were held for sale at December 31, 2002 and met certain
conditions as stipulated by SFAS 144. Accordingly, the operations and
gain/(loss) from those properties disposed of during 2001 and 2000 were not
reclassified to discontinued operations.
The following table sets forth information regarding our results of
operations for the years ended December 31, 2002, 2001 and 2000 ($ in millions):
YEAR ENDED DECEMBER 31, 2002 2001
------------------------------------ TO 2001 TO 2000
2002 2001 2000 $ CHANGE $ CHANGE
----------- ----------- ----------- ----------- ------------
RENTAL REVENUE................................... $ 454.1 $ 469.1 $ 509.7 $ (15.0) $ (40.6)
OPERATING EXPENSES:
Rental property............................... 142.7 144.4 148.4 (1.7) (4.0)
Depreciation and amortization................. 126.6 113.4 112.9 13.2 0.5
Interest expense:
Contractual................................. 108.5 102.5 106.3 6.0 (3.8)
Amortization of deferred financing costs.... 1.4 2.0 2.5 (0.6) (0.5)
----------- ----------- ----------- ----------- ------------
109.9 104.5 108.8 5.4 (4.3)
General and administrative (includes $913
nonrecurring compensation expense in 2002)... 23.6 21.1 23.1 2.5 (2.0)
Litigation reserve............................ 2.7 -- -- 2.7 --
----------- ----------- ----------- ----------- ------------
Total operating expenses.................... 405.5 383.4 393.2 22.1 (9.8)
----------- ----------- ----------- ----------- ------------
OTHER INCOME:
Interest and other income..................... 13.1 22.0 16.8 (8.9) 5.2
Equity in earnings of unconsolidated
affiliates................................... 7.7 8.3 3.1 (0.6) 5.2
----------- ----------- ----------- ----------- ------------
20.8 30.3 19.9 (9.5) 10.4
----------- ----------- ----------- ----------- ------------
Income before gain/(loss) on disposition of
land and depreciable assets, discontinued
operations and extraordinary item............ 69.4 116.0 136.4 (46.6) (20.4)
Gain on disposition of land................... 6.9 4.7 6.4 2.2 (1.7)
Gain/(loss) on disposition of depreciable
assets...................................... 5.3 11.5 (1.7) (6.2) 13.2
----------- ----------- ----------- ----------- ------------
12.2 16.2 4.7 (4.0) 11.5
Income from continuing operations............. 81.6 132.2 141.1 (50.6) (8.9)
DISCONTINUED OPERATIONS:
Income from discontinued operations........... 14.4 18.8 17.3 (4.4) 1.5
Gain on sale of discontinued operations....... 12.3 -- -- 12.3 --
----------- ----------- ----------- ----------- ------------
26.7 18.8 17.3 7.9 1.5
----------- ----------- ----------- ----------- ------------
Net income before extraordinary item.......... 108.3 151.0 158.4 (42.7) (7.4)
EXTRAORDINARY ITEM - LOSS ON EARLY
EXTINGUISHMENT OF DEBT.......................... (0.4) (0.7) (4.7) 0.3 4.0
----------- ----------- ----------- ----------- ------------
Net income.................................... 107.9 150.3 153.7 (42.4) (3.4)
Distributions on preferred units: (30.8) (31.5) (32.6) 0.7 1.1
----------- ----------- ----------- ----------- ------------
NET INCOME AVAILABLE FOR CLASS A COMMON UNITS. $ 77.1 $ 118.8 $ 121.1 $ (41.7) $ (2.3)
=========== =========== =========== =========== ============
23
Comparison of 2002 to 2001. Rental revenue from continuing operations
decreased $15.0 million, or 3.2%, from $469.1 million for the year ended
December 31, 2001 to $454.1 million for the year ended December 31, 2002. The
decrease was primarily due to a decrease in average occupancy rates from 91.6%
for the year ended December 31, 2001 to 86.0% for the year ended December 31,
2002. The average occupancy decreased mainly due to tenant rollover and early
lease terminations at various properties where vacant space was not re-leased
due to the lack of demand for office space coupled with an increasing supply of
competitive space. During the past twelve months, approximately 2.0 million
square feet of development properties were placed in-service which have
leased-up slower than expected and as a result, have also adversely affected the
occupancy of our overall portfolio. Rental revenue also decreased due to the
impact of dispositions during 2002 and 2001 that were not classified as
discontinued operations as more fully described in Note 10 of our Consolidated
Financial Statements.
In addition, as a result of the bankruptcy of WorldCom and its affiliates,
we wrote off approximately $3.1 million of accrued straight-line rent receivable
against revenue and since July 1, 2002, we have recorded rental revenue relating
to WorldCom and its affiliates on a cash basis rather than on a straight-line
basis.
Same property rental revenue generated from the 33.6 million square feet of
460 wholly-owned in-service properties on January 1, 2001, decreased $20.2
million for the year ended December 31, 2002 compared to the year ended December
31, 2001. This decrease is primarily a result of lower same store average
occupancy, which decreased from 93.0% in 2001 to 88.0% in 2002, and a decrease
in straight-line rental income primarily as a result of the bankruptcy of
WorldCom and its affiliates.
During the year ended December 31, 2002, 840 second generation leases
representing 5.6 million square feet of office, industrial and retail space were
executed at an average rate per square foot which was 5.5% lower than the
average rate per square foot on the expired leases.
Rental operating expenses from continuing operations (real estate taxes,
utilities, insurance, repairs and maintenance and other property-related
expenses) decreased $1.7 million, or 1.2%, from $144.4 million for the year
ended December 31, 2001 to $142.7 million for the year ended December 31, 2002.
Rental operating expenses as a percentage of rental revenue increased from 30.8%
for the year ended December 31, 2001 to 31.4% for the year ended December 31,
2002. The increase in these expenses as a percentage of revenue was a result of
increases in repairs and maintenance and certain fixed operating expenses that
do not vary with net changes in our occupancy average.
Same property rental property expenses, which are the expenses of the 460
in-service properties wholly-owned on January 1, 2001, decreased $204,830, or
0.2%, for the year ended December 31, 2002, compared to the year ended December
31, 2001. Same property rental property expenses as a percentage of related
revenue increased 1.4% from 30.4% for the year ended December 31, 2001 to 31.8%
for the year ended December 31, 2002. The increase as a percentage of revenue
was a result of increases in repairs and maintenance and certain fixed operating
expenses that do not vary with net changes in our occupancy average.
Depreciation and amortization from continuing operations for the years
ended December 31, 2002 and 2001 was $126.6 million and $113.4 million,
respectively. The increase of $13.2 million, or 11.6%, was due to an increase in
amortization related to leasing commissions and tenant improvement expenditures
for properties placed in-service during 2001 and 2002 and the write-off of $5.8
million of deferred leasing costs primarily related to the leases rejected by
WorldCom at December 31, 2002, see -"Known Trends Affecting Results of
Operations". These increases were partially offset by a decrease in depreciation
for properties disposed of during 2002 and 2001 that are not classified as
discontinued operations in accordance with SFAS 144.
Interest expense from continuing operations increased $5.4 million, or
5.2%, from $104.5 million for the year ended December 31, 2001 to $109.9 million
for the year ended December 31, 2002. The increase was primarily attributable to
the decrease in capitalized interest for the years ended December 31, 2002 and
2001, which was $7.0 million and $16.9 million, respectively. Partly offsetting
this increase was a decrease in weighted average interest rates from 7.2% in
2001 to 7.0% in 2002. The average outstanding debt balance remained relatively
consistent for 2002 and 2001. Interest expense for the years ended December 31,
2002 and 2001 included $1.4 million and $2.0 million, respectively, of
amortization of deferred financing costs and costs related to our interest rate
hedge contracts.
24
General and administrative expenses as a percentage of total rental
revenue, which includes rental revenue from discontinued operations, interest
and other income, and equity in earnings of unconsolidated affiliates was 4.7%
in 2002 and 3.9% in 2001. General and administrative expenses include $2.8
million in nonrecurring management fee expense related to options exercised by
certain executives that provide management services to the Operating
Partnership. These executives are employees of the Company, which is the
managing general partner of the Operating Partnership. In addition, general and
administrative expenses in 2002 included a nonrecurring compensation expense of
$913,000, which was related to the exercise of options during 2002. When an
option holder elected to exercise options, in lieu of issuing new shares upon
exercise of the option and then repurchasing shares on the open market, we
settled the option exercise by paying the option holder the net difference in
cash between the strike price and the market value of the underlying shares.
Such exercises were recorded as compensation expense under FASB Interpretation
No. 44 (Accounting For Certain Transactions Involving Stock Options, An
Interpretation of APB Opinion No. 25). Had we issued the shares to the option
holder, received the cash for the strike price and then repurchased the shares
in the market, we would not have been required to record any compensation
expense. During 2002, we discontinued the practice of settling option exercises
by paying the option holder the net difference in cash between the strike price
and the market value of the underlying shares. In the event we decide to
repurchase shares after an option exercise, we will require the option holder to
pay the cash for the strike price and then separately repurchase a corresponding
number of shares in the market under our stock repurchase program
We reserved $2.7 million in the year ended December 31, 2002 for probable
and estimated losses related to various legal proceedings from previously
completed mergers and acquisitions.
Interest and other income from continuing operations decreased $8.9
million, or 40.5%, from $22.0 million for the year ended December 31, 2001 to
$13.1 million for the year ended December 31, 2002. The decrease primarily
resulted from a decrease in leasing and development fee income in the year ended
December 31, 2002 and a decrease in interest income in the year ended December
31, 2002 due to the collection of notes receivable during 2001 and 2002.
Equity in earnings of unconsolidated affiliates decreased $601,845 from
$8.3 million for the year ended December 31, 2001 to $7.7 million for the year
ended December 31, 2002. The decrease was primarily a result of lower lease
termination fees and lower property operating expense reimbursements in 2002.
The decrease in earnings was partly offset by lower interest expense incurred
during 2002 as a result of lower weighted average borrowing rates and earnings
from certain joint ventures formed with unrelated investors during 2002.
Gain on disposition of land and depreciable assets decreased $4.0 million,
or 24.7%, to $12.2 million for the year ended December 31, 2002 from $16.2
million for the year ended December 31, 2001. In 2001, the majority of the gain
was comprised of a gain related to the disposition of 1,672 apartment units and
a gain related to the disposition of 180.3 acres of land. In 2002, the majority
of the gain was comprised of a gain related to the disposition of 533,263 square
feet of office properties, that did not meet certain conditions to be classified
as discontinued operations as described in Note 10 of the Consolidated Financial
Statements, and a gain related to the disposition of 112.7 acres of land. The
gain is partly offset by an impairment loss of approximately $9.1 million
recorded in 2002 related to a property that will be partially demolished and
redeveloped into a class A suburban office property.
In accordance with SFAS 144, we classified net income of $14.4 million and
$18.8 million, as discontinued operations for the years ended December 31, 2002
and 2001, respectively, which pertained to 1.9 million square feet of property
sold in 2002 and 2.3 million square feet of property held for sale at December
31, 2002. We also classified as discontinued operations in 2002 the gain on the
sale of these properties of $13.1 million, partly offset by an impairment charge
of $851,166, related to one property held for sale at December 31, 2002. In
addition, in accordance with SFAS 66, "Accounting for Sales of Real Estate," we
have deferred the recordation of additional gain of $6.9 million, relating to
the disposition to a third party buyer of 225,220 square feet during the fourth
quarter of 2002 for which we have guaranteed the buyer up to $20.5 million of
rental shortfalls or re-tenanting costs. See Note 13 of the Consolidated
Financial Statements.
We recorded $30.8 million and $31.5 million in preferred unit distributions
for each of the years ended December 31, 2002 and 2001, respectively. The
decrease resulted from our repurchase of $18.5 million preferred units during
2001.
25
Comparison of 2001 to 2000. Rental revenue from continuing operations
decreased $40.6 million, or 8.0%, from $509.7 million for the year ended
December 31, 2000 to $469.1 million for the year ended December 31, 2001. The
decrease was primarily a result of the net reductions in our property portfolio
as a result of our capital recycling program and a decrease in average occupancy
rates from 91.9% in 2000 to 91.6% in 2001. The decrease in revenue was partly
offset by an increase in rental rates on new leases and rollovers.
Same property rental revenue generated from the 32.1 million square feet of
the 449 in-service properties wholly-owned on January 1, 2000, increased $6.7
million, or 1.7%, 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.
Partly offsetting the increase in rental revenue was a decrease in same store
average occupancy which declined from 94.2% in 2000 to 93.2% in 2001 and a
decrease in termination fees from $4.0 million in 2000 to $2.5 million 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 operating expenses from continuing operations (real estate taxes,
utilities, insurance, repairs and maintenance and other property-related
expenses) decreased $4.0 million, or 2.7%, from $148.4 million for the year
ended December 31, 2000 to $144.4 million for the year ended December 31, 2001.
Rental operating expenses as a percentage of related revenue increased from
29.1% for the year ended December 31, 2000 to 30.8% for the year ended December
31, 2001. The increase as a percentage of revenue was a result of increases in
real estate taxes, utilities and other fixed operating expenses that do not vary
with net changes in our occupancy average.
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. Rental operating expenses as a percentage of related revenue
increased from 29.8% for the year ended December 31, 2000 to 30.8% for the year
ended December 31, 2001. The increase as a percentage of revenue was a result of
increases in real estate taxes, utilities and other fixed operating expenses
that do not vary with net changes in our occupancy average.
Depreciation and amortization from continuing operations for the years
ended December 31, 2001 and 2000 totaled $113.4 million and $112.9 million,
respectively. The increase of $538,929, or 0.5%, 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 were sold as a result of our
capital recycling program during 2001 and 2000.
Interest expense from continuing operations decreased $4.3 million, or
4.0%, from $108.8 million for the year ended December 31, 2000 to $104.5 million
for the year ended December 31, 2001. The decrease was primarily attributable to
a higher average outstanding debt balance for 2001 and a decrease in the
weighted average interest rates from 7.5% in 2000 to 7.2% in 2001. Partly
offsetting this decrease was a decrease in capitalized interest for the years
ended December 31, 2001 and 2000 which was $16.9 million and $23.7 million,
respectively. 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 costs related to our interest rate hedge contracts.
General and administrative expenses as a percentage of total rental
revenue, which includes rental revenue from discontinued operations, interest
and other income and equity in earnings of unconsolidated affiliates was 3.9% in
2001 and 4.1% in 2000.
Interest and other income increased $5.2 million, or 31.0%, from $16.8
million for the year ended December 31, 2000 to $22.0 million for the year ended
December 31, 2001. The increase resulted from additional interest income earned
on notes receivable 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 Note 8 to the Consolidated Financial Statements) along with other
income generated from our apartments which were sold during 2001.
26
Equity in earnings of unconsolidated affiliates increased $5.2 million from
$3.1 million for the year ended December 31, 2000 to $8.3 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
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.
In accordance with SFAS 144, we classified $18.8 million and $17.3 million
as discontinued operations for the years ended December 31, 2001 and 2000,
respectively, which pertained to 1.9 million square feet of property sold during
2002 and 2.3 million square feet of property held for sale at December 31, 2002.
We recorded $31.5 million and $32.6 million in preferred unit distributions
for each of the years ended December 31, 2001 and 2000, respectively. The
decrease resulted from the $18.5 million repurchase of preferred units during
2001.
KNOWN TRENDS AFFECTING RESULTS OF OPERATIONS
We expect our net income and funds from operations to be lower in 2003 than
in 2002 due to the following factors:
. lower average occupancy;
. lower than average re-leasing;
. lower than average first year cash rents;
. additional asset sales;
. the bankruptcy of two significant customers in 2002; and
. general economic conditions in each of our primary markets.
In 2003, we expect occupancy to be lower than in 2002 primarily due to the
leases rejected by WorldCom and US Airways. During 2003, the leases on
approximately 5.9 million rentable square feet of space, or 19.0% of our
portfolio, will expire. This square footage represented approximately 18.5% of
our annualized revenue in 2002. As of March 1, 2003, approximately 43.0% of this
space had been re-leased with existing tenants or leased to new tenants.
Historically, we have renewed approximately 60.0%-75.0% of expiring leases with
existing tenants. We expect this re-leasing percentage to be lower during 2003.
In addition, we expect the average rental rate for expiring leases that have
been renewed or released in 2003 to be lower than in 2002.
While employment trends in the majority of our markets have begun to show
signs of positive growth in 2003, we do not anticipate that this employment
growth will lead to a corresponding increase in demand for office space in 2003.
Improving employment in our markets will not necessarily result in positive
space absorption because of the significant amount of under-utilized space and
space available for sublease in our markets. Customers have indicated that they
are, for the most part, unwilling to commit to space expansion plans until they
have a better sense of the stability of the economic recovery in the U.S. and
abroad.
In 2003, we expect to continue our capital recycling program of selectively
disposing of non-core properties or other properties the sale of which can
generate attractive returns. See "Liquidity and Capital Resources - Capital
Recycling Program." Although we intend to use the net proceeds from asset
dispositions to repay debt, fund unitholder distributions and repurchase Common
Units, any net decrease in our property portfolio generally tends to result in
lower net income.
27
On July 21, 2002, WorldCom filed a voluntary petition with the United
States Bankruptcy Court seeking relief under Chapter 11 of the United States
Bankruptcy Code. As of the filing date, we had 17 leases encompassing 986,522
square feet in fifteen locations with WorldCom and its affiliates. These leases
represented $17.9 million of annualized revenue and approximately 3.8% of our
total annualized revenue. As of December 31, 2002, WorldCom has rejected two
leases encompassing 819,653 square feet with annualized revenue of approximately
$14.9 million.
We have filed a claim in connection with these rejected leases in the
amount of $20.8 million. Actual amounts to be received in satisfaction of this
claim will be subject to WorldCom's final plan of reorganization and the
availability of funds to pay creditors.
In addition, there are 12 leases with WorldCom and its affiliates
encompassing 38,624 square feet in our Miller Global ("MG-HIW, LLC") joint
venture. WorldCom has not rejected any of these leases.
On August 11, 2002, US Airways Group Inc. filed a voluntary petition with
the United States Bankruptcy Court seeking relief under Chapter 11 of the United
States Bankruptcy Code. As of the filing date, we had six leases with US Airways
encompassing 414,059 square feet in Winston-Salem, North Carolina. These leases
represented $6.9 million of annualized revenue and approximately 1.47% of our
total annualized revenue. On February 20, 2003, the United States Bankruptcy
Court approved the terms of an agreement between us and US Airways whereby US
Airways will continue to lease 293,007 square feet of this space. Under this
agreement, US Airways has rejected two leases encompassing 119,013 square feet
with annualized revenue of approximately $3.1 million. One lease was rejected
effective February 1, 2003 and the second was rejected effective April 1, 2003.
Additionally, we have agreed to a $600,000 reduction in annual rent on one
lease, encompassing 81,220 square feet and expiring on December 31, 2007, for
the remaining term of the lease. US Airways has neither accepted nor rejected a
2,039 square foot lease that expires in 2004.
We cannot provide any assurance that WorldCom or US Airways will not reject
any additional leases nor that we will be able to re-lease rejected space
quickly or on as favorable terms.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows. The following table sets forth the changes in the
Operating Partnership's cash flows from 2001 to 2002 ($ in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2002 2001 CHANGE
-------------- -------------- --------------
Cash Provided By Operating Activities.......................... $ 203,008 $ 249,080 $ (46,072)
Cash Provided By/(Used In) Investing Activities................ 186,353 (110,801) 297,154
Cash Used in Financing Activities.............................. (379,425) (239,971) (139,454)
-------------- -------------- --------------
Total Cash Flows............................................ $ 9,936 $ (101,692) $ 111,628
============== ============== ==============
Cash provided by operating activities was $203.0 million in 2002 and $249.1
million in 2001. The decrease of $46.1 million primarily a result of: (1) a
decrease in average occupancy rates for our wholly-owned portfolio; (2) a net
decrease in our portfolio as a result of our capital recycling program; and (3)
a decrease in interest income and development and leasing income. In addition,
the level of net cash provided by operating activities is affected by the timing
of receipt of revenue and payment of expenses.
Cash provided by investing activities was $186.4 million in 2002 and cash
used in investing activities was $110.8 million in 2001. The increase of $297.2
million was primarily a result of an increase in proceeds from dispositions of
real estate assets of approximately $140.8 million in 2002 and a decrease in
additions to real estate assets of approximately $220.9 million in 2002,
primarily as a result of the decrease in the development activity for that same
period.
Cash used in financing activities was $379.4 million in 2002 and $240.0
million in 2001. The increase of $136.5 million was primarily a result of an
increase of $306.7 million in net repayments on the unsecured revolving loan,
mortgages and notes payable in 2002, partly offset by a decrease of $142.6
million related to the repurchase of Common Units and a decrease of $18.5
million related to the repurchase of preferred units during 2001.
28
Capitalization. Our total indebtedness at December 31, 2002 was $1.49
billion and was comprised of $500.7 million of secured indebtedness with a
weighted average interest rate of 8.0% and approximately $1.0 billion of
unsecured indebtedness with a weighted average interest rate of 6.9%. We do not
intend to reserve funds to retire existing secured or unsecured debt upon
maturity. For a more complete discussion of our long-term liquidity needs, see
"Current and Future Cash Needs."
The following table sets forth the principal payments due on our long-term
debt as of December 31, 2002, as adjusted for the refinancing of the MOPPRS on
February 3, 2003 ($ in thousands):
TOTAL 2003 2004 2005 2006 2007 THEREAFTER
----------- --------- --------- --------- --------- --------- ----------
FIXED RATE DEBT:
Unsecured:
MOPPRS (1).................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Put Option Notes (2)........ 100,000 -- -- -- -- -- 100,000
Notes....................... 706,500 246,500 -- -- 110,000 -- 350,000
Secured:
Mortgages and loans payable. 639,220 11,543 14,689 79,435 17,235 77,137 439,181
----------- --------- --------- --------- --------- --------- ----------
Total Fixed Rate Debt....... 1,445,720 258,043 14,689 79,435 127,235 77,137 889,181
----------- --------- --------- --------- --------- --------- ----------
VARIABLE RATE DEBT:
Unsecured:
Term Loan................... 20,000 -- -- 20,000 -- -- --
Revolving Loan.............. 37,000 37,000 -- -- -- -- --
Secured:
Revolving Loan.............. -- -- -- -- -- -- --
Mortgage loan payable....... 4,309 246 265 279 292 3,227 --
----------- --------- --------- --------- --------- --------- ----------
Total Variable Rate Debt...... 61,309 37,246 265 20,279 292 3,227 --
----------- --------- --------- --------- --------- --------- ----------
TOTAL LONG TERM DEBT............ $ 1,507,029 $ 295,289 $ 14,954 $ 99,714 $ 127,527 $ 80,364 $ 889,181
=========== ========= ======== ========= ========= ========= ==========
(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 bore an interest rate of 6.835% from the date of issuance
through January 31, 2003. On January 31, 2003, the interest rate was
changed to 8.975% pursuant to the interest rate reset provisions of the
MOPPRS. On February 3, 2003, the Operating Partnership repurchased 100.0%
of the principal amount of the MOPPRS from the sole holder thereof in
exchange for a secured note in the principal amount of $142.8 million. The
secured note bears interest at a fixed rate of 6.03% and has a maturity
date of February 28, 2013.
(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.
SECURED INDEBTEDNESS
The mortgage and loans payable and the secured revolving loan were secured
by real estate assets with an aggregate carrying value of approximately $1.1
billion at December 31, 2002 as adjusted for the refinancing of the MOPPRS on
February 3, 2003.
UNSECURED INDEBTEDNESS
The Operating Partnership's unsecured notes of $806.5 million bear fixed
interest rates ranging from 6.8% to 8.1%, with interest payable semi-annually in
arrears. Any 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 Put Option Notes,
are redeemable at any time prior to maturity at our option, subject to certain
conditions including the payment of make-whole amounts.
29
We currently have a $300.0 million unsecured revolving loan (with $37.0
million outstanding at December 31, 2002) that matures in December 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 Baa3 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 95 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.
The terms of each of our revolving loans and the indenture that governs our
outstanding notes require us to comply with certain operating and financial
covenants and performance ratios. We are currently in compliance with all such
requirements. Although we expect to remain in compliance with the covenants and
ratios under our revolving loans for at least the next several quarters,
depending upon our future operating performance, we cannot assure you that we
will continue to be in compliance. We are currently negotiating with our lenders
a replacement of our current unsecured revolving loan, which expires in December
2003, with a new unsecured revolving loan that would contain less-restrictive
covenants. However, we cannot assure you that we will be able to obtain such new
financing on acceptable terms, if at all.
The following table sets forth more detailed information about the
Company's ratio and covenant compliance under the Company's revolving loan as of
December 31, 2002 and 2001. Certain of these definitions may differ from similar
terms used in the consolidated financial statements and may, for example,
consider our proportionate share of investments in unconsolidated affiliates.
For a more detailed discussion of the covenants in our revolving loan, including
definitions of certain relevant terms, see the credit agreement governing our
revolving loan which is incorporated by reference in this Annual Report on Form
10-K as Exhibit 10.13.
2002 2001
-------------- --------------
Total Liabilities Less Than or Equal to 55% of Total Assets 49.9% 51.4%
Unencumbered Assets Greater Than or Equal to 2 times Unsecured Debt 2.25 2.16
Secured Debt Less Than or Equal to 30% of Total Assets 19.1% 18.3%
Adjusted EBDITA Greater Than 2.25 times Interest Expense 2.55 2.88
Adjusted EBDITA Greater Than 1.75 times Fixed Charges 1.88 2.10
Adjusted NOI Unencumbered assets Greater Than 2.25 times Interest on Unsecured Debt 3.05 3.45
Tangible Net Worth Greater Than $1.6 Billion $ 1.7 billion $ 1.8 billion
Restricted payments, including distributions to shareholders, Less Than or Equal to
100% of CAD 92.7% 83.3%
The following table sets forth more detailed information about the
Operating Partnership's ratio and covenant compliance under the Operating
Partnership's indenture as of December 31, 2002 and 2001. Certain of these
definitions may differ from similar terms used in the consolidated financial
statements and may, for example, consider our proportionate share of investments
in unconsolidated affiliates. For a more detailed discussion of the covenants in
our indenture, including definitions of certain relevant terms, see the
indenture governing our unsecured notes which is incorporated by reference in
this Annual Report on Form 10-K as Exhibit 4.2.
2002 2001
-------------- --------------
Overall Debt Less Than or Equal to 60% of Adjusted Total Assets 39.3% 42.5%
Secured Debt Less Than or Equal to 40% of Adjusted Total Assets 13.2% 13.2%
Income Available for debt service Greater Than 1.50 times Annual Service Charge 3.1 3.5
Total Unencumbered Assets Greater Than 200% of Unsecured Debt 294.2% 262.4%
30
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, unitholder 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 except for the $1.8 million renovation of Tampa Bay Park and the $9.1
million non-recurring renovation of Country Club Plaza. In addition, we could
incur tenant improvements and lease commissions related to any releasing of
space currently leased by WorldCom and US Air and the redevelopment of the
Environmental Protection Agency site in Research Triangle.
In addition to the requirements discussed above, our short-term (within the
next 12 months) liquidity requirements also include the funding of approximately
$15.2 million of our existing development activity and first generation tenant
improvements and lease commissions on properties placed in-service that are not
fully leased. 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 $205.9
million of availability as of March 6, 2003);
. the selective disposition of non-core assets or other assets the
sale of which can generate attractive returns;
. 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 March 6, 2003, we had $2.5
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 needs in both the
short and long term. However, if these sources of funds are insufficient or
unavailable, the Operating Partnership's ability to make distributions to
unitholders and satisfy other cash payments may be adversely affected.
31
Joint Ventures. During the past several years, in order to generate
additional capital, we have formed various joint ventures with unrelated
investors. We have retained minority equity interests ranging from 22.81% 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 and the results of
operations of the ventures are not included on our income statement, other than
as equity in earnings of unconsolidated affiliates.
On June 14, 2002, we contributed $1.1 million cash to Plaza Colonnade, LLC,
a newly formed limited liability company to construct a 285,000 square foot
development property. The total project costs are estimated at $70.6 million. We
have retained a 50.0% interest in this joint venture, and have adopted the
equity method of accounting for this joint venture. On February 12, 2003, Plaza
Colonnade, LLC signed a $61.3 million construction loan to fund the development
of this property. The loan requires that the joint venture receive at least $9.3
million of additional equity, $4.6 million of which will be our share. We and
our partners in this joint venture have each guaranteed 50.0% of the loan. The
loan repayment guarantees are reduced upon the project reaching certain
predetermined criteria. In addition, the guarantees are reduced to 25.0% of the
loan balance. In addition to the construction loan described above, the partners
have provided collectively $12.0 million in letters of credit, $6.0 million by
us and $6.0 million by our partner. During construction the joint venture is
required to have in place the aforementioned letters of credit.
On June 26, 2002, we acquired our joint venture partner's interest in
MG-HIW Rocky Point, LLC, which owned Harborview Plaza, a 205,000 rentable square
foot office property, to bring our ownership interest in that entity from 50.0%
to 100.0%. At that time, we consolidated the assets and liabilities, and
recorded income and expenses on a consolidated basis.
On September 11, 2002, we contributed Harborview Plaza to SF-HIW Harborview
Plaza, LP, a newly formed joint venture with a different partner, in exchange
for a 20.0% limited partnership interest and $12.1 million in cash. We are the
sole and exclusive property manager and leasing agent of this joint venture's
property, for which it received fees of $60,794 in 2002. The assets, liabilities
and net income from the SF-HIW Harborview Plaza, LP are included in the table
below. In addition, our partner in SF-HIW Harborview, LP has the right to put
its 80.0% equity interest in the partnership to us for cash at anytime during
the one year period commencing on September 11, 2014. The value of the equity
interest will be determined based upon the ten fair market value of SF-HIW
Harborview Plaza, LP's assets and liabilities.
32
The following tables set forth information regarding our joint venture
activity as recorded on the joint venture's books at December 31, 2002 and 2001
($ in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2001
--------------------------------------- ------------------------------------
PERCENT TOTAL TOTAL TOTAL TOTAL
OWNED ASSETS DEBT LIABILITIES ASSETS DEBT LIABILITIES
---------- ---------- ---------- ----------- ---------- ---------- -----------
BALANCE SHEET DATA:
Board of Trade
Investment Company ........... 49.00% $ 7,778 $ 919 $ 1,071 $ 7,372 $ 1,076 $ 1,258
Dallas County Partners .......... 50.00% 44,128 38,904 41,285 44,786 35,495 40,967
Dallas County Partners II ....... 50.00% 18,900 23,587 24,874 19,891 24,601 25,778
Fountain Three .................. 50.00% 37,159 30,958 32,581 37,218 26,049 33,200
RRHWoods, LLC ................... 50.00% 82,646 68,561 71,767 82,740 66,038 69,098
Schweiz-Deutschland-USA
DreilanderBeteiligung Objekt
DLF 98/29-
Walker Fink-KG ............... 22.81% 141,147 68,209 70,482 143,960 69,113 70,979
Dreilander-Fonds 97/26 and 99/32 42.93% 119,134 59,688 62,601 122,820 60,000 62,422
Highwoods-Markel Associates, LLC 50.00% 16,026 11,625 12,583 16,436 11,625 12,563
MG-HIW, LLC ..................... 20.00% 355,102 242,240 249,340 353,531 242,240 247,950
MG-HIW Peachtree Corners III, LLC 50.00% 3,809 2,494(1) 2,823 3,503 2,299 2,445
MG-HIW Rocky Point, LLC ......... 50.00% -- -- -- 28,212 17,322 19,695
MG-HIW Metrowest I, LLC ......... 50.00% 1,601 -- 3 1,600 -- --
MG-HIW Metrowest II, LLC ........ 50.00% 9,600 5,372(2) 5,540 8,683 3,763 4,034
Concourse Center Associates, LLC 50.00% 14,896 9,859 10,193 14,551 10,000 10,016
Plaza Colonnade, LLC ............ 50.00% 3,591 --(3) 3 -- -- --
SF-HIW Harborview, LP. .......... 20.00% 41,134 22,800 25,225 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total $ 896,651 $ 585,216 $ 610,371 $ 885,303 $ 569,621 $ 600,405
========== ========== ========== ========== ========== ==========
(1) Amount represents total draws at December 31, 2002 on a construction loan
made to this joint venture by an affiliate of the Company with an interest
rate of LIBOR plus 200 basis points due July 2003.
(2) $2.7 million of this debt has been guaranteed by the Operating Partnership
subject to a prorata indemnity from the Operating Partnership's joint
venture partner.
(3) On February 12, 2003, Plaza Colonnade, LLC signed a $61.3 million
construction loan to fund the development of this property. The loan
requires that the joint venture invest $9.3 million, $4.6 million of which
will be the Operating Partnership's share. The Operating Partnership and
its partners in this joint venture have guaranteed 50.0% of the loan.
YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------------------------------
NET
PERCENT OPERATING DEPR/ INCOME/
OWNED REVENUE EXPENSES INTEREST AMORT (LOSS)
----------- ----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Board of Trade
Investment Company ........... 49.00% $ 2,670 $ 1,647 $ 83 $ 363 $ 577
Dallas County Partners .......... 50.00% 11,046 5,470 2,663 1,998 915
Dallas County Partners II ....... 50.00% 5,948 2,522 2,452 1,062 (88)
Fountain Three .................. 50.00% 6,884 2,850 2,143 1,516 375
RRHWoods, LLC ................... 50.00% 13,740 7,145 3,397(1) 3,617 (419)
Schweiz-Deutschland-USA
DreilanderBeteiligu
Objekt DLF 98/29-
Walker Fink-KG .............. 22.81% 20,337 5,549 4,653 3,391 6,744
Dreilander-Fonds 97/26 and 99/32 42.93% 16,859 4,465 4,635 3,968 3,791
Highwoods-Markel Associates, LLC 50.00% 3,191 1,642 1,032 562 (45)
MG-HIW, LLC ..................... 20.00% 51,177 18,156 10,741 8,377 13,903
MG-HIW Peachtree Corners III, LLC 50.00% -- 55 -- 44 (99)
MG-HIW Rocky Point, LLC ......... 50.00% 1,813 555 271 248 739
MG-HIW Metrowest I, LLC ......... 50.00% -- 26 -- -- (26)
MG-HIW Metrowest II, LLC ........ 50.00% 303 240 50 246 (233)
Concourse Center Associates, LLC 50.00% 2,113 539 681 302 591
Plaza Colonnade, LLC ............ 50.00% 9 -- -- 2 7
SF-HIW Harborview, LLC .......... 20.00 1,721 458 432 289 542
----------- ----------- ----------- ----------- -----------
Total $ 137,811 $ 51,319 $ 33,233 $ 25,985 $ 27,274
=========== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 2001
-------------------------------------------------------------------
NET
OPERATING DEPR/ INCOME/
REVENUE EXPENSES INTEREST AMORT (LOSS)
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Board of Trade
Investment Company .............. $ 2,524 $ 1,666 $ 90 $ 311 $ 457
Dallas County Partners .......... 11,148 4,905 2,715 1,883 1,645
Dallas County Partners II ....... 7,614 2,750 2,550 1,066 1,248
Fountain Three .................. 6,747 2,912 2,109 1,676 50
RRHWoods, LLC ................... 14,632 6,950 3,454 3,298 930
Schweiz-Deutschland-USA
DreilanderBeteiligu
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
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
Plaza Colonnade, LLC ............ -- -- -- -- --
SF-HIW Harborview, LLC .......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total ........................... $ 134,470 $ 48,353 $ 36,643 $ 24,15 $ 25,318
=========== =========== =========== =========== ===========
(1) Includes a $617,297 loss on early extinguishment of debt.
33
As of December 31, 2002, our joint ventures had approximately $585.2
million of outstanding debt. The following table sets forth the principal
payments due on that outstanding long-term debt as recorded on the joint
venture's books at December 31, 2002 ($ in thousands):
PERCENT
OWNED TOTAL 2003 2004 2005 2006
------------ ------------ ------------ ------------ ------------ ------------
Board of Trade
Investment Company .................. 49.00% $ 919 $ 170 $ 214 $ 184 $ 152
Dallas County Partners ................. 50.00% 38,904 901 4,420 967 4,730
Dallas County Partners II .............. 50.00% 23,587 1,122 1,522 1,242 1,684
Fountain Three ......................... 50.00% 30,958 1,029 1,275 1,104 1,369
RRHWoods, LLC .......................... 50.00% 68,561 1,254 431 1,272 4,240
Schweiz-Deutschland-USA
DreilanderBeteiligung Objekt
DLF 98/29-Walker Fink-KG ............ 22.81% 68,209 967 1,185 1,035 1,268
Dreilander-Fonds 97/26 and 99/32 ....... 42.93% 59,688 661 831 714 897
Highwoods-Markel Associates, LLC ....... 50.00% 11,625 62 120 100 130
MG-HIW, LLC ............................ 20.00% 242,240 -- 242,240 -- --
MG-HIW Peachtree Corners III, LLC ...... 50.00% 2,494(1) 2,494 -- -- --
MG-HIW Metrowest I, LLC ................ 50.00% -- -- -- -- --
MG-HIW Metrowest II, LLC ............... 50.00% 5,372(2) -- -- -- --
Concourse Center Associates, LLC ....... 50.00% 9,859 164 202 176 217
Plaza Colonnade, LLC ................... 50.00% --(3) -- -- -- --
SF-HIW Harborview, LP. ................. 20.00% 22,800 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total .................................. $ 585,216(4) $ 8,824 $ 252,440 $ 6,794 $ 14,6
============ ============ ============ ============ ============
2007 THEREAFTER
----------- -----------
Board of Trade
Investment Company .................. $ 199 $ --
Dallas County Partners ................. 1,039 26,847
Dallas County Partners II .............. 1,375 16,642
Fountain Three ......................... 1,187 24,994
RRHWoods, LLC .......................... 403 60,961
Schweiz-Deutschland-USA
DreilanderBeteiligung Objekt
DLF 98/29-Walker Fink-KG ............ 1,107 62,647
Dreilander-Fonds 97/26 and 99/32 ....... 770 55,815
Highwoods-Markel Associates, LLC ....... 111 11,102
MG-HIW, LLC ............................ -- --
MG-HIW Peachtree Corners III, LLC ...... -- --
MG-HIW Metrowest I, LLC ................ -- --
MG-HIW Metrowest II, LLC ............... 5,372 --
Concourse Center Associates, LLC ....... 189 8,911
Plaza Colonnade, LLC ................... -- --
SF-HIW Harborview, LP. ................. -- 22,800
------------ -----------
Total .................................. $ 11,752 $ 290,719
============ ===========
(1) Amount represents total draws at December 31, 2002 on a construction loan
made to this joint venture by an affiliate of the Company with an interest
rate of LIBOR plus 200 basis points due July 2003.
(2) $2.7 million of this debt has been guaranteed by the Operating Partnership
subject to a prorata indemnity from the Operating Partnership's joint
venture partner.
(3) On February 12, 2003, Plaza Colonnade, LLC signed a $61.3 million
construction loan to fund the development of a property. The loan requires
that the joint venture invest $9.3 million, $4.6 million of which will be
the Operating Partnership's share. The Operating Partnership and its
partners in this joint venture have guaranteed 50.0% of the loan. As of
March 3, 2003, Plaza Colonnade, LLC has borrowed $626,000 under this loan.
(4) All of this joint venture debt is non-recourse to us except in the case of
customary exceptions pertaining to such matters as misuse of funds,
environmental conditions and material misrepresentations and those
guarantees and loans described in the footnotes above.
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 interest rate on all of our variable rate debt is currently adjusted at
one to 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 $415,051
during 2002 and were recorded as additional interest expense.
Common Unit Repurchase Program. During 2002, we repurchased a total of
194,790 common partnership units at a weighted average price of $24.79 per unit.
Since commencement of our initial share repurchase program in December 1999, we
have repurchased 11.6 million shares of common stock and common units at a
weighted average price of $24.19 per share/unit for a total purchase price of
$280.7 million. 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. At December 31, 2002, we had 3.4 million
shares/units remaining under our currently authorized additional 5.0 million
share/unit repurchase program.
34
Capital Recycling Program. In 2003, we expect to continue our capital
recycling program of selectively disposing of non-core properties or other
properties the sale of which can generate attractive returns. At February 18,
2003, we had 2.3 million square feet of office properties and 186.0 acres of
land under letter of intent or contract for sale in various transactions with a
carrying value of $106.9 million. These transactions are subject to customary
closing conditions, including due diligence and documentation, and are expected
to close during 2003. However, we can provide no assurance that all or parts of
these transactions will be consummated.
We expect to use substantially all of the net proceeds from our disposition
activity for one or all of the following purposes:
. reduce our outstanding debt;
. pay unitholder distributions; or
. repurchase Common Units subject to the factors discussed above
under "--Common Unit Repurchase Program".
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of" and the accounting and reporting provisions for disposals of a
segment of business as addressed in APB 30 "Reporting the Results of
Operations-Reporting the Effects of the Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 is effective as of January 1, 2002 and extends the reporting requirements of
discontinued operations to include those long-lived assets which:
(1) are classified held for sale at December 31, 2002 as a result of
disposal activities that were initiated subsequent to January 1, 2002
or
(2) were sold during 2002 as a result of disposal activities that were
initiated subsequent to January 1, 2002.
Per SFAS 144, those long-lived assets which were sold during 2002 and
resulted from disposal activities initiated prior to January 1, 2002 should be
accounted for in accordance with SFAS 121 and APB 30. We adopted SFAS No. 144 in
January of 2002. Income from discontinued operations and the gain/(loss) on sale
of discontinued operations for properties meeting the criteria in accordance
with SFAS No. 144 are reflected in the consolidated statements of income as
discontinued operations for all periods presented. See Note 10 to the
Consolidated Financial Statements for further discussion on our discontinued
operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections",
which rescinds Statement No. 4, which required all gains and losses from
extinguishment of debt to be aggregated, and if material, classified as an
extraordinary item, net of related income tax effect. The provisions of SFAS No.
145 related to the rescission of Statement No. 4 are effective for financial
statements issued for fiscal years beginning after May 15, 2002. We will adopt
SFAS No. 145 in the first quarter of 2003. We do not anticipate that the
adoption of this statement will have a material effect on our results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring"). The
standard is effective for disposal activities initiated after December 31, 2002.
We will adopt SFAS No. 146 in the first quarter of 2003. We do not anticipate
that the adoption of this statement will have a material effect on our results
of operations.
35
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which changes the accounting for, and
disclosure of certain guarantees. Beginning with transactions entered into after
December 31, 2002, certain guarantees are to be recorded at fair value, which is
different from prior practice, under which a liability was recorded only when a
loss was probable and reasonably estimable. In general, the change applies to
contracts or indemnification agreements that contingently require us to make
payments to a guaranteed third-party based on changes in underlying asset,
liability, or an equity security of guaranteed party.
While the accounting provisions only apply for new transactions entered
into after December 31, 2002, the Interpretation requires us to include, and we
have included, new disclosures in these financial statements. We are assessing
the impact of this interpretation on our accounting for guarantees.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends FASB No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, the statement amends the
disclosure requirements of Statement No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The standard is effective for financial statements issued for fiscal
years beginning after December 15, 2002. On January 1, 2003, we will adopt the
fair value method of accounting for stock-based compensation provisions of
Statement No. 123. In accordance with SFAS 148, we will apply the prospective
method of accounting and will expense all future employee stock options (and
similar awards) over the vesting period based on the fair value of the award on
the date of grant. We do not anticipate that the adoption of this statement will
have a material effect on our results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities ("FIN 46")," the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights. ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires additional
disclosures. We are assessing the impact of this interpretation on its
accounting for investments in unconsolidated joint ventures.
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.
Our calculation of FFO, as defined by the National Association of Real
Estate Investment Trusts (NAREIT), is as follows:
. Net income (loss) - computed in accordance with GAAP;
. Less gains (or plus losses) from sales of depreciable operating
properties and items that are classified as extraordinary items
under GAAP;
. Plus depreciation and amortization of assets uniquely significant
to the real estate industry; and
36
. Plus or minus adjustments for unconsolidated partnerships and
joint ventures (to reflect funds from operations on the same
basis).
In addition, our calculation of FFO includes the add back of the transition
adjustment of SFAS 133, as this amount does not impact the comparative
measurement of our operating performance.
Cash available for distribution ("CAD") 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. In addition, CAD includes both recurring and nonrecurring operating
results. As a result, nonrecurring items that are not defined as "extraordinary"
under GAAP are reflected in the calculation of CAD.
FFO and cash available for distribution for the years ended December 31,
2002, 2001 and 2000 are summarized in the following table ($ in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
FUNDS FROM OPERATIONS:
Income before gain/(loss) on disposition of land and depreciable
assets, discontinued operations and extraordinary item .................. $ 69,398 $ 115,947 $ 136,481
Add/(Deduct):
Distributions to preferred unitholders ................................ (30,852) (31,500) (32,580)
Transition adjustment upon adoption of SFAS 133 ....................... -- 556 --
Gain on disposition of land ........................................... 6,894 4,702 6,449
Depreciation and amortization ......................................... 126,636 113,415 112,876
Unconsolidated affiliates:
Loss on early extinguishment of debt ................................ 309 -- --
Depreciation ........................................................ 9,190 8,144 5,192
Discontinued operations (1):
Depreciation and amortization ....................................... 7,112 7,574 6,212
Income .............................................................. 14,423 18,823 17,299
------------ ------------ ------------
Funds from operations ............................................. $ 203,110 $ 237,661 $ 251,929
CASH AVAILABLE FOR DISTRIBUTION:
Add/(Deduct):
Rental income from straight-line rents ................................ $ (3,672) $ (11,257) $ (14,892)
Nonrecurring compensation expense ..................................... 913 -- --
Litigation reserve .................................................... 2,700 -- --
Amortization of deferred financing costs .............................. 1,394 2,005 2,512
Non-incremental revenue generating capital expenditures:
Building improvements paid .......................................... (7,947) (8,345) (10,566)
Second generation tenant improvements paid .......................... (20,531) (19,704) (22,287)
Second generation lease commissions paid ............................ (12,321) (15,697) (13,033)
------------ ------------ ------------
(40,799) (43,746) (45,886)
------------ ------------ ------------
Cash available for distribution ................................... $ 163,646 $ 184,663 $ 193,663
============ ============ ============
PER COMMON UNIT-DILUTED:
Funds from operations ................................................. $ 3.37 $ 3.85 $ 3.75
============ ============ ============
Cash available for distribution ....................................... $ 2.72 $ 2.99 $ 2.88
============ ============ ============
Distributions paid .................................................... $ 2.34 $ 2.31 $ 2.25
============ ============ ============
DISTRIBUTIONS PAYOUT RATIOS:
Funds from operations ................................................. 69.4% 60.0% 60.0%
============ ============ ============
Cash available for distribution ....................................... 86.0% 77.3% 78.1%
============ ============ ============
Weighted average common units outstanding - basic ........................ 59,963 61,430 67,054
============ ============ ============
Weighted average common units outstanding - diluted ...................... 60,222 61,773 67,225
============ ============ ============
(1) For further discussion related to discontinued operations, see Note 10 of
the Consolidated Financial Statements.
37
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.
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.
As of December 31, 2002, we had approximately $61.3 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, 2003, our
interest expense would be increased or decreased by approximately $613,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company is the sole general partner of the Operating Partnership. The
section under the heading "Election of Directors" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 19, 2003 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 AND
RELATED STOCKHOLDER MATTERS
The Operating Partnership has no executive officers or directors. As of
December 31, 2002, the only person or group known by us to be holding more than
5.0% of the Common Units was the Company, which owned 52,991,386 Common Units,
or approximately 88.4% of the outstanding Common Units. In addition, the section
under the heading "Equity Compensation Plan Information" 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.
ITEM 14. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our annual and periodic reports
filed with the SEC is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms. These disclosure controls
and procedures are further designed to ensure that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure. SEC rules require that we disclose the conclusions of the
CEO and CFO of the Company about the effectiveness of our disclosure controls
and procedures.
The CEO/CFO evaluation of our disclosure controls and procedures included a
review of the controls' objectives and design, the controls' implementation by
the company and the effect of the controls on the information generated for use
in this Annual Report. In the course of the evaluation, we sought to identify
data errors, controls problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. Our
disclosure controls and procedures are also evaluated on an ongoing basis by the
following:
. employees in our internal audit department;
. other personnel in our finance organization;
. members of our internal disclosure committee;
. members of the audit committee of the Company's Board of
Directors; and
. our independent auditors in connection with their audit and
review activities.
39
Among other matters, we sought in our evaluation to determine whether there
were any "significant deficiencies" or "material weaknesses" in our disclosure
controls and procedures, or whether we had identified any acts of fraud
involving personnel who have a significant role in our disclosure controls and
procedures. In the professional auditing literature, "significant deficiencies"
are referred to as "reportable conditions," which are control issues that could
have a significant adverse effect on the ability to record, process, summarize
and report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions.
The Company's management, including the CEO and CFO, does not expect that
our disclosure controls and procedures will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of disclosure controls and procedures must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
Based on the most recent evaluation, which was completed within 90 days
prior to the filing of this Annual Report, the Company's CEO and CFO believe
that our disclosure controls and procedures are effective to ensure that
material information relating to us and our consolidated subsidiaries is made
known to management, including the CEO and CFO, particularly during the period
when our periodic reports are being prepared, and that our disclosure controls
and procedures are effective to provide reasonable assurance that our financial
statements are fairly presented in conformity with GAAP.
Since the date of this most recent evaluation, there have been no
significant changes in our internal controls or in other factors that could
significantly affect the internal controls subsequent to the date we completed
our evaluation.
40
PART IV
ITEM 15. 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
----------- ------- ----------------------------------------------------------------------------------------------------
3.1 (1) Amended and Restated Articles of Incorporation of the Company
3.2 (2) Amended and Restated Bylaws of the Company
4.1 (2) Specimen of certificate representing shares of Common Stock
4.2 (3) Indenture among the Operating Partnership, the Company and First Union National Bank of
North Carolina dated as of December 1, 1996
4.3 (4) Specimen of certificate representing 8 5/8% Series A Cumulative Redeemable Preferred Shares
4.4 (5) Specimen of certificate representing 8% Series B Cumulative Redeemable Preferred Shares
4.5 (6) Specimen of certificate representing 8% Series D Cumulative Redeemable Preferred Shares
4.6 (6) Specimen of Depositary Receipt evidencing the Depositary Shares each representing 1/10 of an 8%
Series D Cumulative Redeemable Preferred Share
4.7 (6) Deposit Agreement, dated April 23, 1998, between the Company and First Union National Bank, as
preferred share depositary
4.8 (7) Rights Agreement, dated as of October 6, 1997, between the Company and First Union National Bank, as
rights agent
4.9 (8) Agreement to furnish certain instruments defining the rights of long-term debt holders
10.1 (2) Amended and Restated Agreement of Limited Partnership of the Operating Partnership
10.2 (4) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with
respect to Series A Preferred Units
10.3 (5) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with
respect to Series B Preferred Units
10.4 (6) Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with
respect to Series D Preferred Units
10.5 (9) 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 (10) 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 (11) Amended and Restated 1994 Stock Option Plan
10.8 (8) 1997 Performance Award Plan
10.9 (12) Form of Executive Supplemental Employment Agreement between the Company and Named Executive Officers
41
EX. FN DESCRIPTION
----------- ------- ----------------------------------------------------------------------------------------------------
10.10 (13) 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 (14) Form of warrants to purchase Common Stock of the Company issued to W. Brian Reames, John W. Eakin
and Thomas S. Smith
10.12 (15) 1999 Shareholder Value Plan
10.13 (16) 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 (12) Schedule of subsidiaries of the Company
23 Consent of Ernst & Young LLP
99.1 Statement of Chief Executive Officer of Highwoods Properties Inc.
99.2 Statement of Chief Financial Officer of Highwoods Properties Inc.
- ----------
(1) 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.
(2) Filed as part of Registration Statement 33-76952 with the SEC and
incorporated herein by reference.
(3) Filed as part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(4) Filed as part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(5) Filed as part of the Company's Current Report on Form 8-K dated September
25, 1997 and incorporated herein by reference.
(6) Filed as part of the Company's Current Report on Form 8-K dated April 20,
1998 and incorporated herein by reference.
(7) Filed as part of the Company's Current Report on Form 8-K dated October 4,
1997 and incorporated herein by reference.
(8) 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.
(9) 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.
(10) 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.
(11) Filed as part of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002.
(12) 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.
(13) Filed as part of Registration Statement 33-88364 with the SEC and
incorporated herein by reference.
(14) Filed as part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(15) 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.
(16) Filed as part of the Company's Current Report on Form 8-K dated December
14, 2000 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
We filed a Current Report on Form 8-K, dated January 2, 2003,
reporting under Items 5 and 7(c) certain matters related to WorldCom's
rejection of its lease at Highwoods Preserve in Tampa, Florida.
42
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 25, 2003.
HIGHWOODS REALTY LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., in its capacity as general
partner (the "General Partner")
By: /s/ RONALD P. GIBSON
-------------------------------------------------------
Ronald P. Gibson, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------------------------------------- ------------------------------------- --------------
/s/ O. Temple Sloan, Jr. Chairman of the Board of March 25, 2003
--------------------------------------- Directors of the General Partner
O. Temple Sloan, Jr.
/s/ Ronald P. Gibson President, Chief Executive Officer March 25, 2003
--------------------------------------- and Director of the General Partner
Ronald P. Gibson
/s/ Edward J. Fritsch Executive Vice President, Chief March 25, 2003
--------------------------------------- Operating Officer, Secretary and
Edward J. Fritsch Director of the General Partner
/s/ John L. Turner Vice Chairman of the Board and March 25, 2003
--------------------------------------- Director of the General Partner
John L. Turner
/s/ Gene H. Anderson Senior Vice President and March 25, 2003
--------------------------------------- Director of the General Partner
Gene H. Anderson
/s/ Thomas W. Adler Director of the General Partner March 25, 2003
---------------------------------------
Thomas W. Adler
/s/ Kay N. Callison Director of the General Partner March 25, 2003
---------------------------------------
Kay N. Callison
/s/ William E. Graham, Jr. Director of the General Partner March 25, 2003
---------------------------------------
William E. Graham, Jr.
/s/ Lawrence S. Kaplan Director of the General Partner March 25, 2003
---------------------------------------
Lawrence S. Kaplan
/s/ L. Glenn Orr, Jr. Director of the General Partner March 25, 2003
---------------------------------------
L. Glenn Orr, Jr.
/s/ Willard H. Smith, Jr. Director of the General Partner March 25, 2003
---------------------------------------
Willard H. Smith, Jr.
/s/ F. William Vandiver, Jr Director of the General Partner March 25, 2003
---------------------------------------
F. William Vandiver, Jr.
/s/ Carman J. Liuzzo Vice President and Chief Financial March 25, 2003
--------------------------------------- Officer (Principal Financial Officer
Carman J. Liuzzo and Principal Accounting Officer)
and Treasurer of the General Partner
43
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement has been sent to security holders of
the Registrant. The General Partner of the Registrant has mailed its annual
report and its proxy statement to holders of common stock of the General
Partner. Portions of the General Partner's proxy statement are incorporated by
reference herein in Items 10-13 of Part III.
44
CERTIFICATION
I, Ronald P. Gibson, certify that:
1. I have reviewed this annual report on Form 10-K of Highwoods Realty
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Annual Report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 25, 2003
/s/ RONALD P. GIBSON
- ------------------------------------------------------------
Ronald P. Gibson
President and Chief Executive Officer of the General Partner
45
CERTIFICATION
I, Carman J. Liuzzo, certify that:
1. I have reviewed this annual report on Form 10-K of Highwoods Realty
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 25, 2003
/s/ CARMAN J. LIUZZO
- -----------------------------------------------------------------
Carman J. Liuzzo
Vice President and Chief Financial Officer of the General Partner
46
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47
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Highwoods Realty Limited Partnership
Report of Independent Auditors ................................................................ F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 .................................. F-3
Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000 ........ F-4
Consolidated Statements of Partners' Capital for the Years Ended December 31, 2002, 2001 and
2000 ......................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 .... F-6
Notes to Consolidated Financial Statements .................................................... F-8
Schedule III -- Real Estate and Accumulated Depreciation ...................................... F-39
All other schedules are omitted because they are not applicable, or because
the required information is included in the consolidated financial statements or
notes thereto.
F-1
REPORT OF INDEPENDENT AUDITORS
To The Owners
Highwoods Realty Limited Partnership
We have audited the accompanying consolidated balance sheets of Highwoods
Realty Limited Partnership (a majority-owned subsidiary of Highwoods Properties,
Inc.) as of December 31, 2002 and 2001, and the related consolidated statements
of income, partners' capital, and cash flows for each of the three years in the
period ended December 31, 2002. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Operating Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highwoods
Realty Limited Partnership at December 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002 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.
In 2002, as discussed in Note 1 to the consolidated financial statements,
the Operating Partnership adopted the provisions of Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets".
/S/ ERNST & YOUNG LLP
Raleigh, North Carolina
February 14, 2003
F-2
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
($ in thousands)
DECEMBER 31,
--------------------------------
2002 2001
-------------- --------------
ASSETS:
Real estate assets, at cost:
Land and improvements ................................................................. $ 393,860 $ 402,410
Buildings and tenant improvements ..................................................... 2,869,049 2,857,703
Development in process ................................................................ 6,847 108,272
Land held for development ............................................................. 175,302 146,445
Furniture, fixtures and equipment ..................................................... 20,960 19,392
-------------- --------------
3,466,018 3,534,222
Less - accumulated depreciation ....................................................... (462,099) (373,914)
-------------- --------------
Net real estate assets ................................................................ 3,003,919 3,160,308
Property held for sale ................................................................... 104,779 178,641
Cash and cash equivalents ................................................................ 10,730 794
Restricted cash .......................................................................... 8,582 5,685
Accounts receivable, net of allowance of $1,450 and $1,087, respectively ................. 13,389 23,302
Advances to related parties .............................................................. -- 788
Notes receivable ......................................................................... 9,949 13,726
Accrued straight-line rents receivable ................................................... 48,777 49,078
Investment in unconsolidated affiliates .................................................. 75,019 78,084
Other assets:
Deferred leasing costs ................................................................ 100,168 100,426
Deferred financing costs .............................................................. 26,120 26,121
Prepaid expenses and other ............................................................ 15,295 10,441
-------------- --------------
141,583 136,988
Less - accumulated amortization ....................................................... (71,673) (58,839)
-------------- --------------
Other assets, net ................................................................... 69,910 78,149
-------------- --------------
Total Assets ............................................................................. $ 3,345,054 $ 3,588,555
============== ==============
LIABILITIES AND PARTNERS' CAPITAL:
Mortgages and notes payable .............................................................. $ 1,489,220 $ 1,672,230
Accounts payable, accrued expenses and other liabilities ................................. 114,870 114,920
-------------- --------------
Total Liabilities ..................................................................... 1,604,090 1,787,150
Minority interest ........................................................................ -- 318
Redeemable operating partnership units:
Class A Common Units, 6,974,524 and 7,143,747 outstanding at December 31,
2002 and 2001, respectively .......................................................... 154,137 185,380
Class B Common Units, 0 and 196,492 outstanding at December 31, 2002 and
2001, respectively ................................................................... -- 5,099
Series A Preferred Units, 104,945 outstanding at December 31, 2002 and 2001 ........... 103,308 103,308
Series B Preferred Units, 6,900,000 outstanding at December 31, 2002 and
2001 ................................................................................. 166,346 166,346
Series D Preferred Units, 400,000 outstanding at December 31, 2002 and 2001 ........... 96,842 96,842
Partners' Capital:
Class A common units:
General partner Common Units, 599,659 and 596,268 outstanding at December
31, 2002 and 2001, respectively ...................................................... 12,332 12,569
Limited partner Common Units, 52,391,727 and 51,886,745 outstanding at
December 31, 2002 and 2001, respectively ............................................. 1,220,902 1,244,545
Accumulated other comprehensive loss ..................................................... (9,204) (9,441)
Deferred compensation - restricted units ................................................. (3,699) (3,561)
-------------- --------------
Total Partners' Capital ............................................................... 1,220,331 1,244,112
-------------- --------------
Total Liabilities and Partners' Capital .................................................. $ 3,345,054 $ 3,588,555
============== ==============
See accompanying notes to consolidated financial statements.
F-3
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
($ in thousands, except per unit amounts)
For the Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
---------- ---------- ----------
Rental revenue ...................................................................... $ 454,122 $ 469,134 $ 509,669
OPERATING EXPENSES:
Rental property .................................................................. 142,686 144,443 148,407
Depreciation and amortization .................................................... 126,636 113,415 112,876
Interest expense:
Contractual .................................................................... 108,503 102,468 106,283
Amortization of deferred financing costs ....................................... 1,394 2,005 2,512
---------- ---------- ----------
109,897 104,473 108,795
General and administrative (includes $913 nonrecurring
compensation expense in 2002) ................................................... 23,644 21,086 23,069
Litigation reserve ............................................................... 2,700 -- --
---------- ---------- ----------
Total operating expenses ....................................................... 405,563 383,417 393,147
---------- ---------- ----------
OTHER INCOME:
Interest and other income ........................................................ 13,164 21,954 16,847
Equity in earnings of unconsolidated affiliates .................................. 7,675 8,276 3,112
---------- ---------- ----------
20,839 30,230 19,959
---------- ---------- ----------
Income before gain/(loss) on disposition of land and
depreciable assets, discontinued operations and
extraordinary item .............................................................. 69,398 115,947 136,481
Gain on disposition of land ...................................................... 6,894 4,702 6,449
Gain/(loss) on disposition of depreciable assets ................................. 5,356 11,495 (1,792)
---------- ---------- ----------
Income from continuing operations ................................................ 81,648 132,144 141,138
DISCONTINUED OPERATIONS:
Income from discontinued operations .............................................. 14,423 18,823 17,299
Gain on sale of discontinued operations .......................................... 12,271 -- --
---------- ---------- ----------
26,694 18,823 17,299
---------- ---------- ----------
Net income before extraordinary item ............................................. 108,342 150,967 158,437
Extraordinary item - loss on early extinguishment of debt ........................... (378) (714) (4,732)
---------- ---------- ----------
Net income ....................................................................... 107,964 150,253 153,705
Distributions on preferred units .................................................... (30,852) (31,500) (32,580)
---------- ---------- ----------
Net income available for Class A common units .................................... $ 77,112 $ 118,753 $ 121,125
========== ========== ==========
NET INCOME PER COMMON UNIT - BASIC:
Income from continuing operations ................................................ $ 0.85 $ 1.64 $ 1.62
Income from discontinued operations .............................................. 0.45 0.30 0.26
Extraordinary item - loss on early extinguishment of debt ........................ (0.01) (0.01) (0.07)
---------- ---------- ----------
Net income ....................................................................... $ 1.29 $ 1.93 $ 1.81
========== ========== ==========
NET INCOME PER COMMON UNIT - DILUTED:
Income from continuing operations ................................................ $ 0.84 $ 1.63 $ 1.61
Income from discontinued operations .............................................. 0.45 0.30 0.26
Extraordinary item - loss on early extinguishment of debt ........................ (0.01) (0.01) (0.07)
---------- ---------- ----------
Net income ....................................................................... $ 1.28 $ 1.92 $ 1.80
========== ========== ==========
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING - BASIC: CLASS A COMMON UNITS:
General Partner ................................................................ 600 612 669
Limited Partners ............................................................... 59,363 60,622 66,189
Class B common units:
Limited Partners ............................................................... -- 196 196
---------- ---------- ----------
Total ............................................................................ 59,963 61,430 67,054
========== ========== ==========
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING - DILUTED: CLASS A COMMON UNITS:
General Partner ................................................................ 602 616 670
Limited Partners ............................................................... 59,620 60,961 66,359
Class B common units:
Limited Partners ............................................................... -- 196 196
---------- ---------- ----------
Total ............................................................................ 60,222 61,773 67,225
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
($ in thousands)
For the Years Ended December 31, 2002, 2001 and 2000
CLASS A COMMON UNIT
----------------------------
ACCUMULATED
GENERAL LIMITED OTHER TOTAL
PARTNER'S PARTNERS' DEFERRED COMPREHENSIVE PARTNERS'
CAPITAL CAPITAL COMPENSATION LOSS CAPITAL
------------ ------------ ------------- -------------- ------------
Balance at December 31, 1999: $ 15,485 $ 1,533,096 $ -- $ -- $ 1,548,581
Issuance of common units..................... 29 3,023 -- -- 3,052
Redemption/repurchase of common units........ (987) (97,756) -- -- (98,743)
Distributions paid........................... (1,519) (150,371) -- -- (151,890)
Preferred distributions paid................. (326) (32,254) -- -- (32,580)
Net income................................... 1,537 152,168 -- -- 153,705
Adjustments of redeemable common units to
fair value.................................. (136) (13,557) -- -- (13,693)
Issuance of restricted stock................. 31 3,018 (3,049) -- --
Amortization of deferred compensation........ -- -- 561 -- 561
------------ ------------ ------------- -------------- ------------
Balance at December 31, 2000: ............... 14,114 1,397,367 (2,488) -- 1,408,993
Issuance of common units .................... 36 3,658 -- -- 3,694
Redemption/repurchase of common units ....... (1,475) (145,951) -- -- (147,426)
Distributions paid .......................... (1,429) (141,460) -- -- (142,889)
Preferred distributions paid ................ (315) (31,185) -- -- (31,500)
Net income .................................. 1,503 148,750 -- -- 150,253
Adjustments of redeemable common units to
fair value ................................. 114 11,278 -- -- 11,392
Other comprehensive loss .................... -- -- -- (9,441) (9,441)
Issuance of restricted stock ................ 21 2,088 (2,109) -- --
Amortization of deferred compensation ....... -- -- 1,036 -- 1,036
------------ ------------ ------------- -------------- ------------
Balance at December 31, 2001: ............... 12,569 1,244,545 (3,561) (9,441) 1,244,112
Issuance of common units .................... 76 7,478 -- -- 7,554
Redemption/repurchase of common units ....... (48) (4,784) -- -- (4,832)
Retirement of treasury units ................ (11) (1,163) -- -- (1,174)
Distributions paid .......................... (1,412) (139,764) -- -- (141,176)
Preferred distributions paid ................ (308) (30,544) -- -- (30,852)
Net income .................................. 1,080 106,884 -- -- 107,964
Adjustments of redeemable common units to
fair value ................................. 372 36,850 -- -- 37,222
Other comprehensive income .................. -- -- -- 237 237
Issuance of restricted stock ................ 14 1,400 (1,414) -- --
Amortization of deferred compensation ....... -- -- 1,276 -- 1,276
------------ ------------ ------------- -------------- ------------
Balance at December 31, 2002: ............... $ 12,332 $ 1,220,902 $ (3,699) $ (9,204) $ 1,220,331
============ ============ ============= ============== ============
See accompanying notes to consolidated financial statements.
F-5
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
------------ ------------ ------------
OPERATING ACTIVITIES:
Income from continuing operations .................................... $ 81,648 $ 132,144 $ 141,138
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation ...................................................... 108,397 100,402 102,316
Amortization of lease commissions ................................. 18,239 13,013 10,560
Amortization of deferred compensation ............................. 1,276 1,036 561
Amortization of deferred financing costs .......................... 1,394 2,005 2,512
Amortization of accumulated other comprehensive loss .............. 1,543 1,565 --
Equity in earnings of unconsolidated affiliates ................... (7,675) (8,276) (3,112)
Gain on disposition of land and depreciable assets ................ (12,250) (16,197) (4,657)
Transition loss upon adoption of SFAS 133 ......................... -- 556 --
Loss on ineffective portion of derivative instruments ............. -- 554 --
Discontinued operations ........................................... 21,535 26,397 23,511
Changes in operating assets and liabilities:
Accounts receivable ............................................... 9,920 (1,295) (1,116)
Prepaid expenses and other assets ................................. (7,751) (2,077) 3,417
Accrued straight-line rents receivable ............................ (3,344) (11,257) (14,892)
Accounts payable, accrued expenses and other liabilities .......... (9,924) 10,510 (2,259)
------------ ------------ ------------
Net cash provided by operating activities ....................... 203,008 249,080 257,979
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to real estate assets ...................................... (130,821) (351,726) (420,494)
Proceeds from disposition of real estate assets ...................... 302,205 161,389 729,945
Repayments from/(advances to) subsidiaries ........................... 788 27,570 (13,062)
Distributions from unconsolidated affiliates ......................... 10,919 8,940 2,400
Investments in notes receivable ...................................... 3,777 58,321 (20,035)
Other investing activities ........................................... (515) (15,295) (27,155)
------------ ------------ ------------
Net cash provided by/(used in) investing activities ............. 186,353 (110,801) 251,599
------------ ------------ ------------
FINANCING ACTIVITIES:
Distributions paid on common units ................................... (141,176) (142,889) (151,890)
Dividends paid on preferred units .................................... (30,852) (31,500) (32,580)
Net proceeds from the sale of common units ........................... 5,788 1,780 1,021
Redemption/repurchase of common units ................................ (4,832) (147,426) (98,743)
Redemption/repurchase of preferred units ............................. -- (18,501) --
Loss on early extinguishment of debt ................................. (378) (714) (4,732)
Borrowings on revolving loans ........................................ 198,500 482,900 522,000
Repayment of revolving loans ......................................... (362,000) (282,400) (723,000)
Borrowings on mortgages and notes payable ............................ 51,737 76,707 218,162
Repayment of mortgages and notes payable ............................. (94,613) (176,918) (168,260)
Net change in deferred financing costs ............................... (1,599) (1,010) (2,985)
------------ ------------ ------------
Net cash used in financing activities ........................... (379,425) (239,971) (441,007)
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents ................. 9,936 (101,692) 68,571
Cash and cash equivalents at beginning of the period ................. 794 102,486 33,915
------------ ------------ ------------
Cash and cash equivalents at end of the period ....................... $ 10,730 $ 794 $ 102,486
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................... $ 114,608 $ 117,990 $ 126,957
============ ============ ============
See accompanying notes to consolidated financial statements.
F-6
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows -- Continued
($ in thousands)
For the Years Ended December 31, 2002, 2001 and 2000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The following summarizes the net assets contributed by the holders of
Common Units in the Operating Partnership (other than the Company), the net
assets acquired subject to mortgage notes payable and other non-cash equity
transactions:
2002 2001 2000
------------ ------------ ------------
ASSETS:
Notes receivable....................................................... $ -- $ -- $ 6,372
Accounts receivable.................................................... 139 -- --
Net real estate assets................................................. 43,148 6,516 (56,055)
Cash and cash equivalents.............................................. 353 40 --
Investment in unconsolidated affiliates................................ -- -- 48,054
------------ ------------ ------------
$ 43,640 $ 6,556 $ (1,629)
============ ============ ============
LIABILITIES:
Mortgages and notes payable............................................ $ 23,366 $ 3,922 $ --
Accounts payable, accrued expenses and other liabilities............... 18,508 73 --
------------ ------------ ------------
41,874 3,995 --
------------ ------------ ------------
Equity:................................................................ $ 1,766 $ 2,561 $ (1,629)
============ ============ ============
See accompanying notes to consolidated financial statements.
F-7
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE OPERATING PARTNERSHIP
Highwoods Realty Limited Partnership (the "Operating Partnership") is
managed by its general partner, Highwoods Properties, Inc. (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT") which
operates in the southeastern and midwestern United States. The Operating
Partnership's wholly-owned assets include: 493 in-service office, industrial and
retail properties; 213 apartment units; 1,308 acres of undeveloped land suitable
for future development; and an additional four properties under development.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 2002, the Company owned
88.4% 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 of Common Stock.
Generally, the Operating Partnership is obligated to redeem each Common
Unit at the request of the holder thereof for cash equal to the fair market
value of one share of the Company's Common Stock at the time of such redemption,
provided that the Company at its option may elect to acquire any such Common
Unit presented for redemption for cash or one share of Common Stock. When a
Common Unit holder redeems a Common Unit for a share of Common Stock or cash,
the minority interest will be reduced and the Company's share in the Operating
Partnership will be increased. The Common Units owned by the Company are not
redeemable for cash.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Operating
Partnership and its majority-owned affiliates. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
The extraordinary loss represents the payment of prepayment penalties and
the write off of loan origination fees related to the early extinguishment of
debt.
Impairment of long-lived assets. Real estate and leasehold improvements are
classified as long-lived assets held for sale or as long-lived assets to be held
and used. In accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the
Operating Partnership records assets held for sale at the lower of the carrying
amount or fair value less cost to sell. The impairment loss is the amount by
which the carrying amount exceeds the fair value less cost to sell. With respect
to assets classified as held and used, the Operating Partnership periodically
reviews these assets to determine whether its carrying amount will be recovered
from their undiscounted future operating cash flows and the Operating
Partnership recognizes an impairment loss to the extent it believes the carrying
amount is not recoverable. The Operating Partnership's estimates of the
undiscounted future operating cash flows expected to be generated are based on a
number of assumptions that are subject to economic and market uncertainties
including, among others, demand for space, competition for tenants, changes in
market rental rates, and costs to operate each property. As these factors are
difficult to predict and are subject to future events that may alter the
Operating Partnership's assumptions, the undiscounted future operating cash
flows estimated by the Operating Partnership in its impairment analyses may not
be achieved and the Operating Partnership may be required to recognize future
impairment losses on its properties.
F-8
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Allowance for doubtful accounts. Accounts receivable are reduced by an
allowance for amounts that may become uncollectible in the future. The Operating
Partnership's receivable balance is comprised primarily of rents and operating
cost recoveries due from tenants as well as accrued rental rate increases to be
received over the life of the existing leases. The Operating Partnership
regularly evaluates the adequacy of its allowance for doubtful accounts
considering such factors as the credit quality of its tenants, delinquency of
payment, historical trends and current economic conditions. Actual results may
differ from these estimates under different assumptions or conditions. If the
Operating Partnership's assumptions regarding the collectibility of accounts
receivables prove incorrect, the Operating Partnership could experience
write-offs of accounts receivable or accrued straight-line rents receivable in
excess of its allowance for doubtful accounts.
Capitalized costs. Expenditures directly related to both the development of
real estate assets and the leasing of properties are included in net real estate
assets and are stated at cost in the consolidated balance sheets. The
development expenditures include pre-construction costs essential to the
development of properties, development and construction costs, interest costs,
real estate taxes, salaries and other costs incurred during the period of
development. The leasing expenditures include all general and administrative
costs, including salaries incurred in connection with successfully securing
leases on the properties. Estimated costs related to unsuccessful leases are
expensed as incurred. If the Operating Partnership's assumptions regarding the
successful efforts of development and leasing are incorrect, the resulting
adjustments could impact earnings.
Fair value of derivative instruments. In the normal course of business, the
Operating Partnership is exposed to the effect of interest rate changes. The
Operating Partnership limits its exposure by following established risk
management policies and procedures including the use of derivatives. To mitigate
its exposure to unexpected changes in interest rates, derivatives are used
primarily to hedge against rate movements on the Operating Partnership's related
debt. The Operating Partnership is required to recognize all derivatives as
either assets or liabilities in the consolidated balance sheets and to measure
those instruments at fair value. Changes in fair value will affect either
stockholders' equity or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes.
To determine the fair value of derivative instruments, the Operating
Partnership uses a variety of methods and assumptions that are based on market
conditions and risks existing at each balance sheet date. For the majority of
financial instruments, including most derivatives, 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.
Rental revenue. Rental revenue is comprised of base rent, recoveries from
tenants which represent reimbursements for certain costs as provided in the
lease agreements such as real estate taxes, utilities, insurance, common area
maintenance and other recoverable costs, parking and other income and
termination fees which relate to specific tenants, each of whom has paid a fee
to terminate its lease obligation before the end of the contracted term on the
lease.
F-9
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
In accordance with GAAP, base rental revenue is recognized on a
straight-line basis over the terms of the respective leases. This means that,
with respect to a particular lease, actual amounts billed in accordance with the
lease during any given period may be higher or lower than the amount of rental
revenue recognized for the period. Accrued straight-line rents receivable
represents the amount by which straight-line rental revenue exceeds rents
currently billed in accordance with lease agreements.
Investments in joint ventures. The Operating Partnership's investments in
unconsolidated affiliates consist of one corporation, eight limited liability
companies, four limited partnerships and two general partnerships. The Operating
Partnership accounts for its investments in unconsolidated affiliates under the
equity method of accounting as the Operating Partnership exercises significant
influence, but does not control these entities. The Operating Partnership's
unconsolidated corporation is controlled by an unrelated third party that owns
more than 50.0% of the outstanding voting stock. The Operating Partnership has a
50.0% or less ownership interest in the unconsolidated limited liability
companies and, under the terms of the various operating agreements, does not
have any participating rights. The Operating Partnership has a 50.0% or less
ownership interest in the unconsolidated limited partnerships and general
partnerships. Although the Operating Partnership has an interest in two
unconsolidated general partnerships and is the general partner in three of the
unconsolidated limited partnerships, under the terms of the various partnership
agreements, the Operating Partnership does not have control of the major
operating and financial policies of these unconsolidated partnerships.
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 Operating Partnership's balance sheet and the
underlying equity in net assets is amortized as an adjustment to equity in
earnings of unconsolidated affiliates over the life of the property, generally
40 years.
From time to time, the Operating Partnership contributes real estate assets
to an unconsolidated joint venture in exchange for a combination of cash and an
equity interest in the venture. The Operating Partnership records a partial gain
on the contribution of the real estate assets to the extent of the third party
investor's interest and records a deferred gain to the extent of its continuing
interest in the unconsolidated joint venture.
REAL ESTATE ASSETS
All capitalizable costs related to the improvement or replacement of
commercial real estate properties are capitalized. Depreciation is computed by
the straight-line method over the estimated useful life of 40 years for
buildings and improvements and five to seven years for furniture, fixtures and
equipment. Tenant improvements are amortized over the life of the respective
leases, using the straight-line method. Real estate assets are stated at the
lower of cost or fair value, if impaired.
As of December 31, 2002, the Operating Partnership had 2.3 million square
feet of office properties and 162.6 acres of land under contract for sale in
various transactions totaling $123.7 million. These real estate assets have a
carrying value of $104.8 million and have been classified as assets held for
sale in the accompanying financial statements.
CASH EQUIVALENTS
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
F-10
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
RESTRICTED CASH
Restricted cash includes security deposits for the Operating Partnership's
commercial properties and construction-related escrows. In addition, the
Operating Partnership maintains escrow and reserve funds for debt service, real
estate taxes and property insurance established pursuant to certain mortgage
financing arrangements.
REDEEMABLE COMMON UNITS
Holders of redeemable Common Units may redeem each of their Common Units
for cash equal to the fair market value of one share of the Operating
Partnership's Common Stock at any time after expiration of the applicable
"lock-up" period. The Operating Partnership, the general partner of the
Operating Partnership, may at its option choose to satisfy the redemption
requirement by issuing Common Stock on a one-for-one basis for the number of
Common Units submitted for redemption. In accordance with ASR 268 issued by the
Securities and Exchange Commission, these Common Units are classified outside of
permanent partners' capital in the accompanying balance sheet. The recorded
value of the Common Units is based on fair value at the balance sheet date as
measured by the closing price of the Operating Partnership's common stock on
that date multiplied by the total number of Common Units outstanding.
INCOME TAXES
No provision has been made for income taxes because such taxes, if any, are
the responsibility of the individual partners.
CONCENTRATION OF CREDIT RISK
Management of the Operating Partnership performs ongoing credit evaluations
of its tenants. As of December 31, 2002, the wholly-owned properties (excluding
apartment units) were leased to 2,564 tenants in 14 geographic locations. The
Operating Partnership's tenants engage in a wide variety of businesses. There is
no dependence upon any single tenant.
COMMON UNIT AND STOCK COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. As described in Note 12 included herein, 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 stock
options. During 2002, the Financial Accounting Standards Board issued SFAS 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure", which
provides methods of transition to the fair value based method of accounting for
stock-based employee compensation. This standard is effective for financial
statements issued for fiscal years beginning after December 15, 2002. The
Operating Partnership will elect the prospective method as defined by SFAS 148
in the first quarter of 2003.
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.
F-11
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of" and the accounting and reporting provisions for disposals of a
segment of business as addressed in APB 30 "Reporting the Results of
Operations-Reporting the Effects of the Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 is effective as of January 1, 2002 and extends the reporting requirements of
discontinued operations to include those long-lived assets which:
(1) are classified held for sale at December 31, 2002 as a result of
disposal activities that were initiated subsequent to January 1, 2002
or
(2) were sold during 2002 as a result of disposal activities that were
initiated subsequent to January 1, 2002.
Per SFAS 144, those long-lived assets which were sold during 2002 and
resulted from disposal activities initiated prior to January 1, 2002 should be
accounted for in accordance with SFAS 121 and APB 30. The Operating Partnership
adopted SFAS No. 144 in January of 2002. Income from discontinued operations and
the gain/(loss) on sale of discontinued operations for properties meeting the
criteria in accordance with SFAS No. 144 are reflected in the consolidated
statements of income as discontinued operations for all periods presented. See
Note 10 included herein for further discussion on the Operating Partnership's
discontinued operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections",
which rescinds Statement No. 4, which required all gains and losses from
extinguishment of debt to be aggregated, and if material, classified as an
extraordinary item, net of related income tax effect. The provisions of SFAS No.
145 related to the rescission of Statement No. 4 are effective for financial
statements issued for fiscal years beginning after May 15, 2002. The Operating
Partnership will adopt SFAS No. 145 in the first quarter of 2003. The Operating
Partnership does not anticipate that the adoption of this statement will have a
material effect on its results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The
standard is effective for disposal activities initiated after December 31, 2002.
The Operating Partnership will adopt SFAS No. 146 in the first quarter of 2003.
The Operating Partnership does not anticipate that the adoption of this
statement will have a material effect on its results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which changes the accounting for, and
disclosure of certain guarantees. Beginning with transactions entered into after
December 31, 2002, certain guarantees are to be recorded at fair value, which is
different from prior practice, under which a liability was recorded only when a
loss was probable and reasonably estimable. In general, the change applies to
contracts or indemnification agreements that contingently require the Operating
Partnership to make payments to a guaranteed third-party based on changes in
underlying asset, liability, or an equity security of guaranteed party.
While the accounting provisions only apply for new transactions entered
into after December 31, 2002, the Interpretation requires the Operating
Partnership to include, and it has included, new disclosures in these financial
statements. The Operating Partnership is assessing the impact of this
interpretation on its accounting for guarantees.
F-12
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends FASB No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, the statement amends the
disclosure requirements of Statement No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The standard is effective for financial statements issued for fiscal
years beginning after December 15, 2002. On January 1, 2003, the Operating
Partnership will adopt the fair value method of accounting for stock-based
compensation provisions of Statement No. 123. In accordance with SFAS 148, the
Operating Partnership will apply the prospective method of accounting and will
expense all future employee stock options (and similar awards) over the vesting
period based on the fair value of the award on the date of grant. The Operating
Partnership does not anticipate that the adoption of this statement will have a
material effect on its results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities ("FIN 46")," the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights. ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires additional
disclosures. The Operating Partnership is assessing the impact of this
interpretation on its accounting for investments in unconsolidated joint
ventures.
RECLASSIFICATIONS
Certain amounts in the December 31, 2001 and 2000 Financial Statements have
been reclassified to conform to the December 31, 2002 presentation and
accounting for discontinued operations (see Note 10 included herein). These
reclassifications had no material effect on net income or partners' capital as
previously reported.
MINORITY INTEREST
Minority interest represents the limited partnership interest in a
partnership which was formed to develop real estate properties, owned by holders
other than the Operating Partnership.
2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the past several years, the Operating Partnership has formed various
joint ventures with unrelated investors. The Operating Partnership has retained
minority equity interests ranging from 22.81% to 50.00% in these joint ventures.
As required by GAAP, the Operating Partnership has accounted for its joint
venture activity using the equity method of accounting, as the Operating
Partnership does not control these joint ventures. As a result, the assets and
liabilities of the Operating Partnership's joint ventures are not included on
its balance sheet.
The following is a summary of the various joint ventures in which the
Operating Partnership 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
Operating Partnership and the ownership percentage of the Operating Partnership
in each joint venture.
In connection with the Company's merger with J.C. Nichols in July of 1998,
the Operating Partnership acquired a 49.0% interest in Board of Trade Investment
Company. The Operating Partnership is the sole and exclusive property manager of
the Board of Trade Investment Company joint venture, for which it received
$3,814, $5,310 and $0 in fees in 2002, 2001 and 2000, respectively. The
Operating Partnership has adopted the equity method of accounting for this joint
venture.
F-13
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES -- (Continued)
In addition, in connection with the Company's merger with J.C. Nichols
Company in July 1998, the Operating Partnership 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 Operating Partnership 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 Operating Partnership's consolidated financial
statements. On June 2, 1999, the Operating Partnership agreed with R&R Investors
to reorganize its respective ownership interests in the Des Moines Joint
Ventures such that each would own a 50.0% interest. Accordingly, the Operating
Partnership 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 Operating Partnership.
On March 15, 1999, the Operating Partnership closed a transaction with
Schweiz-Deutschland-USA Dreilander Beteiligung Objekt DLF 98/29-Walker Fink-KG
("DLF"), pursuant to which the Operating Partnership sold or contributed certain
office properties valued at approximately $142.0 million to a newly created
limited partnership (the "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
Operating Partnership 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 Operating Partnership received fees of
$862,006, $808,926 and $762,670 in 2002, 2001 and 2000, respectively. The
Operating Partnership has adopted the equity method of accounting for its
investment in this joint venture.
On May 9, 2000, the Operating Partnership closed a transaction with
Dreilander-Fonds 97/26 and 99/32 ("DLF II") pursuant to which the Operating
Partnership 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 Operating Partnership
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 Operating Partnership decreased its ownership
percentage to 42.93% as of December 31, 2001. The Operating Partnership is the
sole and exclusive property manager and leasing agent of the DLF II Joint
Venture's properties, for which the Operating Partnership received fees of
$530,932, $491,200 and $208,600 in 2002, 2001 and 2000, respectively. The
Operating Partnership has adopted the equity method of accounting for this joint
venture.
F-14
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES -- (Continued)
On December 19, 2000, the Operating Partnership formed five joint ventures
with Denver-based Miller Global Properties, LLC ("Miller Global"). In the first
joint venture, the Operating Partnership 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 Operating Partnership retained a 20.0% ownership interest and
received net cash proceeds of approximately $307.0 million. During 2001, the
Operating Partnership contributed a 39,000 square feet development project to
the first joint venture for $5.1 million. The joint venture borrowed an
additional $3.7 million under its existing debt agreement with a third party and
the Operating Partnership retained a 20.0% ownership interest and received net
cash proceeds of approximately $4.8 million. In the remaining four joint
ventures, the Operating Partnership contributed approximately $7.5 million of
development land to various newly created limited liability companies and
retained a 50.0% ownership interest. Three of these joint ventures have
developed three properties encompassing 347,000 rentable square feet that costs
approximately $50.4 million. The fourth joint venture is expected to develop one
property encompassing 88,000 rentable square feet with a budgeted cost of
approximately $10.8 million. The Operating Partnership is the sole and exclusive
developer of these properties, and received $34,997, $553,270 and $263,549 in
development fees in 2002, 2001 and 2000, respectively. In addition, the
Operating Partnership is the sole and exclusive property manager and leasing
agent for the properties in all of these joint ventures and received fees of
$2.9 million, $1.5 million and $73,793 in 2002, 2001 and 2000, respectively. The
Operating Partnership 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
Operating Partnership 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 Operating Partnership'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 Operating Partnership 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 Operating Partnership closed two
transactions with Highwoods-Markel Associates, LLC and Concourse Center
Associates, LLC pursuant to which the Operating Partnership 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 Operating Partnership 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 Operating Partnership received
fees of $109,775, $53,636 and $31,152 in 2002, 2001 and 2000, respectively. The
Operating Partnership has adopted the equity method of accounting for both of
these joint ventures.
On June 14, 2002, the Operating Partnership contributed $1.1 million cash
to Plaza Colonnade, LLC, a newly formed limited liability company to construct a
285,000 square foot development property. The total project costs are estimated
at $70.6 million. The Operating Partnership has retained a 50.0% interest in
this joint venture, and has adopted the equity method of accounting for this
joint venture. On February 12, 2003, Plaza Colonnade, LLC signed a $61.3 million
construction loan to fund the development of this property. The loan requires
that the joint venture invest $9.3 million, $4.6 million of which will be the
Operating Partnership's share. The Operating Partnership and its partners in
this joint venture have each guaranteed 50.0% of the loan. The loan repayment
guarantees are reduced upon the project reaching certain predetermined criteria.
In addition, the guarantees are reduced to 25.0% of the loan balance. In
addition to the construction loan described above, the partners have provided
collectively $12.0 million in letters of credit, $6.0 million by the Operating
Partnership and $6.0 million by its partner. During construction the joint
venture is required to have in place the aforementioned letters of credit.
F-15
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES -- (Continued)
On June 26, 2002, the Operating Partnership acquired its joint venture
partner's interest in MG-HIW Rocky Point, LLC, which owned Harborview Plaza, a
205,000 rentable square foot office property, to bring the Operating
Partnership's ownership interest in that entity to 100.0%. At that time, the
Operating Partnership consolidated the assets and liabilities, and recorded
income and expenses on a consolidated basis.
On September 11, 2002, the Operating Partnership contributed Harborview
Plaza to SF-HIW Harborview Plaza, LP, a newly formed joint venture with a
different partner, in exchange for a 20.0% limited partnership interest and
$12.1 million in cash. The Operating Partnership is the sole and exclusive
property manager and leasing agent of this joint venture's property, for which
it received fees of $60,794 in 2002. The assets, liabilities and net income from
the SF-HIW Harborview Plaza, LP are included in the table below.
The following tables set forth information regarding the Operating
Partnership's joint venture activity as recorded on the joint venture's books at
December 31, 2002 and 2001 ($ in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------------------------------- --------------------------------------
PERCENT TOTAL TOTAL TOTAL TOTAL
OWNED ASSETS DEBT LIABILITIES ASSETS DEBT LIABILITIES
------- ---------- ---------- ------------ ---------- ---------- ------------
BALANCE SHEET DATA:
Board of Trade
Investment Company ............. 49.00% $ 7,778 $ 919 $ 1,071 $ 7,372 $ 1,076 $ 1,258
Dallas County Partners (1) ........ 50.00% 44,128 38,904 41,285 44,786 35,495 40,967
Dallas County Partners II (1) ..... 50.00% 18,900 23,587 24,874 19,891 24,601 25,778
Fountain Three (1) ................ 50.00% 37,159 30,958 32,581 37,218 26,049 33,200
RRHWoods, LLC (1) ................. 50.00% 82,646 68,561 71,767 82,740 66,038 69,098
Schweiz-Deutschland-USA
DreilanderBeteiligung Objekt
DLF 98/29-Walker Fink-KG ......... 22.81% 141,147 68,209 70,482 143,960 69,113 70,979
Dreilander-Fonds 97/26 and 99/32 .. 42.93% 119,134 59,688 62,601 122,820 60,000 62,422
Highwoods-Markel Associates, LLC .. 50.00% 16,026 11,625 12,583 16,436 11,625 12,563
MG-HIW, LLC ....................... 20.00% 355,102 242,240 249,340 353,531 242,240 247,950
MG-HIW Peachtree Corners III, LLC . 50.00% 3,809 2,494 2,823 3,503 2,299 2,445
MG-HIW Rocky Point, LLC ........... 50.00% -- -- -- 28,212 17,322 19,695
MG-HIW Metrowest I, LLC ........... 50.00% 1,601 -- 3 1,600 -- --
MG-HIW Metrowest II, LLC .......... 50.00% 9,600 5,372 5,540 8,683 3,763 4,034
Concourse Center Associates, LLC .. 50.00% 14,896 9,859 10,193 14,551 10,000 10,016
Plaza Colonnade, LLC .............. 50.00% 3,591 -- 3 -- -- --
SF-HIW Harborview, LP. ............ 20.00% 41,134 22,800 25,225 -- -- --
---------- ---------- ------------ ---------- ---------- ------------
Total ............................. $ 896,651 $ 585,216 $ 610,371 $ 885,303 $ 569,621 $ 600,405
========== ========== ============ ========== ========== ============
(1) Des Moines joint ventures.
(2) Amount represents total draws at December 31, 2002 on a construction loan
made to this joint venture by an affiliate of the Company with an interest
rate of LIBOR plus 200 basis points due July 2003.
(3) $2.7 million of this debt has been guaranteed by the Operating Partnership
subject to a prorata indemnity from the Operating Partnership's joint
venture partner.
(4) On February 12, 2003, Plaza Colonnade, LLC signed a $61.3 million
construction loan to fund the development of this property. The loan
requires that the joint venture invest $9.3 million, $4.6 million of which
will be the Operating Partnership's share. The Operating Partnership and
its partners in this joint venture have each guaranteed 50.0% of the loan.
F-16
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES - (Continued)
DECEMBER 31, 2002
-------------------------------------------------------------------------
NET
PERCENT OPERATING DEPR/ INCOME/
OWNED REVENUE EXPENSES INTEREST AMORT (LOSS)
---------- ------------ ------------ ---------- ------------ ------------
INCOME STATEMENT DATA:
Board of Trade Investment Company ......... 49.00% $ 2,670 $ 1,647 $ 83 $ 363 $ 577
Dallas County Partners (1) ................ 50.00% 11,046 5,470 2,663 1,998 915
Dallas County Partners II (1) ............. 50.00% 5,948 2,522 2,452 1,062 (88)
Fountain Three (1) ........................ 50.00% 6,884 2,850 2,143 1,516 375
RRHWoods, LLC (1) ......................... 50.00% 13,740 7,145 3,397(2) 3,617 (419)
Schweiz-Deutschland-USA
DreilanderBeteilig
Objekt DLF 98/29-Walker Fink-KG .......... 22.81% 20,337 5,549 4,653 3,391 6,744
Dreilander-Fonds 97/26 and 99/32 .......... 42.93% 16,859 4,465 4,635 3,968 3,791
Highwoods-Markel Associates, LLC .......... 50.00% 3,191 1,642 1,032 562 (45)
MG-HIW, LLC ............................... 20.00% 51,177 18,156 10,741 8,377 13,903
MG-HIW Peachtree Corners III, LLC ......... 50.00% -- 55 -- 44 (99)
MG-HIW Rocky Point, LLC ................... 50.00% 1,813 555 271 248 739
MG-HIW Metrowest I, LLC ................... 50.00% -- 26 -- -- (26)
MG-HIW Metrowest II, LLC .................. 50.00% 303 240 50 246 (233)
Concourse Center Associates, LLC .......... 50.00% 2,113 539 681 302 591
Plaza Colonnade, LLC ...................... 50.00% 9 -- -- 2 7
SF-HIW Harborview, LLC .................... 20.00% 1,721 458 432 289 542
------------ ------------ ---------- ------------ -----------
TOTAL ..................................... $ 137,811 $ 51,319 $ 33,233 $ 25,985 $ 27,274
============ ============ ========== ============ ===========
DECEMBER 31, 2001
------------------------------------------------------------
NET
OPERATING DEPR/ INCOME/
REVENUE EXPENSES 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
RRHWoods, LLC (1) ......................... 14,632 6,950 3,454 3,298 930
Schweiz-Deutschland-USA
DreilanderBeteilig
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
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
Plaza Colonnade, LLC ...................... -- -- -- -- --
SF-HIW Harborview, LLC .................... -- -- -- -- --
------------ --------- --------- --------- ---------
TOTAL ..................................... $ 134,470 $ 48,353 $ 36,643 $ 24,156 $ 25,318
============ ========= ========= ========= =========
(1) Des Moines joint ventures
(2) Includes $617,297 loss on early extinguishment of debt.
F-17
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE
The Operating Partnership's mortgages and notes payable consisted of the
following at December 31, 2002 and 2001:
2002 2001
------------- ------------
($ IN THOUSANDS)
Mortgage and loans payable:
9.0% mortgage loans due 2005.................................... $ 36,089 $ 36,929
8.1% mortgage loans due 2005.................................... 28,004 28,693
8.2% mortgage loans due 2007.................................... 68,442 69,868
7.8% mortgage loans due 2009.................................... 89,946 91,449
7.9% mortgage loans due 2009.................................... 90,008 91,491
7.8% mortgage loans due 2010.................................... 142,841 134,966
4.5% to 9.4% mortgage loans due between 2002 and 2022........... 41,081 63,747
Variable rate mortgage loan due 2007............................ 4,309 --
Secured Revolving Loan due 2003................................. -- 3,922
------------- ------------
500,720 521,065
------------- ------------
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
MOPPRS due 2013 (1)............................................. 125,000 125,000
Put Option Notes due 2011 (2)................................... 100,000 100,000
7.5% notes due 2018............................................. 200,000 200,000
Term loan due 2002.............................................. -- 19,165
Term loan due 2005.............................................. 20,000 --
Unsecured Revolving Loan due 2003............................... 37,000 200,500
------------- ------------
988,500 1,151,165
------------- ------------
Total......................................................... $ 1,489,220 $ 1,672,230
============= ============
(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 bore an interest rate of 6.835% from the date of issuance
through January 31, 2003. On January 31, 2003, the interest rate was
changed to 8.975% pursuant to the interest rate reset provisions of the
MOPPRS. On February 3, 2003, the Operating Partnership repurchased 100.0%
of the principal amount of the MOPPRS from the sole holder thereof in
exchange for a secured note in the principal amount of $142.8 million. The
secured note bears interest at a fixed rate of 6.03% and has a maturity
date of February 28, 2013.
(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, $100.0 million of
Exercisable Put Option Notes due June 15, 2011 (the "Put Option Notes"),
issued by the Operating Partnership. The Put Option Notes bear an interest
rate of 7.19% from the date of issuance through June 15, 2004. After June
15, 2004, the interest rate to maturity on such Put Option Notes will be
6.39% plus the applicable spread determined as of June 15, 2004. In
connection with the initial issuance of the Put Option Notes, a
counterparty was granted an option to purchase the Put Option Notes from
the trust on June 15, 2004 at 100.0% of the principal amount. If the
counterparty elects not to exercise this option, the Operating Partnership
would be required to repurchase the Put Option Notes from the trust on June
15, 2004 at 100.0% of the principal amount plus accrued and unpaid
interest.
F-18
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE - (Continued)
The following table sets forth the principal payments due on the Operating
Partnership's long-term debt as of December 31, 2002 ($ in thousands):
TOTAL 2003 2004 2005 2006
------------ ------------ ------------ ------------ ------------
FIXED RATE DEBT:
Unsecured:
MOPPRS (1) ......................... $ 125,000 $ -- $ -- $ -- $ --
Put Option Notes (2) ............... 100,000 -- -- -- --
Notes .............................. 706,500 246,500 -- -- 110,000
Secured:
Mortgages and loans payable ........ 496,411 10,246 12,865 77,497 15,178
------------ ------------ ------------ ------------ ------------
Total Fixed Rate Debt .............. 1,427,911 256,746 12,865 77,497 125,178
------------ ------------ ------------ ------------ ------------
VARIABLE RATE DEBT:
Unsecured:
Term Loan .......................... 20,000 -- -- 20,000 --
Revolving Loan ..................... 37,000 37,000 -- -- --
Secured:
Revolving Loan ..................... -- -- -- -- --
Mortgage loan payable .............. 4,309 246 265 279 292
------------ ------------ ------------ ------------
Total Variable Rate Debt ............. 61,309 37,246 265 20,279 292
------------ ------------ ------------ ------------ ------------
Total Long Term Debt ................... $ 1,489,220 $ 293,992 $ 13,130 $ 97,776 $ 125,470
============ ============ ============ ============ ============
2007 THEREAFTER
------------ ------------
FIXED RATE DEBT:
Unsecured:
MOPPRS (1) ......................... $ -- $ 125,000
Put Option Notes (2) ............... -- 100,000
Notes .............................. -- 350,000
Secured:
Mortgages and loans payable ........ 74,952 305,673
------------ ------------
Total Fixed Rate Debt .............. 74,952 880,673
------------ ------------
VARIABLE RATE DEBT:
Unsecured:
Term Loan .......................... -- --
Revolving Loan ..................... -- --
Secured:
Revolving Loan ..................... -- --
Mortgage loan payable .............. 3,227 --
------------ ------------
Total Variable Rate Debt ............. 3,227 --
------------ ------------
Total Long Term Debt ................... $ 78,179 $ 880,673
============ ============
(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 bore an interest rate of 6.835% from the date of issuance
through January 31, 2003. On January 31, 2003, the interest rate was
changed to 8.975% pursuant to the interest rate reset provisions of the
MOPPRS. On February 3, 2003, the Operating Partnership repurchased 100.0%
of the principal amount of the MOPPRS from the sole holder thereof in
exchange for a secured note in the principal amount of $142.8 million. The
secured note bears interest at a fixed rate of 6.03% and has a maturity
date of February 28, 2013.
(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
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.
SECURED INDEBTEDNESS
The mortgage and loans payable and the secured revolving loan were secured
by real estate assets with an aggregate carrying value of $886.0 million at
December 31, 2002.
UNSECURED INDEBTEDNESS
The Operating Partnership's unsecured notes of $931.5 million bear fixed
interest rates ranging from 6.8% to 8.1%, 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, which were
retired on February 3, 2003, and Put Option Notes, are redeemable at any time at
the option of the Operating Partnership, subject to certain conditions including
the payment of make-whole amounts.
F-19
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE - (Continued)
The Operating Partnership currently has a $300.0 million unsecured
revolving loan (with $37.0 million outstanding at December 31, 2002) that
matures in December 2003. The Operating Partnership's unsecured revolving loan
also includes a $150.0 million competitive sub-facility. Depending upon the
corporate credit ratings assigned to the Operating Partnership from time to time
by the various rating agencies, the Operating Partnership's unsecured revolving
loan bears variable rate interest at a spread above LIBOR ranging from 0.70% to
1.55% and the Operating Partnership's secured revolving loan bears variable rate
interest at a spread above LIBOR ranging from 0.55% to 1.50%. The Operating
Partnership 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 Baa3
assigned by Moody's Investor Service. As a result, interest currently accrues on
borrowings under the Operating Partnership's unsecured revolving loan at an
average rate of LIBOR plus 95 basis points. In addition, the Operating
Partnership 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 Operating Partnership's revolving loans and the
indenture that governs the Operating Partnership's outstanding unsecured notes
require the Operating Partnership to comply with various operating and financial
covenants and performance ratios. The Operating Partnership is currently in
compliance with all such requirements.
INTEREST RATE HEDGE CONTRACTS
To meet in part its long-term liquidity requirements, the Operating
Partnership borrows funds at a combination of fixed and variable rates.
Borrowings under the two revolving loans bear interest at variable rates. The
Operating Partnership'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 Operating Partnership has
assumed fixed rate and variable rate debt in connection with acquiring
properties. The Operating Partnership's interest rate risk management objective
is to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve these objectives, from time to
time the Operating Partnership enters into interest rate hedge contracts such as
collars, swaps, caps and treasury lock agreements in order to mitigate its
interest rate risk with respect to various debt instruments. The Operating
Partnership does not hold or issue these derivative contracts for trading or
speculative purposes.
The interest rate on all of the Operating Partnership's variable rate debt
is currently adjusted at one to three month intervals, subject to settlements
under these contracts. Net payments/(receipts) made to counterparties under
interest rate hedge contracts were $415,051, $1,003,159, and ($206,894) in 2002,
2001 and 2000, respectively, and were recorded as increases/(decreases) to
interest expense.
In addition, the Operating Partnership is exposed to certain losses in the
event of non-performance by the counterparty under the interest rate hedge
contract. The Operating Partnership expects the counterparty, which is a major
financial institution, to perform fully under the contract. However, if the
counterparty was to default on its obligation under the interest rate hedge
contract, the Operating Partnership 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 $7.0 million, $16.9 million
and $23.7 million in 2002, 2001 and 2000, respectively.
F-20
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. EMPLOYEE BENEFIT PLANS
MANAGEMENT COMPENSATION PROGRAM
The executive officers of the Company, which is the general partner of the
Operating Partnership, participate in an annual cash incentive bonus program
whereby they are eligible for cash bonuses based on a percentage of their annual
base salary as of the prior December. Each executive'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.
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:
2002
-----------
Restricted shares outstanding at January 1, 2002........... 189,606
Number of restricted shares awarded........................ 78,969
Restricted shares repurchased or cancelled................. (30,407)
-----------
Restricted shares outstanding at December 31, 2002......... 238,168
===========
Annual expense, net........................................ $ 1,276,000
===========
Average fair value per share at date of grant.............. $ 24.90
===========
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.
F-21
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. EMPLOYEE BENEFIT PLANS -- (Continued)
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 or other investments unrelated to the Company's securities. At the
end of each calendar quarter, any executive officer that elects to defer
compensation in phantom stock is credited with units of phantom stock at a 15.0%
discount. The units of phantom stock accrue dividends in an amount equal to the
dividends paid on the Company's common stock. If the executive officer leaves
Highwoods employ for any reason (other than death, disability, normal retirement
or voluntary termination by Highwoods) within two years after the end of the
year in which such officer has deferred compensation, such officer will incur a
penalty. Over the two-year vesting period, the Company records compensation
expense equal to the 15.0% discount, the accrued dividends and any changes
(increase or decrease) in the market value of the Company's common stock from
the date of the deferral.
The Company's obligations to its executive officers are reimbursed by the
Operating Partnership.
401(K) SAVINGS PLAN
The Company has a 401(k) savings plan covering substantially all employees
who meet certain age and employment criteria. The Company matches the first 6.0%
of compensation deferred at the rate of 75.0% of employee contributions. During
2002, 2001 and 2000, the Company contributed $942,111, $648,509 and $955,303,
respectively, to the 401(k) savings plan. Administrative expenses of the plan
are paid by the Company. The Company's obligations under and related to the
401(k) savings plan are reimbursed by the Operating Partnership.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan for all active employees.
At the end of each three-month offering period, each participant's account
balance is applied to acquire shares of Common Stock at a cost that is
calculated at 85.0% of the lower of the average closing price on the New York
Stock Exchange on the five consecutive days preceding the first day of the
quarter or the five days preceding the last day of the quarter. A participant
may contribute up to 25.0% of their pay. Employees purchased 47,488 and 40,935
shares of Common Stock under the Employee Stock Purchase Plan during the years
ended December 31, 2002 and 2001, respectively. With each share of Common Stock
issued under the Employee Stock Purchase Plan, the Operating Partnership issues
one Common Unit to the Company in exchange for the price paid by the employee
for the share of Common Stock.
5. RENTAL INCOME
The Operating Partnership's real estate assets are leased to tenants under
operating leases, substantially all of which expire over the next 10 years. The
minimum rental amounts under the leases are generally either subject to
scheduled fixed increases or adjustments based on the Consumer Price Index.
Generally, the leases also require that the tenants reimburse the Operating
Partnership for increases in certain costs above the base year costs.
F-22
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. RENTAL INCOME -- Continued
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 2002, are as
follows ($ in thousands):
2003.................................. $ 384,588
2004.................................. 335,923
2005.................................. 278,308
2006.................................. 219,865
2007.................................. 172,690
Thereafter............................ 464,051
-----------
$ 1,855,425
===========
Expected future minimum rents have been reduced as a result of the
rejection by WorldCom of two leases encompassing 819,653 square feet and the
rejection by USAirways of two leases encompassing 119,013 square feet.
6. RELATED PARTY TRANSACTIONS
On December 8, 1998, the Operating Partnership purchased the Bluegrass
Valley office development project from a limited liability company controlled by
an executive officer and director of the Operating Partnership for approximately
$2.5 million. On July 16, 1999, the Operating Partnership purchased development
land and an option to purchase other development land in the Bluegrass Valley
office development project from the same limited liability company controlled by
the same executive officer and director of the Operating Partnership for
approximately $4.6 million in Common Units. On October 31, 2002, the Operating
Partnership exercised its option to purchase the additional development land in
a staged takedown, and acquired 30.6 acres of the optioned property from the
same limited liability company for $4.6 million. As part of this transaction,
the Operating Partnership also acquired 23.5 acres of other development land in
the Bluegrass Valley office development project for $2.6 million. On January 17,
2003, the Operating Partnership acquired 23.46 acres of the formerly optioned
development land from the same limited liability company for $2.3 million. The
Operating Partnership believes that each purchase price did not exceed market
value.
During 2000, the Operating Partnership 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 Operating
Partnership and such former executive officer and director.
The Operating Partnership advanced $787,746 to an officer and director
related to certain expenses paid by the Operating Partnership on behalf of the
officer and director. During 2002, this advance, along with accrued interest,
was repaid by the officer and director.
During 2000, in connection with the formation of the MG-HIW Peachtree
Corners III, LLC, a construction loan was made by an affiliate of the Company to
this joint venture. Interest accrues at a rate of LIBOR plus 200 basis points
and the loan is due July 2003. At December 31, 2002, $2.5 million was
outstanding on this loan.
During the years ended December 31, 2002 and 2001, the Operating
Partnership paid $1.6 million and $4.2 million, respectively, of general and
administrative expenses on behalf of the Company. These amounts are reflected in
the Consolidated Statements of Income and the Consolidated Balance Sheets of the
Operating Partnership.
F-23
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. PARTNERS' CAPITAL
DISTRIBUTIONS
Distributions paid on Common Units (including Redeemable Class A and Class
B Common Units) were $2.34, $2.31 and $2.25 per Common Unit for the years ended
December 31, 2002, 2001 and 2000, respectively.
On January 28, 2003, the Board of Directors declared a Common Unit
distribution of $0.585 per Common Unit payable on February 24, 2003, to Common
Unitholders of record on February 17, 2003.
PREFERRED UNITS
On February 12, 1997, the Operating Partnership issued 125,000 Series A
Preferred Units to the Company. The Series A Preferred Units are non-voting and
have a liquidation preference of $1,000 per unit for an aggregate liquidation
preference of $125.0 million plus accrued and unpaid distributions. The net
proceeds of the Series A Preferred Units issued were $121.8 million. The Company
is entitled to receive cumulative preferential cash distributions at a rate of 8
5/8% of the liquidation preference per annum (equivalent to $86.25 per unit). On
or after February 12, 2027, the Series A Preferred Units may be redeemed for
cash upon the redemption of the corresponding Series A Preferred Stock issued by
the Company. The redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the sale proceeds of
other units, which may include other preferred units. On June 19, 2001, the
Company repurchased in a privately negotiated transaction 20,055 of these units
at $922.50 per unit, 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 was retired.
On September 25, 1997, the Operating Partnership issued 6,900,000 Series B
Preferred Units to the Company. The Series B Preferred Units are non-voting and
have a liquidation preference of $25 per unit for an aggregate liquidation
preference of $172.5 million plus accrued and unpaid distributions. The net
proceeds of the Series B Preferred Units issued were $166.3 million. The Company
is entitled to receive cumulative preferential cash distributions at a rate of
8% of the liquidation preference per annum (equivalent to $2.00 per unit). On or
after September 25, 2002, the Series B Preferred Units may be redeemed for cash
upon the redemption of the corresponding Series B Preferred Stock issued by the
Company. The redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the sale proceeds of
other units, which may include other preferred units.
On April 23, 1998, the Operating Partnership issued 400,000 Series D
Preferred Units to the Company. The Series D Preferred Units are non-voting and
have a liquidation preference of $250 per unit for an aggregate liquidation
preference of $100 million plus accrued and unpaid distributions. The net
proceeds (after underwriting and commission and other offering costs) of the
Series D Preferred Units issued were $96.8 million. The Company is entitled to
receive cumulative preferential cash distributions at a rate of 8% of the
liquidation preference per annum (equivalent to $20.00 per unit). On or after
April 23, 2003, the Series D Preferred Units may be redeemed for cash upon the
redemption of the corresponding Series D Preferred Stock issued by the Company.
The redemption price (other than the portion thereof consisting of accrued and
unpaid distributions) is payable solely out of the sale proceeds of other units,
which may include other preferred units.
F-24
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. DERIVATIVE FINANCIAL INSTRUMENTS
SFAS 133 requires the Operating Partnership to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of 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.
The Operating Partnership'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 Operating Partnership
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 Operating Partnership does not hold
these derivatives for trading or speculative purposes.
On the date that the Operating Partnership enters into a derivative
contract, the Operating Partnership 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), (2) a hedge of changes in the fair
value of an asset or a liability attributable to a particular risk (a "fair
value" hedge), or (3) 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 AOCL, 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. For derivatives designated as fair value hedges, changes in the fair
value of the derivative and the hedged item related to the hedged risk are
recognized in earnings. Changes in the fair value of non-hedging instruments are
reported in current-period earnings.
The Operating Partnership 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
Operating Partnership 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 the Operating Partnership
determines that a derivative is not (or has ceased to be) highly effective as a
hedge, the Operating Partnership discontinues hedge accounting prospectively.
F-25
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. DERIVATIVE FINANCIAL INSTRUMENTS -- (Continued)
During 2002, the Operating Partnership had an interest rate swap mature,
resulting in a debit to interest rate derivative liability and an offsetting
credit to AOCL of $411,000. In addition, during 2002, the Operating Partnership
entered into and terminated two $24.0 million treasury lock agreements related
to an anticipated fixed rate financing with two financial counterparties, which
effectively lock the treasury rate at 3.8%. These treasury lock agreements are
designated as cashflow hedges and the effective portion of the cumulative loss
on these derivative instruments was $1.7 million at December 31, 2002 and is
being reported as a component of AOCL in partners' capital. These costs will be
recognized into earnings in the same period or periods during which the hedged
transaction affects earnings (as the underlying debt is paid down). The
Operating Partnership expects that the portion of the cumulative loss recorded
in AOCL at December 31, 2002 associated with these derivative instruments which
will be recognized within the next 12 months will be approximately $277,867.
At December 31, 2002, approximately $7.5 million of deferred financing
costs from past cash flow hedging instruments remain in AOCL. These costs will
be recognized into earnings as the underlying debt is repaid. The Operating
Partnership expects that the portion of the cumulative loss recorded in AOCL at
December 31, 2002 associated with these derivative instruments, which will be
recognized within the next 12 months, will be approximately $1.6 million.
9. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss) represents net income plus the results of
certain non-partners' capital changes not reflected in the Consolidated
Statements of Income. The components of other comprehensive income/(loss) are as
follows ($ in thousands):
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
Net income ................................................. $ 107,964 $ 150,253
Accumulated other comprehensive income/(loss):
Unrealized derivative losses on cashflow
hedges ................................................. (1,306) (411)
Reclassification of past hedging relationships .......... -- (10,597)
Amortization of past hedging relationships .............. 1,543 1,567
------------ ------------
Total other comprehensive income/(loss) ............... 237 (9,441)
------------ ------------
Total comprehensive income ............................ $ 108,201 $ 140,812
============ ============
10. DISCONTINUED OPERATIONS AND THE IMPAIRMENT OF LONG-LIVED ASSETS
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and the accounting and reporting provisions for disposals of a
segment of business as addressed in APB 30 "Reporting the Results of
Operations-Reporting the Effects of the Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 is effective as of January 1, 2002 and extends the reporting requirements of
discontinued operations to include those long-lived assets which:
(1) are classified held for sale at December 31, 2002 as a result of
disposal activities that were initiated subsequent to January 1, 2002
or
(2) were sold during 2002 as a result of disposal activities that were
initiated subsequent to January 1, 2002.
F-26
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. DISCONTINUED OPERATIONS AND THE IMPAIRMENT OF LONG-LIVED ASSETS --
(Continued)
Per SFAS 144, those long-lived assets which were sold during 2002 and
resulted from disposal activities initiated prior to January 1, 2002 should be
accounted for in accordance with SFAS 121 and APB 30. During 2002, the Operating
Partnership sold one property which resulted from disposal activities initiated
prior to January 1, 2002, and the gain realized on the sale is appropriately
included in the gain/(loss) on disposition of depreciable assets in the
Operating Partnership's consolidated statements of income.
Below represents the net operating results and net carrying value of 1.9
million square feet of property sold during 2002 and 2.3 million square feet of
property and 88 apartment units held for sale at December 31, 2002. These were a
result of disposal activities that were initiated subsequent to the effective
date of SFAS 144 and are classified as discontinued operations in the Operating
Partnership's consolidated statements of income ($ in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
---------- ---------- ----------
Total revenue .................................... $ 30,986 $ 36,507 $ 32,297
Rental operating expenses ........................ 9,251 10,110 8,786
Depreciation and amortization .................... 7,112 7,574 6,212
Interest expense ................................. 200 -- --
---------- ---------- ----------
Income from discontinued operations ........... 14,423 18,823 17,299
Gain on sale of discontinued operations ....... 12,271 -- --
---------- ---------- ----------
Total discontinued operations ............... $ 26,694 $ 18,823 $ 17,299
========== ========== ==========
Net carrying value ............................... $ 87,674 $ 227,568 $ 231,460
========== ========== ==========
In addition, SFAS 144 requires that a long-lived asset classified as held
for sale be measured at the lower of the carrying value or fair value less cost
to sell. At December 31, 2002, the Operating Partnership has determined that the
carrying value of one office property held for sale is less than its fair value
less cost to sell and has recognized a $851,166 impairment loss, which is
included in gain on sale of discontinued operations in the consolidated
statements of income for the year ended December 31, 2002.
SFAS 144 also requires that the carrying value of a long-lived asset
classified as held and used be compared to the sum of its estimated future
undiscounted cash flows. If the carrying value is greater than the sum of its
undiscounted future cash flows, an impairment loss should be recognized. At
December 31, 2002, the Operating Partnership has recognized a $9.1 million
impairment loss related to one office property that will be partially demolished
and redeveloped into a class A suburban office property and whereby the carrying
value exceeded the sum of the property's undiscounted future cash flows. This
impairment loss is included in gain/(loss) on disposition of depreciable assets
in the consolidated statements of income for the year ended December 31, 2002.
11. EARNINGS PER COMMON UNIT
FASB Statement No. 128 replaced the calculation of primary and fully
diluted earnings per Common Unit with basic and diluted earnings per Common
Unit. Unlike primary earnings per Common Unit, basic earnings per Common Unit
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per Common Unit is computed using the weighted average number
of Common Units and the dilutive effect of options, warrants and convertible
securities outstanding, using the "treasury stock" method. Earnings per Common
Unit data is required for all periods for which an income statement or summary
of earnings is presented, including summaries outside the basic financial
statements. All earnings per Common Unit amounts for all periods presented have,
where appropriate, been restated to conform to the FASB Statement 128
requirements.
F-27
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. EARNINGS PER COMMON UNIT -- (Continued)
The following table sets forth the computation of basic and diluted
earnings per Common Unit:
2002 2001 2000
------------ ------------ ------------
($ IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NUMERATOR:
Income before discontinued operations and extraordinary item ...... $ 81,648 $ 132,144 $ 141,138
Distributions on preferred units .................................. (30,852) (31,500) (32,580)
Income from discontinued operations ............................... 14,423 18,823 17,299
Gain on sale of discontinued operations ........................... 12,271 -- --
Loss on early extinguishment of debt .............................. (378) (714) (4,732)
------------ ------------ ------------
Numerator for basic earnings per Common Unit - net income
available for Class A Common Unit holders ........................... $ 77,112 $ 118,753 $ 121,125
Numerator for diluted earnings per share - net income available
for Class A Common Unit holders - after assumed conversions ......... $ 77,112 $ 118,753 $ 121,125
DENOMINATOR:
Denominator for basic earnings per Common
Unit - weighted-average shares ...................................... 59,963 61,430 67,054
Effect of dilutive securities:
Employee stock options .......................................... 254 337 161
Warrants ........................................................ 5 6 10
------------ ------------ ------------
Dilutive potential Common Units ................................... 259 343 171
Denominator for diluted earnings per Common Unit - adjusted
weighted average Common Units and assumed conversions ............... 60,222 61,733 67,225
Basic earnings per Common Unit ....................................... $ 1.29 $ 1.93 $ 1.81
============ ============ ============
Diluted earnings per Common Unit ..................................... $ 1.28 $ 1.92 $ 1.80
============ ============ ============
12. STOCK OPTIONS AND WARRANTS
As of December 31, 2002, 6.0 million shares of the Company's authorized
Common Stock were reserved for issuance under the Amended and Restated 1994
Stock Option Plan. Stock options granted under this plan 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 Operating
Partnership has elected to follow APB 25 and related interpretations in
accounting for its employee stock options.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, the statement amends the
disclosure requirements of Statement No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The standard is effective for financial statements issued for fiscal
years beginning after December 15, 2002. On January 1, 2003, the Operating
Partnership will adopt the fair value method of accounting for stock-based
compensation provisions of Statement No. 123. The Operating Partnership will
apply the prospective method of accounting and will expense all future employee
stock options (and similar awards) over the vesting period based on the fair
value of the award on the date of grant. The Operating Partnership does not
anticipate that the adoption of this statement will have a material impact on
its results of operations.
F-28
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. STOCK OPTIONS AND WARRANTS -- (Continued)
Under SFAS 123, a public entity must estimate the fair value of a stock
option by using an option-pricing model that takes into account as of the grant
date the exercise price and expected life of the options, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the option. SFAS
123 provides examples of possible pricing models and includes the Black-Scholes
pricing model, which the Operating Partnership used to develop its pro forma
disclosures. However, as previously noted, the Operating Partnership 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 2002
was estimated at the dates of grant using the following weighted average
assumptions: risk-free interest rates ranging between 3.64% and 4.06%, dividend
yield of 8.70%, expected volatility of 22.72% and a weighted average expected
life of the options of four years. The fair value of the options granted in 2001
was estimated at the dates of 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 17.20% 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 21.50% and a weighted average expected
life of the options of four years. Had the compensation cost for the Operating
Partnership's stock option plans been determined based on the fair value at the
dates of grant for awards in 2002, 2001 and 2000 consistent with the provisions
of SFAS 123, the Operating Partnership's net income and net income per unit
would have decreased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
------------ ------------ ------------
($ IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Net income available for common unitholders -- as reported........ $ 77,112 $ 118,753 $ 121,125
Net income available for common unitholders -- pro forma.......... $ 76,247 $ 116,438 $ 118,686
Net income per common unit -- basic (as reported)................. $ 1.29 $ 1.93 $ 1.81
Net income per common unit -- diluted (as reported)............... $ 1.28 $ 1.92 $ 1.80
Net income per common unit -- basic (pro forma)................... $ 1.27 $ 1.90 $ 1.77
Net income per common unit -- diluted (pro forma)................. $ 1.27 $ 1.88 $ 1.77
F-29
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. STOCK OPTIONS AND WARRANTS -- (Continued)
The following table summarizes information about employees' and the
Company's Board of Director's stock options outstanding at December 31, 2002,
2001 and 2000:
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
----------------------------
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
Options granted ........................ 570,338 26.96
Options canceled ....................... (204,739) 25.68
Options exercised ...................... (547,978) 21.71
------------ ------------
Balances at December 31, 2002 .......... 3,672,245 $ 24.14
============ ============
OPTIONS EXERCISABLE
----------------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
------------ ------------
December 31, 2000....................... 1,242,629 $ 24.45
December 31, 2001....................... 1,712,626 $ 23.76
December 31, 2002....................... 1,729,325 $ 24.04
Exercise prices for options outstanding as of December 31, 2002 ranged from
$17.03 to $31.18. The weighted average remaining contractual life of those
options is 6.7 years. Using the Black-Scholes options valuation model, the
weighted average fair value of options granted during 2002, 2001 and 2000 was
$0.72, $1.11 and $0.90, respectively.
WARRANTS
In connection with various acquisitions in 1995, 1996 and 1997, the Company
issued warrants to purchase shares of Common Stock.
The following table sets forth information regarding warrants outstanding
as of December 31, 2002:
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
============
F-30
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. STOCK OPTIONS AND WARRANTS -- (Continued)
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 date of issuance. The warrants granted in October 1997 do not have an
expiration date. Upon exercise of a warrant, the Company will contribute the
exercise price to the Operating Partnership in exchange for Common Units;
therefore, the Operating Partnership accounts for such warrants as if issued by
the Operating Partnership.
13. COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
The Operating Partnership maintains its cash and cash equivalents at
financial institutions. The combined account balances at each institution
typically exceed the FDIC insurance coverage and, as a result, there is a
concentration of credit risk related to amounts on deposit in excess of FDIC
insurance coverage. Management of the Company believes that the risk is not
significant.
LAND LEASES
Certain properties in the Operating Partnership'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 Operating Partnership has the option to purchase
the leased land during the lease term at the greater of 85.0% of appraised value
or $35,000 per acre.
For two properties, the Operating Partnership has the option to purchase
the leased land at any time during the lease term. The purchase price ranges
from $2.3 million to $3.8 million.
The obligation for future minimum lease payments is as follows ($ in
thousands):
2003.................................. $ 1,254
2004.................................. 1,254
2005.................................. 1,257
2006.................................. 1,197
2007.................................. 1,179
Thereafter............................ 42,466
---------
$ 48,607
=========
LITIGATION
The Operating Partnership is a party to a variety of legal proceedings
arising in the ordinary course of its business. The Operating Partnership
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 Operating Partnership's business, financial
condition and results of operations.
The Operating Partnership reserved $2.7 million in September 2002 for the
probable and estimated losses related to various legal proceedings from
previously completed mergers and acquisitions.
F-31
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. COMMITMENTS AND CONTINGENCIES -- (Continued)
CONTRACTS
The Operating Partnership has entered into construction contracts totaling
$52.1 million at December 31, 2002. The amounts remaining to be paid under these
contracts as of December 31, 2002 totaled $6.9 million.
CAPITAL EXPENDITURES
The Operating Partnership presently has no plans for major capital
improvements to the existing properties except for the $1.8 million renovation
of Tampa Bay Park, the $9.1 million renovations at Country Club Plaza in Kansas
City, and the $4.0 million redevelopment of the property vacated by the
Environmental Protection Agency in Research Triangle. The Operating Partnership
could incur tenant improvements and lease commissions related to releasing of
space vacated by WorldCom and US Airways.
ENVIRONMENTAL MATTERS
Substantially all of the Operating Partnership's in-service properties have
been subjected to Phase I environmental assessments (and, in certain instances,
Phase II environmental assessments). Such assessments and/or updates have not
revealed, nor is management aware of, any environmental liability that
management believes would have a material adverse effect on the accompanying
consolidated financial statements.
JOINT VENTURES
Certain properties owned in joint ventures with unaffiliated parties have
buy/sell options that may be exercised to acquire the other partner's interest
by either the Operating Partnership or its joint venture partner if certain
conditions are met as set forth in the respective joint venture agreement. The
Operating Partnership's partner in SF-HIW Harborview, LP has the right to put
its 80.0% equity interest in the partnership to the Operating Partnership in
cash at anytime during the one-year period commencing on September 11, 2014. The
value of the equity interest will be determined based upon the then fair market
value of SF-Harborview, LP assets and liabilities.
In connection with several of its joint ventures with unaffiliated parties,
the Operating Partnership has agreed to guarantee the rental revenue and
re-tenanting costs of certain properties contributed or sold to the joint
ventures during 1999, 2000 and 2002. The agreements, which vary in term, relate
to vacant space in several properties owned by three of the Operating
Partnership's unconsolidated joint ventures. The Operating Partnership makes
monthly payments to the joint ventures for any rent shortfalls, which may be
incurred over the term of the agreements. Any new leases signed during the
guarantee period will reduce the amount of the shortfall payments owed by the
Operating Partnership. In addition, the Operating Partnership is liable for
tenant improvements and lease commissions for certain vacant spaces to be
leased. During 1999 and 2000, the Operating Partnership accrued estimated losses
for each of the joint venture guarantee agreements. As of December 31, 2002, the
Operating Partnership has $20.0 million accrued for obligations related to these
agreements. The Operating Partnership believes that its estimates of future
obligations related to the rent guarantees are adequate. However, if the
Operating Partnership's assumptions and estimates are incorrect future losses
may occur.
F-32
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. COMMITMENTS AND CONTINGENCIES -- (Continued)
In connection with the MG-HIW, LLC joint venture, the Operating Partnership
has guaranteed Miller Global, the Operating Partnership's partner who has an
80.0% interest in the joint venture, a minimum internal rate of return on $50.0
million of their equity investment in the joint venture's Orlando assets. If the
minimum internal rate of return is not achieved upon the sale of these assets or
winding up of the joint venture, Miller Global would receive a disproportionate
share of the cash proceeds related to the Orlando assets. Based upon the current
and forecasted operating performance of these assets and the Operating
Partnership's estimate of their residual value, the estimated internal rate of
return for Miller Global with respect to their Orlando equity is not less than
the minimum required return. As a result, the Operating Partnership 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. However, if the operating
performance of the assets and/or the residual value were to be lower than the
Operating Partnership's estimates, Miller Global could receive a
disproportionately greater share of the cash proceeds from any such sale or
winding up and the Operating Partnership's share would be correspondingly lower.
In connection with the Metrowest II, LLC joint venture, the Operating
Partnership has guaranteed $2.7 million of construction debt. The debt has been
guaranteed by the Operating Partnership subject to a pro rata indemnity from its
joint venture partner.
In connection with the Plaza Colonnade, LLC joint venture, the Operating
Partnership and its joint venture partner have guaranteed 50.0% of a $61.3
million construction loan. The loan repayment guarantees are reduced upon the
project reaching certain predetermined criteria. In addition, the guarantees are
reduced to 25.0% of the loan balance. In addition to the construction loan
described above, the partners have provided collectively $12.0 million in
letters of credit, $6.0 million by the Operating Partnership and $6.0 million by
its partner. During construction the joint venture is required to have in place
the aforementioned letters of credit.
DISPOSITIONS
In connection with the November 26, 2002 disposition of 225,220 square feet
of properties, fully leased to Capital One Services, Inc., a subsidiary of
Capital One Financial Services, Inc., the Operating Partnership has agreed to
guarantee for the benefit of the owner any rent shortfalls which may be incurred
for the payment of rent, and re-tenanting costs for a five year period of time
from the date of sale. Two of the properties comprising 148,175 square feet have
leases that expire in March 2010. In the event the tenant defaults under these
leases, the Operating Partnership's contingent liability as of December 31, 2002
is $13.3 million. The other property is subject to a 77,045 square feet lease
that expires in May 2004. In the event the tenant defaults or does not renew
this lease in May 2004, the Operating Partnership's associated contingent
liability as of December 31, 2002 is $7.2 million. Any new leases signed during
the guarantee period will reduce the amount of the rent shortfall guarantee to
the owner. In addition, the Operating Partnership is liable for a prorated
portion of the re-tenanting costs of new leases. Given this guarantee, the
Operating Partnership has not recorded any gain on the disposition of these
properties. The deferred gain of approximately $6.9 million will be recognized
when the contingency period is concluded.
F-33
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Operating Partnership could
realize upon disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair values. The carrying amounts and estimated fair values of the
Operating Partnership's financial instruments at December 31, 2002 were as
follows:
CARRYING FAIR
AMOUNT VALUE
------------- --------------
($ IN THOUSANDS)
Cash and cash equivalents................. $ 10,730 $ 10,730
Accounts and notes receivable............. $ 23,338 $ 23,338
Mortgages and notes payable............... $ (1,489,220) $ (1,570,882)
The fair values for the Operating Partnership's fixed rate mortgages and
notes payable were estimated using discounted cash flow analysis, based on the
Operating Partnership's estimated incremental borrowing rate at December 31,
2002, for similar types of borrowing arrangements. The carrying amounts of the
Operating Partnership's variable rate borrowings approximate fair value.
Disclosures about the fair value of financial instruments are based on
relevant information available to the Operating Partnership at December 31,
2002. 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.
15. DISPOSITIONS
During 2002, the Operating Partnership contributed to joint ventures or
sold approximately 2.5 million rentable square feet of office and industrial
properties and 137.7 acres of development land for gross proceeds of $302.2
million. The Operating Partnership recorded a gain of $24.5 million related to
these dispositions.
During 2001, the Operating Partnership 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 Operating Partnership recorded a gain of $16.2
million related to these dispositions.
During 2000, the Operating Partnership 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 Operating Partnership recorded a gain of $4.7 million related to
these dispositions.
16. SUBSEQUENT EVENT
On February 2, 1998, the Operating Partnership sold $125.0 million of
MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013. The
MOPPRS bore an interest rate of 6.835% from the date of issuance through January
31, 2003. On January 31, 2003, the interest rate was changed to 8.975% pursuant
to the interest rate reset provisions of the MOPPRS. On February 3, 2003, the
Operating Partnership repurchased 100.0% of the principal amount of the MOPPRS
from the sole holder thereof in exchange for a secured note in the principal
amount of $142.8 million. The secured note bears interest at a fixed rate of
6.03% and has a maturity date of February 28, 2013.
F-34
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. SUBSEQUENT EVENT -- (Continued)
The following table sets forth the principal payments due on the Operating
Partnership's long-term debt as of December 31, 2002, as adjusted for the
refinancing of the MOPPRS on February 3, 2003 ($ in thousands):
TOTAL 2003 2004 2005 2006
------------ ------------ ------------ ------------ ------------
FIXED RATE DEBT:
Unsecured:
MOPPRS ............................ $ -- $ -- $ -- $ -- $ --
Put Option Notes .................. 100,000 -- -- -- --
Notes ............................. 706,500 246,500 -- -- 110,000
Secured:
Mortgages and loans payable ....... 639,220 11,543 14,689 79,435 17,235
------------ ------------ ------------ ------------ ------------
Total Fixed Rate Debt ............. 1,445,720 258,043 14,689 79,435 127,235
------------ ------------ ------------ ------------ ------------
VARIABLE RATE DEBT:
Unsecured:
Term Loan ......................... 20,000 -- -- 20,000 --
Revolving Loan .................... 37,000 37,000 -- -- --
Secured:
Revolving Loan .................... -- -- -- -- --
Mortgage loan payable ............. 4,309 246 265 279 292
------------ ------------ ------------ ------------ ------------
Total Variable Rate Debt ............ 61,309 37,246 265 20,279 292
------------ ------------ ------------ ------------ ------------
Total Long Term Debt .................. $ 1,507,029 $ 295,289 $ 14,954 $ 99,714 $ 127,527
============ ============ ============ ============ ============
2007 THEREAFTER
------------ ------------
FIXED RATE DEBT:
Unsecured:
MOPPRS ............................ $ -- $ --
Put Option Notes .................. -- 100,000
Notes ............................. -- 350,000
Secured:
Mortgages and loans payable ....... 77,137 439,181
------------ ------------
Total Fixed Rate Debt ............. 77,137 889,181
------------ ------------
VARIABLE RATE DEBT:
Unsecured:
Term Loan ......................... -- --
Revolving Loan .................... -- --
Secured:
Revolving Loan .................... -- --
Mortgage loan payable ............. 3,227 --
------------ ------------
Total Variable Rate Debt ............ 3,227 --
------------ ------------
Total Long Term Debt .................. $ 80,364 $ 889,181
============ ============
17. SEGMENT INFORMATION
The sole business of the Operating Partnership is the acquisition,
development and operation of rental real estate properties. The Operating
Partnership operates office, industrial and retail properties and apartment
units. There are no material inter-segment transactions.
The Operating Partnership's chief operating decision maker ("CDM") assesses
and measures operating results based upon property level net operating income.
The operating results for the individual assets within each property type have
been aggregated since the CDM evaluates operating results and allocates
resources on a property-by-property basis within the various property types.
F-35
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
17. SEGMENT INFORMATION -- Continued
The accounting policies of the segments are the same as those described in
Note 1 included herein. Further, all operations are within the United States and
no tenant comprises more than 10.0% 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, 2002, 2001 and 2000 ($ in
thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
RENTAL REVENUE (A):
Office segment ................................................................. $ 379,773 $ 387,948 $ 417,017
Industrial segment ............................................................. 34,418 36,148 40,083
Retail segment ................................................................. 38,828 37,133 35,624
Apartment segment .............................................................. 1,103 7,905 16,945
------------ ------------ ------------
Total Rental Revenue .............................................................. $ 454,122 $ 469,134 $ 509,669
============ ============ ============
NET OPERATING INCOME (A):
Office segment ................................................................. $ 256,899 $ 266,152 $ 293,559
Industrial segment ............................................................. 27,083 29,437 33,109
Retail segment ................................................................. 26,888 25,096 24,726
Apartment segment .............................................................. 566 4,006 9,868
------------ ------------ ------------
Total Net Operating Income ........................................................ $ 311,436 $ 324,691 $ 361,262
RECONCILIATION TO INCOME BEFORE GAIN/(LOSS) ON DISPOSITION OF LAND AND
DEPRECIABLE ASSETS, DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM:
Depreciation and amortization ..................................................... (126,636) (113,415) (112,876)
Interest expense .................................................................. (109,897) (104,473) (108,795)
General and administrative expenses ............................................... (23,644) (21,086) (23,069)
Litigation reserve ................................................................ (2,700) -- --
Interest and other income ......................................................... 13,164 21,954 16,847
Equity in earnings of unconsolidated affiliates ................................... 7,675 8,276 3,112
------------ ------------ ------------
Income before gain/(loss) on disposition of land and depreciable
assets, discontinued operations and extraordinary item ........................... $ 69,398 $ 115,947 $ 136,481
============ ============ ============
DECEMBER 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
TOTAL ASSETS:
Office segment...................................................... $ 2,585,963 $ 2,766,572 $ 2,638,007
Industrial segment.................................................. 354,618 343,606 299,660
Retail segment...................................................... 255,673 263,622 273,023
Apartment segment................................................... 13,157 10,397 118,144
Corporate and other................................................. 135,663 204,358 332,203
------------ ------------ ------------
Total Assets........................................................... $ 3,345,054 $ 3,588,555 $ 3,661,037
============ ============ ============
(A) Net of discontinued operations.
F-36
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. RESTATED QUARTERLY FINANCIAL DATA (Unaudited):
The Operating Partnership has set forth selected quarterly financial data
for the years ended December 31, 2002 and 2001. Because certain of the data set
forth in the following tables varies from amounts previously reported on the
Form 10-Q for the applicable period, the following tables and the accompanying
footnotes reconcile the amounts given with those previously reported and
describe the reason for the differences.
The following table sets forth quarterly financial information for the
Operating Partnership's fiscal year ended December 31, 2002 ($ in thousands
except per share amounts):
--------------------------------------------------------------------
FIRST QUARTER
--------------------------------------------------------------------
PREVIOUSLY DISCONTINUED
REPORTED OPERATIONS RESTATED
AMOUNTS (1) ADJUSTMENT AMOUNTS
--------------------------------------------------------------------
Rental revenue $ 124,579 $ (8,192) $ -- $ 116,387
Operating expenses (3) 95,304 (4,217) -- 91,087
General and administrative 4,598 (4) 586 5,180
Total other income 5,362 (70) 400 5,692
--------------------------------------------------------------------
30,039 (4,041) (186) 25,812
Gain on disposition of land
and depreciable assets 944 -- -- 944
--------------------------------------------------------------------
Income from cont. operations 30,983 (4,041) (186) 26,756
Discontinued operations 230 4,041 -- 4,271
--------------------------------------------------------------------
31,213 -- (186) 31,027
Extraordinary item -- -- -- --
--------------------------------------------------------------------
Net income $ 31,213 $ -- $ (186) $ 31,027
====================================================================
NET INCOME PER SHARE-BASIC:
Income from cont. operations $ 0.39 $ (0.07) $ -- $ 0.32
====================================================================
Discontinued operations $ -- $ 0.07 $ -- $ 0.07
====================================================================
Net income (5) $ 0.39 $ -- $ -- $ 0.39
====================================================================
NET INCOME PER SHARE-DILUTED:
Income from cont. operations $ 0.39 $ (0.07) $ -- $ 0.32
====================================================================
Discontinued operations $ -- $ 0.07 $ -- $ 0.07
====================================================================
Net income (5) $ 0.39 $ -- $ -- $ 0.39
====================================================================
--------------------------------------------------------------------
SECOND QUARTER
--------------------------------------------------------------------
PREVIOUSLY DISCONTINUED
REPORTED OPERATIONS RESTATED
AMOUNTS (1) ADJUSTMENT AMOUNTS
--------------------------------------------------------------------
Rental revenue $ 118,224 $ (7,069) $ -- $ 111,155
Operating expenses (3) 94,831 (3,593) -- 91,238
General and administrative 4,153 (3) 4,596(2)(6) 8,746
Total other income 3,916 (65) 1,082 4,933
--------------------------------------------------------------------
23,156 (3,538) (3,514) 16,104
Gain on disposition of land
and depreciable assets 6,673 828 2,691(4) 10,192
--------------------------------------------------------------------
Income from cont. operations 29,829 (2,710) (823) 26,296
Discontinued operations 3,013 2,710 -- 5,723
--------------------------------------------------------------------
32,842 -- (823) 32,019
Extraordinary item -- -- -- --
--------------------------------------------------------------------
Net income $ 32,842 $ -- $ (823) $ 32,019
====================================================================
NET INCOME PER SHARE-BASIC:
Income from cont. operations $ 0.37 $ (0.04) $ (0.02) $ 0.31
====================================================================
Discontinued operations $ 0.05 $ 0.04 -- $ 0.09
====================================================================
Net income (5) $ 0.42 $ -- $ (0.02) $ 0.40
====================================================================
NET INCOME PER SHARE-DILUTED:
Income from cont. operations $ 0.37 $ (0.04) $ (0.02) $ 0.31
====================================================================
Discontinued operations $ 0.05 $ 0.04 $ -- $ 0.09
====================================================================
Net income (5) $ 0.42 $ -- $ (0.02) $ 0.40
====================================================================
-------------------------------------------------------------------
THIRD QUARTER
-------------------------------------------------------------------
PREVIOUSLY DISCONTINUED
REPORTED OPERATIONS RESTATED
AMOUNTS (1) ADJUSTMENT AMOUNTS
-------------------------------------------------------------------
Rental revenue $ 116,989 $ (2,745) $ -- $ 114,244
Operating expenses (3) 98,224 (1,154) -- 97,070
General and administrative 7,832 -- (3,700) 4,132
Total other income 3,908 (20) -- 3,888
------------------------------------------------------------------
14,841 (1,611) 3,700 16,930
Gain on disposition of land
and depreciable assets 3,599 4 (2,691)(4) 912
------------------------------------------------------------------
Income from cont. operations 18,440 (1,607) 1,009 17,842
Discontinued operations (1,742) 1,607 -- (135)
------------------------------------------------------------------
16,698 -- 1,009 17,707
Extraordinary item (378) -- -- (378)
------------------------------------------------------------------
Net income $ 16,320 $ -- $ 1,009 $ 17,329
==================================================================
NET INCOME PER SHARE-BASIC:
Income from cont. operations $ 0.18 $ (0.03) $ 0.02 $ 0.17
==================================================================
Discontinued operations $ (0.03) $ 0.03 $ -- $ --
==================================================================
Net income (5) $ 0.14 $ -- $ 0.02 $ 0.16
==================================================================
NET INCOME PER SHARE-DILUTED:
Income from cont. operations $ 0.18 $ (0.03) $ 0.02 $ 0.17
==================================================================
Discontinued operations $ (0.03) $ 0.03 -- $ --
==================================================================
Net income (5) $ 0.14 $ -- $ 0.02 $ 0.16
==================================================================
---------------------------------
FOURTH QUARTER TOTAL
---------------------------------
Rental revenue $ 112,336 $ 454,122
Operating expenses (3) 102,524 381,919
General and administrative 5,586 23,644
Total other income 6,326 20,839
-------------------------------
10,552 69,398
Gain on disposition of land
and depreciable assets 202 12,250
-------------------------------
Income from cont. operations 10,754 81,648
Discontinued operations 16,835 26,694
-------------------------------
27,589 108,342
Extraordinary item -- (378)
-------------------------------
Net income $ 27,589 $ 107,964
===============================
NET INCOME PER SHARE-BASIC:
Income from cont. operations $ 0.05 $ 0.85
===============================
Discontinued operations $ 0.29 $ 0.45
===============================
Net income (5) $ 0.34 $ 1.29
===============================
NET INCOME PER SHARE-DILUTED:
Income from cont. operations $ 0.04 $ 0.84
===============================
Discontinued operations $ 0.29 $ 0.45
===============================
Net income (5) $ 0.33 $ 1.28
===============================
(1) On January 1, 2002, the Operating Partnership adopted SFAS 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets". In accordance with
SFAS 144, certain amounts from the first three quarters have been
reclassified to discontinued operations to reflect the results of
operations for those properties qualifying as discontinued operations as of
December 31 2002. See Note 10 included herein for a more detailed
discussion of the Operating Partnership's discontinued operations. The
column titled "Discontinued Operations" reflects the amounts that have been
reclassified
(2) As reported in the Operating Partnership's Form 10-Q for the three months
ended September 30, 2002, in the third quarter of 2002, the Operating
Partnership recorded nonrecurring compensation expense of $913,000 related
to the exercise of options, of which $186,000 and $727,000 occurred in the
first and second quarters of 2002, respectively. In the above table, the
first three quarters have been adjusted to reflect the nonrecurring
compensation expense in the first and second quarters, rather than in the
third quarter as previously reported. The column titled "Adjustment"
reflects the amounts that have been adjusted. The second quarter adjustment
also includes a $2.8 million management fee expense charged on options
exercised by certain executives that provide management services to the
Operating Partnership.
(3) Operating expenses include rental property operating expenses, depreciation
and amortization, interest expense and litigation reserve.
(4) As reported in the Operating Partnership's Form 10-Q for the three months
ended September 30, 2002, in the third quarter of 2002, the Operating
Partnership recorded $2.7 million of additional gain that resulted from the
sale of a building during the second quarter of 2002 that had not been
recorded during that period due to an error in the consolidation process.
In the above table, the second and third quarters have been adjusted to
reflect the additional gain in the second quarter, rather than in the third
quarter as previously reported. The column titled "Adjustment" reflects the
amounts that have been adjusted.
(5) Amounts represent net income available to common unitholders per unit,
which exclude preferred distributions.
(6) The first and second quarters include adjustments of $400,000 and $1.1
million, respectively, for management fee expenses charged for certain
executives that provide management services to the Operating Partnership.
These expenses were originally recorded as a decrease in "Interest and
other income" on the Operating Partnership and have since been reclassed to
"General and administrative" expenses.
F-37
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
18.RESTATED QUARTERLY FINANCIAL DATA (UNAUDITED):--Continued
The following sets forth quarterly financial information for the Operating
partnership's fiscal year ended December 31, 2001 ($ in thousands except per
share amounts):
------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER
------------------------------------------------------------------------------------------------
PREVIOUSLY DISCONTINUED PREVIOUSLY DISCONTINUED
REPORTED OPERATIONS RESTATED REPORTED OPERATIONS RESTATED
AMOUNTS (1) AMOUNTS AMOUNTS (1) AMOUNTS
------------------------------------------------------------------------------------------------
Rental revenue $ 128,226 $ (8,971) $ 119,255 $ 125,797 $ (8,719) $ 117,078
Operating expenses (2) 93,485 (4,186) 89,299 93,355 (4,071) 89,284
General and administrative 4,914 (4) 4,910 5,100 (3) 5,097
Total other income 7,498 (38) 7,460 8,293 (230) 8,063
------------------------------------------------------------------------------------------------
37,325 (4,819) 32,506 35,635 (4,875) 30,760
Gain on disposition of
land and depreciable
assets 7,071 -- 7,071 5,695 -- 5,695
------------------------------------------------------------------------------------------------
Income from continuing 44,396 (4,819) 39,577 41,330 (4,875) 36,455
operations
Discontinued operations -- 4,819 4,819 -- 4,875 4,875
------------------------------------------------------------------------------------------------
44,396 -- 44,396 41,330 -- 41,330
Extraordinary item (193) -- (193) (325) -- (325)
------------------------------------------------------------------------------------------------
Net income $ 44,203 $ -- $ 44,203 $ 41,005 $ -- $ 41,005
================================================================================================
NET INCOME PER SHARE-BASIC:
Income from continuing
operations $ 0.57 $ (0.07) $ 0.50$ 0.55 $ (0.08) $0.47
================================================================================================
Discontinued operations $ -- $ 0.07 $ 0.07 $ -- $ 0.08 $ 0.08
================================================================================================
Net income (3) $ 0.57 $ -- $ 0.57 $ 0.54 $ -- $ 0.54
================================================================================================
NET INCOME PER
SHARE-DILUTED:
Income from continuing
operations $ 0.56 $ (0.07) $ 0.49 $ 0.55 $ (0.08) $ 0.47
================================================================================================
Discontinued operations $ -- $ 0.07 $ 0.07 $ -- $ 0.08 $ 0.08
================================================================================================
Net income (3) $ 0.56 $ -- $ 0.56 $ 0.54 $ -- $ 0.54
================================================================================================
------------------------------------------------------------------------------------------------
THIRD QUARTER FOURTH QUARTER
------------------------------------------------------------------------------------------------
PREVIOUSLY DISCONTINUED PREVIOUSLY DISCONTINUED
REPORTED OPERATIONS RESTATED REPORTED OPERATIONS RESTATED
AMOUNTS (1) AMOUNTS AMOUNTS (1) AMOUNTS
------------------------------------------------------------------------------------------------
Rental revenue $ 125,405 $ (8,810) $ 116,595 $ 125,850 $ (9,644) $ 116,206
Operating expenses (2) 92,839 4,677) 88,162 100,322 (4,736) 95,586
General and administrative 4,239 (3) 4,236 6,847 (4) 6,843
Total other income 7,733 (45) 7,688 7,069 (50) 7,019
------------------------------------------------------------------------------------------------
36,060 (4,175) 31,885 25,750 (4,954) 20,796
Gain on disposition of
land and depreciable
assets 3,357 -- 3,357 74 -- 74
-----------------------------------------------------------------------------------------------
Income from continuing 39,417 (4,175) 35,242 25,824 (4,954) 20,870
operations
Discontinued operations -- 4,175 4,175 -- 4,954 4,954
-----------------------------------------------------------------------------------------------
39,417 -- 39,417 25,824 -- 25,824
Extraordinary item -- -- -- (196) -- (196)
------------------------------------------------------------------------------------------------
Net income $ 39,417 $ -- $ 39,417 $ 25,628 $ -- $ 25,628
================================================================================================
NET INCOME PER SHARE-BASIC:
Income from continuing
operations $ 0.52 $ (0.07) $ 0.45 $ 0.30 $ (0.08) $ 0.22
================================================================================================
Discontinued operations $ -- $ 0.07 $ 0.07 $ -- $ 0.08 $ 0.08
================================================================================================
Net income (3) $ 0.52$ -- $ 0.52 $ 0.30 $ -- $ 0.30
================================================================================================
NET INCOME PER
SHARE-DILUTED:
Income from continuing
operations $ 0.52 $ (0.07) $ 0.45 $ 0.30 $ (0.08) $ 0.22
================================================================================================
Discontinued operations $ -- $ 0.07 $ 0.07 $ -- $ 0.08 $ 0.08
=================================================================================================
Net income (3) $ 0.52 $ -- $ 0.52 $ 0.30 $ -- $ 0.30
=================================================================================================
-------------------------------------------------
TOTAL
-------------------------------------------------
PREVIOUSLY DISCONTINUED
REPORTED OPERATIONS RESTATED
AMOUNTS (1) AMOUNTS
-------------------------------------------------
Rental revenue $ 505,278 $ (36,144) $ 469,134
Operating expenses (2) 380,001 (17,670) 362,331
General and administrative 21,100 (14) 21,086
Total other income 30,593 (363) 30,230
-------------------------------------------------
134,770 (18,823) 115,947
Gain on disposition of
land and depreciable
assets 16,197 -- 16,197
-------------------------------------------------
Income from continuing 150,967 (18,823) 132,144
operations
Discontinued operations -- 18,823 18,823
-------------------------------------------------
150,967 -- 150,967
Extraordinary item (714) -- (714)
-------------------------------------------------
Net income $ 150,253 $ -- $ 150,253
=================================================
NET INCOME PER SHARE-BASIC:
Income from continuing
operations $ 1.94 $ (0.30) $ 1.64
=================================================
Discontinued operations $ -- $ 0.30 $ 0.30
=================================================
Net income (3) $ 1.93 $ -- $ 1.93
=================================================
NET INCOME PER
SHARE-DILUTED:
Income from continuing
operations $ 1.93 $ (0.30) $ 1.63
=================================================
Discontinued operations $ -- $ 0.30 $ 0.30
=================================================
Net income (3) $ 1.92 $ -- $ 1.92
=================================================
(1) On January 1, 2002, the Operating Partnership adopted SFAS 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets". In accordance with
SFAS 144, certain amounts from the first three quarters have been
reclassified to discontinued operations to reflect the results of
operations for those properties qualifying as discontinued operations as of
December 31 2002. See Note 10 included herein for a more detailed
discussion of the Operating Partnership's discontinued operations. The
column titled "Discontinued Operations" reflects the amounts that have been
reclassified.
(2) Operating expenses include rental property operating expenses, depreciation
and amortization, interest expense and litigation reserve.
(3) Amounts represent net income available to common unitholders per unit,
which exclude preferred distributions.
F-38
INITIAL COST
-------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
ATLANTA, GA
Two Point Royal 20060 Atlanta 1,793 14,951
400 North Business Park 20070 Atlanta 979 6,112
50 Glenlake 20080 Atlanta 2,500 20,000
6348 Northeast Expressway 20090 Atlanta 277 1,629
6438 Northeast Expressway 20100 Atlanta 181 2,225
Bluegrass Lakes I 20110 Atlanta 816 3,775
Bluegrass Place I 20130 Atlanta 491 2,016
Bluegrass Place II 20140 Atlanta 412 2,529
Bluegrass Valley 20150 Atlanta 1,500 -
Bluegrass Land Site V10 20160 Atlanta 1,824 -
Bluegrass Land Site V14 20170 Atlanta 2,365 -
Bluegrass Phase 2 60300 Atlanta 6,977 -
1700 Century Circle 28330 Atlanta - 2,456
1700 Century Center 20180 Atlanta 1,115 3,148
1800 Century Boulevard 20190 Atlanta 1,441 28,939
1825 Century Center (CDC) 28610 Atlanta 864 11,539
1875 Century Boulevard 20200 Atlanta - 8,790
1900 Century Boulevard 20210 Atlanta - 4,721
2200 Century Parkway 20220 Atlanta - 14,274
2400 Century Center 20230 Atlanta - 14,970
2600 Century Parkway 20240 Atlanta - 10,254
2635 Century Parkway 20250 Atlanta - 21,083
2800 Century Parkway 20260 Atlanta - 19,963
Chattahoochee Avenue 20270 Atlanta 248 1,817
Chastain Place I 20280 Atlanta 472 3,011
Chastain Place II 20290 Atlanta 607 2,097
Chastain Place III 20300 Atlanta 539 1,662
Corporate Lakes 20320 Atlanta 1,275 7,227
Cosmopolitan North 20330 Atlanta 2,855 4,155
Century Plaza I 20340 Atlanta 1,290 8,425
Century Plaza II 20350 Atlanta 1,380 7,589
Deerfield III 28070 Atlanta 1,010 3,341
EKA Chemical 20400 Atlanta 609 9,883
1035 Fred Drive 20410 Atlanta 270 1,239
5125 Fulton Industrial Drive 20430 Atlanta 578 3,116
Gwinnett Distribution Center 20470 Atlanta 1,128 5,943
Kennestone Corporate Center 20480 Atlanta 518 4,874
La Vista Business Park 20490 Atlanta 821 5,244
Norcross I & II 20500 Atlanta 326 1,979
Nortel 20510 Atlanta 3,342 32,109
Newpoint Place I 20520 Atlanta 825 3,799
Newpoint Place II 20530 Atlanta 1,436 3,321
Newpoint Place III 20540 Atlanta 661 1,866
Newpoint Place IV 28210 Atlanta 1,012 5,308
Newpoint Place Land 20550 Atlanta 196 -
Oakbrook I 20570 Atlanta (5) 873 4,948
Oakbrook II 20580 Atlanta (5) 1,579 8,388
Oakbrook III 20590 Atlanta (5) 1,480 8,388
Oakbrook IV 20600 Atlanta (5) 953 5,400
Oakbrook V 20610 Atlanta (5) 2,206 12,501
Oakbrook Summit 20620 Atlanta 950 6,572
Oxford Lake Business Center 20630 Atlanta 855 7,014
Peachtree Corners Land 20650 Atlanta 1,184 -
Southside Distribution Center 20690 Atlanta 810 1,219
Highwoods Center I at Tradeport 20720 Atlanta 305 3,299
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
ATLANTA, GA
Two Point Royal - 382 1,793 15,333
400 North Business Park - 504 979 6,616
50 Glenlake - 289 2,500 20,289
6348 Northeast Expressway - 112 277 1,741
6438 Northeast Expressway - 123 181 2,348
Bluegrass Lakes I - (3) 816 3,772
Bluegrass Place I - 54 491 2,070
Bluegrass Place II - 58 412 2,587
Bluegrass Valley - 4,253 1,500 4,253
Bluegrass Land Site V10 - - 1,824 -
Bluegrass Land Site V14 - - 2,365 -
Bluegrass Phase 2 - - 6,977 -
1700 Century Circle - 493 - 2,949
1700 Century Center - 667 1,115 3,815
1800 Century Boulevard - 9,288 1,441 38,227
1825 Century Center (CDC) 4,916 864 16,455
1875 Century Boulevard - 598 - 9,388
1900 Century Boulevard - 919 - 5,640
2200 Century Parkway - 2,026 - 16,300
2400 Century Center - 69 - 15,039
2600 Century Parkway - 1,197 - 11,451
2635 Century Parkway - 1,513 - 22,596
2800 Century Parkway - 770 - 20,733
Chattahoochee Avenue - 306 248 2,123
Chastain Place I - 960 472 3,971
Chastain Place II - 17 607 2,114
Chastain Place III - - 539 1,662
Corporate Lakes - 653 1,275 7,880
Cosmopolitan North - 1,536 2,855 5,691
Century Plaza I - 1,423 1,290 9,848
Century Plaza II - 1,092 1,380 8,681
Deerfield III - - 1,010 3,341
EKA Chemical - 3 609 9,886
1035 Fred Drive - 284 270 1,523
5125 Fulton Industrial Drive - 141 578 3,257
Gwinnett Distribution Center - 752 1,128 6,695
Kennestone Corporate Center - 339 518 5,213
La Vista Business Park - 902 821 6,146
Norcross I & II - 103 326 2,082
Nortel - 14 3,342 32,123
Newpoint Place I - 308 825 4,107
Newpoint Place II 47 1,575 1,483 4,896
Newpoint Place III - 710 661 2,576
Newpoint Place IV - - 1,012 5,308
Newpoint Place Land 1,933 10 2,129 10
Oakbrook I - 535 873 5,483
Oakbrook II - 1,795 1,579 10,183
Oakbrook III - 544 1,480 8,932
Oakbrook IV - 464 953 5,864
Oakbrook V - 971 2,206 13,472
Oakbrook Summit - 790 950 7,362
Oxford Lake Business Center - 457 855 7,471
Peachtree Corners Land - 1,184 -
Southside Distribution Center - 3,481 810 4,700
Highwoods Center I at Tradeport - 119 305 3,418
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
ATLANTA, GA
Two Point Royal 17,126 2,074 1997 5-40 yrs.
400 North Business Park 7,595 978 1985 5-40 yrs.
50 Glenlake 22,789 2,725 1997 5-40 yrs.
6348 Northeast Expressway 2,018 264 1978 5-40 yrs.
6438 Northeast Expressway 2,529 368 1981 5-40 yrs.
Bluegrass Lakes I 4,588 655 1999 5-40 yrs.
Bluegrass Place I 2,561 294 1995 5-40 yrs.
Bluegrass Place II 2,999 359 1996 5-40 yrs.
Bluegrass Valley 5,753 388 2000 5-40 yrs.
Bluegrass Land Site V10 1,824 - 1999 5-40 yrs.
Bluegrass Land Site V14 2,365 - 1999 5-40 yrs.
Bluegrass Phase 2 6,977 - N/A N/A
1700 Century Circle 2,949 131 1983 5-40 yrs.
1700 Century Center 4,930 910 1972 5-40 yrs.
1800 Century Boulevard 39,668 4,905 1975 5-40 yrs.
1825 Century Center (CDC) 17,319 173 2002 5-40 yrs.
1875 Century Boulevard 9,388 1,507 1976 5-40 yrs.
1900 Century Boulevard 5,640 1,167 1971 5-40 yrs.
2200 Century Parkway 16,300 2,989 1971 5-40 yrs.
2400 Century Center 15,039 3,429 1998 5-40 yrs.
2600 Century Parkway 11,451 1,875 1973 5-40 yrs.
2635 Century Parkway 22,596 3,758 1980 5-40 yrs.
2800 Century Parkway 20,733 3,164 1983 5-40 yrs.
Chattahoochee Avenue 2,371 502 1970 5-40 yrs.
Chastain Place I 4,443 1,202 1997 5-40 yrs.
Chastain Place II 2,721 579 1998 5-40 yrs.
Chastain Place III 2,201 387 1999 5-40 yrs.
Corporate Lakes 9,155 1,460 1988 5-40 yrs.
Cosmopolitan North 8,546 1,329 1980 5-40 yrs.
Century Plaza I 11,138 952 1981 5-40 yrs.
Century Plaza II 10,061 758 1984 5-40 yrs.
Deerfield III 4,351 56 2001 5-40 yrs.
EKA Chemical 10,495 1,184 1998 5-40 yrs.
1035 Fred Drive 1,793 196 1973 5-40 yrs.
5125 Fulton Industrial Drive 3,835 538 1973 5-40 yrs.
Gwinnett Distribution Center 7,823 1,106 1991 5-40 yrs.
Kennestone Corporate Center 5,731 818 1985 5-40 yrs.
La Vista Business Park 6,967 1,103 1973 5-40 yrs.
Norcross I & II 2,408 321 1970 5-40 yrs.
Nortel 35,465 3,849 1998 5-40 yrs.
Newpoint Place I 4,932 1,351 1998 5-40 yrs.
Newpoint Place II 6,379 721 1999 5-40 yrs.
Newpoint Place III 3,237 610 1998 5-40 yrs.
Newpoint Place IV 6,320 46 2001
Newpoint Place Land 2,139 - N/A N/A
Oakbrook I 6,356 957 1981 5-40 yrs.
Oakbrook II 11,762 2,084 1983 5-40 yrs.
Oakbrook III 10,412 1,577 1984 5-40 yrs.
Oakbrook IV 6,817 1,054 1985 5-40 yrs.
Oakbrook V 15,678 2,614 1985 5-40 yrs.
Oakbrook Summit 8,312 1,320 1981 5-40 yrs.
Oxford Lake Business Center 8,326 1,138 1985 5-40 yrs.
Peachtree Corners Land 1,184 - N/A N/A
Southside Distribution Center 5,510 740 1988 5-40 yrs.
Highwoods Center I at Tradeport 3,723 756 1999 5-40 yrs.
F-39
INITIAL COST
-------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
Highwoods Center II at Tradeport 20710 Atlanta 635 3,474
Highwoods Center III at Tradeport 28590 Atlanta 402 2,121
Tradeport Land 20730 Atlanta 5,314 -
Tradeport Place I 20740 Atlanta 557 2,669
Tradeport II 20750 Atlanta 557 3,456
Tradeport III 20760 Atlanta - -
Tradeport IV 28260 Atlanta 661 3,182
Tradeport V 28740 Atlanta 459 1,815
BALTIMORE, MD
Sportsman Club Land 20770 Baltimore 24,702 -
CHARLOTTE, NC
Ridgefield 20030 Charlotte 791 -
4101 Stuart Andrew Boulevard 20800 Charlotte 70 510
4105 Stuart Andrew Boulevard 20810 Charlotte 26 189
4109 Stuart Andrew Boulevard 20820 Charlotte 87 636
4201 Stuart Andrew Boulevard 20830 Charlotte 110 809
4205 Stuart Andrew Boulevard 20840 Charlotte 134 979
4209 Stuart Andrew Boulevard 20850 Charlotte 91 665
4215 Stuart Andrew Boulevard 20860 Charlotte 133 978
4301 Stuart Andrew Boulevard 20870 Charlotte 232 1,702
4321 Stuart Andrew Boulevard 20880 Charlotte 73 534
4601 Park Square 20890 Charlotte 2,601 7,802
Alston & Bird 20900 Charlotte 2,362 5,379
First Citizens Building 20910 Charlotte 647 5,528
Twin Lakes Distribution Center 20920 Charlotte 2,816 6,570
Mallard Creek I 20930 Charlotte 1,248 4,142
Mallard Creek III 20940 Charlotte 845 4,762
Mallard Creek IV 20950 Charlotte 348 1,152
Mallard Creek V 20960 Charlotte 1,665 8,738
Mallard Creek VI 20970 Charlotte 834 -
Oakhill Land 20990 Charlotte 2,797 -
Oakhill Business Park English Oak 21000 Charlotte (5) 750 4,248
Oakhill Business Park Laurel Oak 21010 Charlotte (5) 471 2,671
Oakhill Business Park Live Oak 21020 Charlotte 1,403 5,611
Oakhill Business Park Scarlet Oak 21030 Charlotte (5) 1,073 6,078
Oakhill Business Park Twin Oak 21040 Charlotte (5) 1,243 7,044
Oakhill Business Park Willow Oak 21050 Charlotte (5) 442 2,505
Oakhill Business Park Water Oak 21060 Charlotte (5) 1,623 9,196
Pinebrook 21070 Charlotte 846 4,607
One Parkway Plaza Building 21080 Charlotte 1,110 4,741
Two Parkway Plaza Building 21090 Charlotte 1,694 6,777
Three Parkway Plaza Building 21100 Charlotte (3) 1,570 6,282
Six Parkway Plaza Building 21110 Charlotte - 2,438
Seven Parkway Plaza Building 21120 Charlotte - 4,648
Eight Parkway Plaza Building 21130 Charlotte - 4,698
Nine Parkway Plaza Building 21140 Charlotte - 6,008
Eleven Parkway Plaza 21150 Charlotte - 2,328
Twelve Parkway Plaza 21160 Charlotte 112 1,489
Fourteen Parkway Plaza Building 21170 Charlotte 483 6,077
University Center 28400 Charlotte 1,296 216
University Center - Land 28410 Charlotte 7,959 -
Oakhill Land 28700 Charlotte 1,157 -
COLUMBIA, SC
Centerpoint I 21270 Columbia 1,313 7,441
Centerpoint II 21280 Columbia 1,183 8,724
Centerpoint V 21290 Columbia 265 1,279
Centerpoint VI 21300 Columbia 273 -
Fontaine I 21310 Columbia 1,219 6,907
Fontaine II 21320 Columbia 941 5,335
Fontaine III 21330 Columbia 853 4,333
Fontaine V 21340 Columbia 395 2,237
PIEDMONT TRIAD, NC
6348 Burnt Poplar 21390 Piedmont Triad 721 2,883
6350 Burnt Poplar 21400 Piedmont Triad 339 1,365
Chimney Rock A/B 21410 Piedmont Triad 1,610 3,757
Chimney Rock C 21420 Piedmont Triad 604 1,408
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
Highwoods Center II at Tradeport - 757 635 4,231
Highwoods Center III at Tradeport 3 1,132 405 3,253
Tradeport Land 35 58 5,349 58
Tradeport Place I - 185 557 2,854
Tradeport II - 59 557 3,515
Tradeport III 668 3,942 668 3,942
Tradeport IV - 636 661 3,818
Tradeport V 489 459 2,304
BALTIMORE, MD
Sportsman Club Land - - 24,702 -
CHARLOTTE, NC -
Ridgefield - - 791 -
4101 Stuart Andrew Boulevard - 284 70 794
4105 Stuart Andrew Boulevard - 33 26 222
4109 Stuart Andrew Boulevard - 75 87 711
4201 Stuart Andrew Boulevard - 88 110 897
4205 Stuart Andrew Boulevard - 86 134 1,065
4209 Stuart Andrew Boulevard - 116 91 781
4215 Stuart Andrew Boulevard - 94 133 1,072
4301 Stuart Andrew Boulevard - 175 232 1,877
4321 Stuart Andrew Boulevard - 42 73 576
4601 Park Square - 341 2,601 8,143
Alston & Bird (2,362) (5,379) - -
First Citizens Building - 719 647 6,247
Twin Lakes Distribution Center (2,816) (6,570) - -
Mallard Creek I - 610 1,248 4,752
Mallard Creek III - 202 845 4,964
Mallard Creek IV - 12 348 1,164
Mallard Creek V - 2,697 1,665 11,435
Mallard Creek VI - 834 -
Oakhill Land - 2,797 -
Oakhill Business Park English Oak - 312 750 4,560
Oakhill Business Park Laurel Oak - 405 471 3,076
Oakhill Business Park Live Oak - 1,193 1,403 6,804
Oakhill Business Park Scarlet Oak - 545 1,073 6,623
Oakhill Business Park Twin Oak - 713 1,243 7,757
Oakhill Business Park Willow Oak - 910 442 3,415
Oakhill Business Park Water Oak - 965 1,623 10,161
Pinebrook - 409 846 5,016
One Parkway Plaza Building - 884 1,110 5,625
Two Parkway Plaza Building - 1,675 1,694 8,452
Three Parkway Plaza Building - 881 1,570 7,163
Six Parkway Plaza Building - 531 - 2,969
Seven Parkway Plaza Building - 253 - 4,901
Eight Parkway Plaza Building - 202 - 4,900
Nine Parkway Plaza Building - (6,008) - -
Eleven Parkway Plaza 160 220 160 2,548
Twelve Parkway Plaza - 302 112 1,791
Fourteen Parkway Plaza Building - 994 483 7,071
University Center - 1,296 216
University Center - Land - - 7,959 -
Oakhill Land - - 1,157 -
COLUMBIA, SC
Centerpoint I - 444 1,313 7,885
Centerpoint II - 13 1,183 8,737
Centerpoint V - 348 265 1,627
Centerpoint VI - 273 -
Fontaine I - 1,446 1,219 8,353
Fontaine II - 836 941 6,171
Fontaine III - 120 853 4,453
Fontaine V - 19 395 2,256
PIEDMONT TRIAD, NC
6348 Burnt Poplar - 42 721 2,925
6350 Burnt Poplar - 64 339 1,429
Chimney Rock A/B 1 514 1,611 4,271
Chimney Rock C - 108 604 1,516
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
Highwoods Center II at Tradeport 4,866 749 1999 5-40 yrs.
Highwoods Center III at Tradeport 3,658 650 2001 5-40 yrs.
Tradeport Land 5,407 1 N/A N/A
Tradeport Place I 3,411 598 1999 5-40 yrs.
Tradeport II 4,072 829 1999 5-40 yrs.
Tradeport III 4,610 575 1999 5-40 yrs.
Tradeport IV 4,479 163 2001 5-40 yrs.
Tradeport V 2,763 14 2002 5-40 yrs.
BALTIMORE, MD
Sportsman Club Land 24,702 - N/A N/A
CHARLOTTE, NC
Ridgefield 791 - N/A N/A
4101 Stuart Andrew Boulevard 864 302 1984 5-40 yrs.
4105 Stuart Andrew Boulevard 248 60 1984 5-40 yrs.
4109 Stuart Andrew Boulevard 798 163 1984 5-40 yrs.
4201 Stuart Andrew Boulevard 1,007 202 1982 5-40 yrs.
4205 Stuart Andrew Boulevard 1,199 237 1982 5-40 yrs.
4209 Stuart Andrew Boulevard 872 208 1982 5-40 yrs.
4215 Stuart Andrew Boulevard 1,205 245 1982 5-40 yrs.
4301 Stuart Andrew Boulevard 2,109 436 1982 5-40 yrs.
4321 Stuart Andrew Boulevard 649 128 1982 5-40 yrs.
4601 Park Square 10,744 1,021 1972 5-40 yrs.
Alston & Bird - - 1965 5-40 yrs.
First Citizens Building 6,894 1,635 1989 5-40 yrs.
Twin Lakes Distribution Center - - 1991 5-40 yrs.
Mallard Creek I 6,000 690 1986 5-40 yrs.
Mallard Creek III 5,809 638 1990 5-40 yrs.
Mallard Creek IV 1,512 143 1993 5-40 yrs.
Mallard Creek V 13,100 1,657 1999 5-40 yrs.
Mallard Creek VI 834 - N/A N/A
Oakhill Land 2,797 - N/A N/A
Oakhill Business Park English Oak 5,310 796 1984 5-40 yrs.
Oakhill Business Park Laurel Oak 3,547 672 1984 5-40 yrs.
Oakhill Business Park Live Oak 8,207 1,529 1989 5-40 yrs.
Oakhill Business Park Scarlet Oak 7,696 1,295 1982 5-40 yrs.
Oakhill Business Park Twin Oak 9,000 1,482 1985 5-40 yrs.
Oakhill Business Park Willow Oak 3,857 1,000 1982 5-40 yrs.
Oakhill Business Park Water Oak 11,784 2,126 1985 5-40 yrs.
Pinebrook 5,862 837 1986 5-40 yrs.
One Parkway Plaza Building 6,735 1,236 1982 5-40 yrs.
Two Parkway Plaza Building 10,146 2,383 1983 5-40 yrs.
Three Parkway Plaza Building 8,733 1,640 1984 5-40 yrs.
Six Parkway Plaza Building 2,969 858 1996 5-40 yrs.
Seven Parkway Plaza Building 4,901 894 1985 5-40 yrs.
Eight Parkway Plaza Building 4,900 878 1986 5-40 yrs.
Nine Parkway Plaza Building - - 1984 5-40 yrs.
Eleven Parkway Plaza 2,708 539 1999 5-40 yrs.
Twelve Parkway Plaza 1,903 316 1999 5-40 yrs.
Fourteen Parkway Plaza Building 7,554 1,142 1999 5-40 yrs.
University Center 1,512 17 2001 5-40 yrs.
University Center - Land 7,959 - N/A N/A
Oakhill Land 1,157 - N/A N/A
COLUMBIA, SC
Centerpoint I 9,198 1,416 1988 5-40 yrs.
Centerpoint II 9,920 1,869 1996 5-40 yrs.
Centerpoint V 1,892 451 1997 5-40 yrs.
Centerpoint VI 273 - N/A N/A
Fontaine I 9,572 1,442 1985 5-40 yrs.
Fontaine II 7,112 1,572 1987 5-40 yrs.
Fontaine III 5,306 841 1988 5-40 yrs.
Fontaine V 2,651 355 1990 5-40 yrs.
PIEDMONT TRIAD, NC
6348 Burnt Poplar 3,646 574 1990 5-40 yrs.
6350 Burnt Poplar 1,768 295 1992 5-40 yrs.
Chimney Rock A/B 5,882 638 1981 5-40 yrs.
Chimney Rock C 2,120 174 1983 5-40 yrs.
F-40
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
Chimney Rock D 21430 Piedmont Triad 236 550
Chimney Rock E 21440 Piedmont Triad 1,692 3,948
Chimney Rock F 21450 Piedmont Triad 1,431 3,338
Chimney Rock G 21460 Piedmont Triad 1,044 2,435
Deep River Corporate Center 21470 Piedmont Triad 1,033 5,855
Airpark East-Copier Consultants 21480 Piedmont Triad (2) 252 1,008
Airpark East-Building 1 21490 Piedmont Triad (2) 377 1,510
Airpark East-Building 2 21500 Piedmont Triad (2) 461 1,842
Airpark East-Building 3 21510 Piedmont Triad (2) 321 1,283
Airpark East-HewlettPackard 21520 Piedmont Triad (2) 465 727
Airpark East-Inacom Building 21530 Piedmont Triad (2) 265 478
Airpark East-Simplex 21540 Piedmont Triad (2) 271 526
Airpark East-Building A 21550 Piedmont Triad (2) 541 2,913
Airpark East-Building B 21560 Piedmont Triad (2) 779 3,200
Airpark East-Building C 21570 Piedmont Triad (2) 2,384 9,535
Airpark East-Building D 21580 Piedmont Triad (2) 850 3,213
Airpark East-Service Center 1 21610 Piedmont Triad (2) 275 1,099
Airpark East-Service Center 2 21620 Piedmont Triad (2) 222 889
Airpark East-Service Center 3 21630 Piedmont Triad (2) 304 1,214
Airpark East-Service Center 4 21640 Piedmont Triad (2) 224 898
Airpark East-Service Court 21650 Piedmont Triad (2) 194 774
Airpark East-Warehouse 1 21660 Piedmont Triad (2) 384 1,535
Airpark East-Warehouse 2 21670 Piedmont Triad (2) 372 1,488
Airpark East-Warehouse 3 21680 Piedmont Triad (2) 370 1,480
Airpark East-Warehouse 4 21690 Piedmont Triad (2) 657 2,628
Airpark East-Highland 21700 Piedmont Triad (2) 175 699
Inman Road Land 21830 Piedmont Triad 941 -
7906 Industrial Village Road 21840 Piedmont Triad 62 455
7908 Industrial Village Road 21850 Piedmont Triad 62 455
7910 Industrial Village Road 21860 Piedmont Triad 62 455
Jefferson Pilot Land 21870 Piedmont Triad 17,696 -
Airpark North - DC1 21880 Piedmont Triad (2) 723 2,891
Airpark North - DC2 21890 Piedmont Triad (2) 1,094 4,375
Airpark North - DC3 21900 Piedmont Triad (2) 378 1,511
Airpark North - DC4 21910 Piedmont Triad (2) 377 1,508
Airpark North Land 21920 Piedmont Triad 804 -
2606 Phoenix Drive-100 Series 21940 Piedmont Triad 63 466
2606 Phoenix Drive-200 Series 21950 Piedmont Triad 63 466
2606 Phoenix Drive-300 Series 21960 Piedmont Triad 31 229
2606 Phoenix Drive-400 Series 21970 Piedmont Triad 52 382
2606 Phoenix Drive-500 Series 21980 Piedmont Triad 64 471
2606 Phoenix Drive-600 Series 21990 Piedmont Triad 78 575
2606 Phoenix Drive-700 Series 22000 Piedmont Triad - 533
2606 Phoenix Drive-800 Series 22010 Piedmont Triad 2,308
Highwoods Park Building I 28670 Piedmont Triad 1,980 7,273
500 Radar Road 22110 Piedmont Triad 202 1,484
502 Radar Road 22120 Piedmont Triad 39 285
504 Radar Road 22130 Piedmont Triad 39 285
506 Radar Road 22140 Piedmont Triad 39 285
Regency One-Piedmont Center 22150 Piedmont Triad 515 2,347
Regency Two-Piedmont Center 22160 Piedmont Triad 435 1,859
Sears Cenfact 22170 Piedmont Triad 861 3,446
Airpark South Warehouse I 22210 Piedmont Triad 537 2,934
Airpark South Warehouse 2 22220 Piedmont Triad 733 2,548
Airpark South Warehouse 3 22230 Piedmont Triad 599 2,365
Airpark South Warehouse 4 22240 Piedmont Triad 489 2,175
Airpark South Warehouse 6 22250 Piedmont Triad 1,690 3,915
Airpark West 1 22270 Piedmont Triad (3) 954 3,817
Airpark West 2 22280 Piedmont Triad (3) 887 3,536
Airpark West 4 22290 Piedmont Triad (3) 226 903
Airpark West 5 22300 Piedmont Triad (3) 242 966
Airpark West 6 22310 Piedmont Triad (3) 326 1,308
7327 West Friendly Avenue 22320 Piedmont Triad 60 441
7339 West Friendly Avenue 22330 Piedmont Triad 63 465
7341 West Friendly Avenue 22340 Piedmont Triad 113 831
7343 West Friendly Avenue 22350 Piedmont Triad 72 531
7345 West Friendly Avenue 22360 Piedmont Triad 66 485
7347 West Friendly Avenue 22370 Piedmont Triad 97 709
7349 West Friendly Avenue 22380 Piedmont Triad 53 388
7351 West Friendly Avenue 22390 Piedmont Triad 106 778
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
Chimney Rock D - 93 236 643
Chimney Rock E 1 365 1,693 4,313
Chimney Rock F 1 267 1,432 3,605
Chimney Rock G 1 184 1,045 2,619
Deep River Corporate Center - 434 1,033 6,289
Airpark East-Copier Consultants (29) 124 223 1,132
Airpark East-Building 1 - 160 377 1,670
Airpark East-Building 2 - 174 461 2,016
Airpark East-Building 3 - 214 321 1,497
Airpark East-HewlettPackard 559 336 1,024 1,063
Airpark East-Inacom Building 396 294 661 772
Airpark East-Simplex 349 263 620 789
Airpark East-Building A (33) 844 508 3,757
Airpark East-Building B (43) 753 736 3,953
Airpark East-Building C - 2,229 2,384 11,764
Airpark East-Building D 1,025 1,472 1,875 4,685
Airpark East-Service Center 1 (39) 174 236 1,273
Airpark East-Service Center 2 (31) 119 191 1,008
Airpark East-Service Center 3 - 163 304 1,377
Airpark East-Service Center 4 - 187 224 1,085
Airpark East-Service Court (24) 66 170 840
Airpark East-Warehouse 1 (29) 99 355 1,634
Airpark East-Warehouse 2 - 141 372 1,629
Airpark East-Warehouse 3 (30) 55 340 1,535
Airpark East-Warehouse 4 - 182 657 2,810
Airpark East-Highland (30) 390 145 1,089
Inman Road Land - 941 -
7906 Industrial Village Road - 23 62 478
7908 Industrial Village Road - 34 62 489
7910 Industrial Village Road - 50 62 505
Jefferson Pilot Land - - 17,696 -
Airpark North - DC1 134 243 857 3,134
Airpark North - DC2 203 246 1,297 4,621
Airpark North - DC3 70 215 448 1,726
Airpark North - DC4 70 141 447 1,649
Airpark North Land (804) - - -
2606 Phoenix Drive-100 Series - 13 63 479
2606 Phoenix Drive-200 Series - 91 63 557
2606 Phoenix Drive-300 Series - 125 31 354
2606 Phoenix Drive-400 Series - 34 52 416
2606 Phoenix Drive-500 Series - 32 64 503
2606 Phoenix Drive-600 Series - 31 78 606
2606 Phoenix Drive-700 Series - 203 - 736
2606 Phoenix Drive-800 Series 303 - 2,611
Highwoods Park Building I 12 1,035 1,992 8,308
500 Radar Road - 168 202 1,652
502 Radar Road - 85 39 370
504 Radar Road - 35 39 320
506 Radar Road - 19 39 304
Regency One-Piedmont Center - 583 515 2,930
Regency Two-Piedmont Center - 536 435 2,395
Sears Cenfact (31) 348 830 3,794
Airpark South Warehouse I 8 (422) 545 2,512
Airpark South Warehouse 2 11 (36) 744 2,512
Airpark South Warehouse 3 - - 599 2,365
Airpark South Warehouse 4 7 246 496 2,421
Airpark South Warehouse 6 26 7 1,716 3,922
Airpark West 1 - 895 954 4,712
Airpark West 2 (3) 605 884 4,141
Airpark West 4 - 213 226 1,116
Airpark West 5 - 179 242 1,145
Airpark West 6 - 181 326 1,489
7327 West Friendly Avenue (60) (441) - -
7339 West Friendly Avenue (63) (465) - -
7341 West Friendly Avenue - 137 113 968
7343 West Friendly Avenue - 48 72 579
7345 West Friendly Avenue - 25 66 510
7347 West Friendly Avenue - 85 97 794
7349 West Friendly Avenue - 23 53 411
7351 West Friendly Avenue - 30 106 808
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
Chimney Rock D 879 113 1983 5-40 yrs.
Chimney Rock E 6,006 494 1985 5-40 yrs.
Chimney Rock F 5,037 409 1987 5-40 yrs.
Chimney Rock G 3,664 298 1987 5-40 yrs.
Deep River Corporate Center 7,322 1,190 1989 5-40 yrs.
Airpark East-Copier Consultants 1,355 250 1990 5-40 yrs.
Airpark East-Building 1 2,047 393 1990 5-40 yrs.
Airpark East-Building 2 2,477 373 1986 5-40 yrs.
Airpark East-Building 3 1,818 340 1986 5-40 yrs.
Airpark East-HewlettPackard 2,087 325 1996 5-40 yrs.
Airpark East-Inacom Building 1,433 300 1996 5-40 yrs.
Airpark East-Simplex 1,409 253 1997 5-40 yrs.
Airpark East-Building A 4,265 983 1986 5-40 yrs.
Airpark East-Building B 4,689 943 1988 5-40 yrs.
Airpark East-Building C 14,148 2,517 1990 5-40 yrs.
Airpark East-Building D 6,560 1,219 1997 5-40 yrs.
Airpark East-Service Center 1 1,509 329 1985 5-40 yrs.
Airpark East-Service Center 2 1,199 234 1985 5-40 yrs.
Airpark East-Service Center 3 1,681 309 1985 5-40 yrs.
Airpark East-Service Center 4 1,309 275 1985 5-40 yrs.
Airpark East-Service Court 1,010 194 1990 5-40 yrs.
Airpark East-Warehouse 1 1,989 357 1985 5-40 yrs.
Airpark East-Warehouse 2 2,001 389 1985 5-40 yrs.
Airpark East-Warehouse 3 1,875 319 1986 5-40 yrs.
Airpark East-Warehouse 4 3,467 643 1988 5-40 yrs.
Airpark East-Highland 1,234 187 1990 5-40 yrs.
Inman Road Land 941 - N/A N/A
7906 Industrial Village Road 540 91 1985 5-40 yrs.
7908 Industrial Village Road 551 114 1985 5-40 yrs.
7910 Industrial Village Road 567 112 1985 5-40 yrs.
Jefferson Pilot Land 17,696 - N/A N/A
Airpark North - DC1 3,991 648 1986 5-40 yrs.
Airpark North - DC2 5,918 936 1987 5-40 yrs.
Airpark North - DC3 2,174 474 1988 5-40 yrs.
Airpark North - DC4 2,096 398 1988 5-40 yrs.
Airpark North Land - - N/A N/A
2606 Phoenix Drive-100 Series 542 90 1989 5-40 yrs.
2606 Phoenix Drive-200 Series 620 135 1989 5-40 yrs.
2606 Phoenix Drive-300 Series 385 93 1989 5-40 yrs.
2606 Phoenix Drive-400 Series 468 85 1989 5-40 yrs.
2606 Phoenix Drive-500 Series 567 109 1989 5-40 yrs.
2606 Phoenix Drive-600 Series 684 131 1989 5-40 yrs.
2606 Phoenix Drive-700 Series 736 171 1988 5-40 yrs.
2606 Phoenix Drive-800 Series 2,611 156 1989 5-40 yrs.
Highwoods Park Building I 10,300 61 2001 5-40 yrs.
500 Radar Road 1,854 361 1981 5-40 yrs.
502 Radar Road 409 112 1986 5-40 yrs.
504 Radar Road 359 65 1986 5-40 yrs.
506 Radar Road 343 60 1986 5-40 yrs.
Regency One-Piedmont Center 3,445 755 1996 5-40 yrs.
Regency Two-Piedmont Center 2,830 799 1996 5-40 yrs.
Sears Cenfact 4,624 761 1989 5-40 yrs.
Airpark South Warehouse I 3,057 501 1998 5-40 yrs.
Airpark South Warehouse 2 3,256 223 1999 5-40 yrs.
Airpark South Warehouse 3 2,964 174 1999 5-40 yrs.
Airpark South Warehouse 4 2,917 423 1999 5-40 yrs.
Airpark South Warehouse 6 5,638 375 1999 5-40 yrs.
Airpark West 1 5,666 1,252 1984 5-40 yrs.
Airpark West 2 5,025 1,126 1985 5-40 yrs.
Airpark West 4 1,342 301 1985 5-40 yrs.
Airpark West 5 1,387 279 1985 5-40 yrs.
Airpark West 6 1,815 379 1985 5-40 yrs.
7327 West Friendly Avenue - - 1987 5-40 yrs.
7339 West Friendly Avenue - - 1989 5-40 yrs.
7341 West Friendly Avenue 1,081 229 1988 5-40 yrs.
7343 West Friendly Avenue 651 121 1988 5-40 yrs.
7345 West Friendly Avenue 576 101 1988 5-40 yrs.
7347 West Friendly Avenue 891 196 1988 5-40 yrs.
7349 West Friendly Avenue 464 84 1988 5-40 yrs.
7351 West Friendly Avenue 914 164 1988 5-40 yrs.
F-41
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
7353 West Friendly Avenue 22400 Piedmont Triad 123 901
7355 West Friendly Avenue 22410 Piedmont Triad 72 525
150 Stratford 26180 Piedmont Triad 2,777 11,459
ALO 26190 Piedmont Triad 177 986
Chesapeake 26200 Piedmont Triad (3) 1,236 4,944
Forsyth Corporate Center 26210 Piedmont Triad (5) 326 1,850
The Knollwood-370 26230 Piedmont Triad (2) 1,819 7,451
The Knollwood-380 26240 Piedmont Triad (2) 2,977 11,912
The Knollwood -380 Retail 26260 Piedmont Triad (2) - 1
101 Stratford 26290 Piedmont Triad 1,205 6,810
160 Stratford - Land 28370 Piedmont Triad 966 -
Consolidated Center/ Building I 26300 Piedmont Triad 625 2,126
Consolidated Center/ Building II 26310 Piedmont Triad 625 4,376
Consolidated Center/ Building III 26320 Piedmont Triad 680 3,522
Consolidated Center/ Building IV 26330 Piedmont Triad 376 1,624
Madison Park - Building 5610 26460 Piedmont Triad 211 493
Madison Park - Building 5620 26470 Piedmont Triad 941 2,196
Madison Park - Building 5630 26480 Piedmont Triad 1,486 3,468
Madison Park - Building 5635 26490 Piedmont Triad 893 2,083
Madison Park - Building 5640 26500 Piedmont Triad 3,632 8,476
Madison Park - Building 5650 26510 Piedmont Triad 1,081 2,522
Madison Park - Building 5660 26520 Piedmont Triad 1,910 4,456
Madison Park - Building 5655 26530 Piedmont Triad 5,891 13,753
500 Northridge 26570 Piedmont Triad 1,789 4,174
711 Almondridge Piedmont Triad 280 694
710 Almondridge Piedmont Triad 2,180 8,730
520 Northridge Piedmont Triad 1,541 3,777
531 Northridge Warehouse Piedmont Triad 4,596 10,967
531 Northridge Office Piedmont Triad 706 1,683
540 Northridge Piedmont Triad 1,952 4,681
550 Northridge Piedmont Triad 447 1,081
US Airways 26630 Piedmont Triad (5) 2,625 14,824
University Commercial Center-Landmark 3 26660 Piedmont Triad 429 1,771
University Commercial Center-Archer 4 26670 Piedmont Triad 514 2,058
University Commercial Center-Service Center 1 26680 Piedmont Triad 276 1,155
University Commercial Center-Service Center 2 26690 Piedmont Triad 215 859
University Commercial Center-Service Center 3 26700 Piedmont Triad 167 668
University Commercial Center-Warehouse 1 26710 Piedmont Triad 203 812
University Commercial Center-Warehouse 2 26720 Piedmont Triad 196 786
Westpoint Business Park-BMF 26730 Piedmont Triad 795 3,181
Westpoint Business Park-Luwabahnson 26740 Piedmont Triad 346 1,384
Westpoint Business Park-3 & 4 Piedmont Triad 111 445
Westpoint Business Park Land 26760 Piedmont Triad 861 -
Westpoint Business Park-Wp 11 26780 Piedmont Triad 393 1,570
Westpoint Business Park-Wp 12 Piedmont Triad 329 1,337
Westpoint Business Park-Wp 13 26800 Piedmont Triad 297 1,192
Westpoint Business Park-Fairchild 26810 Piedmont Triad 640 2,577
Westpoint Business Park-Warehouse5 Piedmont Triad 157 671
Enterprise Warehouse I 28420 Piedmont Triad 487 2,960
Brigham Road - Land 28710 Piedmont Triad 7,299 -
GREENVILLE, SC
385 Land 22420 Greenville 1,800 -
Bank of America Plaza 22430 Greenville 642 9,349
MetLife @ Brookfield 28490 Greenville 1,023 8,336
Brookfield Plaza 22440 Greenville (5) 1,489 8,437
Brookfield-Jacobs-Sirrine 22450 Greenville 3,022 17,125
Brookfield YMCA 22460 Greenville 33 189
385 Building 1 22470 Greenville 1,413 1,401
Patewood I 22480 Greenville 942 5,016
Patewood II 22490 Greenville 942 5,018
Patewood III 22500 Greenville (5) 835 4,733
Patewood IV 22510 Greenville (5) 1,210 6,856
Patewood V 22520 Greenville (5) 1,677 9,503
Patewood VI 22530 Greenville 2,360 9,643
770 Pelham Road 22540 Greenville 705 2,778
Patewood Business Center 22550 Greenville 1,312 7,436
Verizon Wireless 28640 Greenville 1,790 12,701
JACKSONVILLE, FL
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
7353 West Friendly Avenue - 50 123 951
7355 West Friendly Avenue - 47 72 572
150 Stratford - 564 2,777 12,023
ALO - 8 177 994
Chesapeake - 7 1,236 4,951
Forsyth Corporate Center - 707 326 2,557
The Knollwood-370 - 515 1,819 7,966
The Knollwood-380 - 1,303 2,977 13,215
The Knollwood -380 Retail - 187 - 188
101 Stratford - 447 1,205 7,257
160 Stratford - Land - - 966 -
Consolidated Center/ Building I - 89 625 2,215
Consolidated Center/ Building II - 151 625 4,527
Consolidated Center/ Building III - 57 680 3,579
Consolidated Center/ Building IV - 269 376 1,893
Madison Park - Building 5610 - 25 211 518
Madison Park - Building 5620 - 26 941 2,222
Madison Park - Building 5630 - 39 1,486 3,507
Madison Park - Building 5635 - 466 893 2,549
Madison Park - Building 5640 - 88 3,632 8,564
Madison Park - Building 5650 - 29 1,081 2,551
Madison Park - Building 5660 - 48 1,910 4,504
Madison Park - Building 5655 - 141 5,891 13,894
500 Northridge - 206 1,789 4,380
711 Almondridge - - 280 694
710 Almondridge - - 2,180 8,730
520 Northridge - - 1,541 3,777
531 Northridge Warehouse - - 4,596 10,967
531 Northridge Office - - 706 1,683
540 Northridge - - 1,952 4,681
550 Northridge - - 447 1,081
US Airways - 245 2,625 15,069
University Commercial Center-Landmark 3 - 321 429 2,092
University Commercial Center-Archer 4 - 203 514 2,261
University Commercial Center-Service Center 1 - 140 276 1,295
University Commercial Center-Service Center 2 - 126 215 985
University Commercial Center-Service Center 3 - 250 167 918
University Commercial Center-Warehouse 1 - 9 203 821
University Commercial Center-Warehouse 2 - 16 196 802
Westpoint Business Park-BMF - 4 795 3,185
Westpoint Business Park-Luwabahnson - 1 346 1,385
Westpoint Business Park-3 & 4 - - 111 445
Westpoint Business Park Land - - 861 -
Westpoint Business Park-Wp 11 - 86 393 1,656
Westpoint Business Park-Wp 12 - - 329 1,337
Westpoint Business Park-Wp 13 - 224 297 1,416
Westpoint Business Park-Fairchild - 25 640 2,602
Westpoint Business Park-Warehouse5 - - 157 671
Enterprise Warehouse I - 745 487 3,705
Brigham Road - Land - - 7,299 -
GREENVILLE, SC
385 Land - 1,800 -
Bank of America Plaza - 2,519 642 11,868
MetLife @ Brookfield 9 2,905 1,032 11,241
Brookfield Plaza - 1,054 1,489 9,491
Brookfield-Jacobs-Sirrine - 24 3,022 17,149
Brookfield YMCA (33) (189) - -
385 Building 1 - 2,799 1,413 4,200
Patewood I - 537 942 5,553
Patewood II - 503 942 5,521
Patewood III - 222 835 4,955
Patewood IV - 192 1,210 7,048
Patewood V - 110 1,677 9,613
Patewood VI - (7) 2,360 9,636
770 Pelham Road - 323 705 3,101
Patewood Business Center - 337 1,312 7,773
Verizon Wireless 16 1,790 12,717
JACKSONVILLE, FL
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
7353 West Friendly Avenue 1,074 174 1988 5-40 yrs.
7355 West Friendly Avenue 644 112 1988 5-40 yrs.
150 Stratford 14,800 2,536 1991 5-40 yrs.
ALO 1,171 63 1998 5-40 yrs.
Chesapeake 6,187 977 1993 5-40 yrs.
Forsyth Corporate Center 2,883 706 1985 5-40 yrs.
The Knollwood-370 9,785 1,759 1994 5-40 yrs.
The Knollwood-380 16,192 2,924 1990 5-40 yrs.
The Knollwood -380 Retail 188 93 1995 5-40 yrs.
101 Stratford 8,462 1,040 1986 5-40 yrs.
160 Stratford - Land 966 - N/A N/A
Consolidated Center/ Building I 2,840 302 1983 5-40 yrs.
Consolidated Center/ Building II 5,152 623 1983 5-40 yrs.
Consolidated Center/ Building III 4,259 460 1989 5-40 yrs.
Consolidated Center/ Building IV 2,269 369 1989 5-40 yrs.
Madison Park - Building 5610 729 75 1988 5-40 yrs.
Madison Park - Building 5620 3,163 276 1983 5-40 yrs.
Madison Park - Building 5630 4,993 410 1983 5-40 yrs.
Madison Park - Building 5635 3,442 632 1986 5-40 yrs.
Madison Park - Building 5640 12,196 1,024 1985 5-40 yrs.
Madison Park - Building 5650 3,632 317 1984 5-40 yrs.
Madison Park - Building 5660 6,414 548 1984 5-40 yrs.
Madison Park - Building 5655 19,785 1,717 1987 5-40 yrs.
500 Northridge 6,169 651 1988 5-40 yrs.
711 Almondridge 974 - 1988 5-40 yrs.
710 Almondridge 10,910 - 1989 5-40 yrs.
520 Northridge 5,318 - 1988 5-40 yrs.
531 Northridge Warehouse 15,563 - 1989 5-40 yrs.
531 Northridge Office 2,389 - 1989 5-40 yrs.
540 Northridge 6,633 - 1987 5-40 yrs.
550 Northridge 1,528 - 1989 5-40 yrs.
US Airways 17,694 1,966 1970-1987 5-40 yrs.
University Commercial Center-Landmark 3 2,521 461 1985 5-40 yrs.
University Commercial Center-Archer 4 2,775 529 1986 5-40 yrs.
University Commercial Center-Service Center 1 1,571 294 1983 5-40 yrs.
University Commercial Center-Service Center 2 1,200 259 1983 5-40 yrs.
University Commercial Center-Service Center 3 1,085 190 1984 5-40 yrs.
University Commercial Center-Warehouse 1 1,024 162 1983 5-40 yrs.
University Commercial Center-Warehouse 2 998 159 1983 5-40 yrs.
Westpoint Business Park-BMF 3,980 627 1986 5-40 yrs.
Westpoint Business Park-Luwabahnson 1,731 273 1990 5-40 yrs.
Westpoint Business Park-3 & 4 556 - 1988 5-40 yrs.
Westpoint Business Park Land 861 - N/A 5-40 yrs.
Westpoint Business Park-Wp 11 2,049 357 1988 5-40 yrs.
Westpoint Business Park-Wp 12 1,666 - 1988 5-40 yrs.
Westpoint Business Park-Wp 13 1,713 255 1988 5-40 yrs.
Westpoint Business Park-Fairchild 3,242 512 1990 5-40 yrs.
Westpoint Business Park-Warehouse5 828 - 1995 5-40 yrs.
Enterprise Warehouse I 4,192 96 2002 5-40 yrs.
Brigham Road - Land 7,299 - N/A N/A
GREENVILLE, SC
385 Land 1,800 - N/A N/A
Bank of America Plaza 12,510 2,201 1973 5-40 yrs.
MetLife @ Brookfield 12,273 490 2001 5-40 yrs.
Brookfield Plaza 10,980 1,965 1987 5-40 yrs.
Brookfield-Jacobs-Sirrine 20,171 2,707 1990 5-40 yrs.
Brookfield YMCA - - 1990 5-40 yrs.
385 Building 1 5,613 1,060 1998 5-40 yrs.
Patewood I 6,495 783 1985 5-40 yrs.
Patewood II 6,463 927 1987 5-40 yrs.
Patewood III 5,790 898 1989 5-40 yrs.
Patewood IV 8,258 1,097 1989 5-40 yrs.
Patewood V 11,290 1,592 1990 5-40 yrs.
Patewood VI 11,996 2,132 1999 5-40 yrs.
770 Pelham Road 3,806 396 1989 5-40 yrs.
Patewood Business Center 9,085 1,378 1983 5-40 yrs.
Verizon Wireless 14,507 298 2002 5-40 yrs.
JACKSONVILLE, FL
F-42
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
9A Land 22640 Jacksonville 4,446 -
Belfort Park VI - Land 22700 Jacksonville 480 -
Belfort Park VII - Land 22710 Jacksonville 1,858 -
SHAWNEE MISSION, KS
Corinth Square North Shops 26900 Shawnee Mission 2,693 10,772
Corinth Shops South 26910 Shawnee Mission 1,043 4,172
Fairway Shops 26930 Shawnee Mission 2,429 673 2,694
Prairie Village Rest & Bank 27050 Shawnee Mission (6) - -
Prairie Village Shops 27060 Shawnee Mission (6) 3,289 13,157
Shannon Valley Shopping Center 27120 Shawnee Mission 5,893 1,669 6,678
Brymar Building 27470 Shawnee Mission 329 1,317
Corinth Executive Building 27490 Shawnee Mission 514 2,054
Corinth Office Building 27510 Shawnee Mission 719 529 2,116
Fairway North 27540 Shawnee Mission 753 3,013
Fairway West 27550 Shawnee Mission 1,775 851 3,402
Land - Kansas 27630 Shawnee Mission 11,853 -
Nichols Building 27670 Shawnee Mission 762 490 1,959
Prairie Village Office Center 27760 Shawnee Mission 749 2,997
KANSAS CITY, MO
Country Club Plaza - 48th & Penn 26830 Kansas City (4) 418 3,736
Country Club Plaza - Balcony Retail 26840 Kansas City (4) 889 8,002
Country Club Plaza - Retail 26860 Kansas City (4) 433
Country Club Plaza - Court of the Penguins 26870 Kansas City (4) 566 5,091
Country Club Plaza - Esplanade Retail 26920 Kansas City (4) 748 6,734
Country Club Plaza - Halls Block 26970 Kansas City (4) 275 2,478
Country Club Plaza - Macy Block 26990 Kansas City (4) 504 4,536
Country Club Plaza - Millcreek Retail 27000 Kansas City (4) 602 5,422
Country Club Plaza - Nichols Retail 27010 Kansas City (4) 600 5,402
Country Club Plaza - Plaza Central 27030 Kansas City (4) 405 3,649
Country Club Plaza - Savings South 27040 Kansas City (4) 357 3,211
Country Club Plaza - Granada Shops 28380 Kansas City - 4,045
Country Club Plaza - Seville Shops West 27100 Kansas City (4) 300 2,696
Country Club Plaza - Seville Square 27110 Kansas City (4) - 20,973
Country Club Plaza - Swanson Block 27130 Kansas City (4) 949 8,537
Country Club Plaza - Theatre Retail 27150 Kansas City (4) 1,197 10,769
Country Club Plaza - Time Retail 27160 Kansas City (4) 1,292 11,627
Country Club Plaza - Triangle Block 27170 Kansas City (4) 308 2,771
Country Club Plaza - Valencia Place Retail 27190 Kansas City (4) - 2,245
Country Club Plaza - Balcony Office 27440 Kansas City (4) 65 585
Country Club Plaza - Esplanade Office 27530 Kansas City (4) 375 3,374
Country Club Plaza - Millcreek Office 27650 Kansas City (4) 79 717
Country Club Plaza - Theatre Office 27950 Kansas City (4) 242 2,179
Country Club Plaza - Time Office 27960 Kansas City (4) 199 1,792
Brookside Shopping Center 26850 Kansas City 2,002 8,602
Colonial Shops 26880 Kansas City 138 550
Retail Ground Leases 6950/40 Kansas City 1,061 -
Red Bridge Shops 27080 Kansas City 1,091 4,364
Neptune Apartments 27320 Kansas City 4,212 1,073 6,079
Parklane 27330 Kansas City 273 1,548
Wornall Road Apartments 27400 Kansas City 30 171
4900 Main 27410 Kansas City 12,809
63rd & Brookside 27420 Kansas City 71 283
Land - Missouri 27660 Kansas City 3,305 190
Nichols Block Office 27680 Kansas City (4) 74 668
One Ward Parkway 27720 Kansas City 666 2,663
Park Plaza 27740 Kansas City (4) 1,352 5,409
Parkway Building 27770 Kansas City 395 1,578
Somerset 27920 Kansas City 30 122
Two Brush Creek 27940 Kansas City 961 3,845
Valencia Place Office 27970 Kansas City (4) 1,530 27,548
Alameda Towers 60220 Kansas City - 231
KC Residential 60270 Kansas City 553 -
MEMPHIS, TN
Atrium I & II 22810 Memphis 1,530 6,121
Centrum 22820 Memphis 1,013 5,488
The Colonnade 22830 Memphis 1,300 7,994
Hickory Hill Medical Plaza 22840 Memphis 398 2,256
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
9A Land (4,446) - - -
Belfort Park VI - Land (355) - 125 -
Belfort Park VII - Land - - 1,858 -
SHAWNEE MISSION, KS
Corinth Square North Shops - 761 2,693 11,533
Corinth Shops South - 293 1,043 4,465
Fairway Shops - 565 673 3,259
Prairie Village Rest & Bank - 1,372 - 1,372
Prairie Village Shops - 3,180 3,289 16,337
Shannon Valley Shopping Center - 2,107 1,669 8,785
Brymar Building (329) (1,317) - -
Corinth Executive Building - 697 514 2,751
Corinth Office Building - 374 529 2,490
Fairway North - 673 753 3,686
Fairway West - 495 851 3,897
Land - Kansas - - 11,853 -
Nichols Building - 253 490 2,212
Prairie Village Office Center - 589 749 3,586
KANSAS CITY, MO
Country Club Plaza - 48th & Penn - 2,114 418 5,850
Country Club Plaza - Balcony Retail - 4,831 889 12,833
Country Club Plaza - Retail - 433
Country Club Plaza - Court of the Penguins - 2,641 566 7,732
Country Club Plaza - Esplanade Retail - 3,755 748 10,489
Country Club Plaza - Halls Block - 822 275 3,300
Country Club Plaza - Macy Block - 1,617 504 6,153
Country Club Plaza - Millcreek Retail - 2,759 602 8,181
Country Club Plaza - Nichols Retail - 1,802 600 7,204
Country Club Plaza - Plaza Central - 2,020 405 5,669
Country Club Plaza - Savings South - 3,124 357 6,335
Country Club Plaza - Granada Shops 513 - 4,558
Country Club Plaza - Seville Shops West - 12,607 300 15,303
Country Club Plaza - Seville Square - 1,879 - 22,852
Country Club Plaza - Swanson Block - 3,054 949 11,591
Country Club Plaza - Theatre Retail - 6,524 1,197 17,293
Country Club Plaza - Time Retail - 8,101 1,292 19,728
Country Club Plaza - Triangle Block - 1,374 308 4,145
Country Club Plaza - Valencia Place Retail 441 15,300 441 17,545
Country Club Plaza - Balcony Office - 255 65 840
Country Club Plaza - Esplanade Office - 109 375 3,483
Country Club Plaza - Millcreek Office - 215 79 932
Country Club Plaza - Theatre Office - 654 242 2,833
Country Club Plaza - Time Office - 528 199 2,320
Brookside Shopping Center 154 1,223 2,156 9,825
Colonial Shops - 176 138 726
Retail Ground Leases - - 1,061 -
Red Bridge Shops (1,091) (4,364) - -
Neptune Apartments - 380 1,073 6,459
Parklane - 169 273 1,717
Wornall Road Apartments - 23 30 194
4900 Main (12,809) - -
63rd & Brookside - 48 71 331
Land - Missouri (1,343) - 1,962 190
Nichols Block Office - 87 74 755
One Ward Parkway - 2,136 666 4,799
Park Plaza 1,818 1,352 7,227
Parkway Building - 724 395 2,302
Somerset - - 30 122
Two Brush Creek - 877 961 4,722
Valencia Place Office - 9,011 1,530 36,559
Alameda Towers - - - 231
KC Residential - - 553 -
MEMPHIS, TN
Atrium I & II 40 660 1,570 6,781
Centrum - 391 1,013 5,879
The Colonnade - 20 1,300 8,014
Hickory Hill Medical Plaza - 131 398 2,387
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
9A Land - - N/A N/A
Belfort Park VI - Land 125 - N/A N/A
Belfort Park VII - Land 1,858 - N/A N/A
SHAWNEE MISSION, KS
Corinth Square North Shops 14,226 1,326 1962 5-40 yrs.
Corinth Shops South 5,508 499 1953 5-40 yrs.
Fairway Shops 3,932 397 1940 5-40 yrs.
Prairie Village Rest & Bank 1,372 97 1948 5-40 yrs.
Prairie Village Shops 19,626 1,987 1948 5-40 yrs.
Shannon Valley Shopping Center 10,454 1,196 1988 5-40 yrs.
Brymar Building - - 1968 5-40 yrs.
Corinth Executive Building 3,265 430 1973 5-40 yrs.
Corinth Office Building 3,019 307 1960 5-40 yrs.
Fairway North 4,439 571 1985 5-40 yrs.
Fairway West 4,748 650 1983 5-40 yrs.
Land - Kansas 11,853 - N/A N/A
Nichols Building 2,702 329 1978 5-40 yrs.
Prairie Village Office Center 4,335 482 1960 5-40 yrs.
KANSAS CITY, MO
Country Club Plaza - 48th & Penn 6,268 795 1948 5-40 yrs.
Country Club Plaza - Balcony Retail 13,722 1,516 1925 5-40 yrs.
Country Club Plaza - Retail 433 34 N/A
Country Club Plaza - Court of the Penguins 8,298 939 1945 5-40 yrs.
Country Club Plaza - Esplanade Retail 11,237 1,261 1928 5-40 yrs.
Country Club Plaza - Halls Block 3,575 369 1964 5-40 yrs.
Country Club Plaza - Macy Block 6,657 668 1926 5-40 yrs.
Country Club Plaza - Millcreek Retail 8,783 1,142 1920 5-40 yrs.
Country Club Plaza - Nichols Retail 7,804 800 1930 5-40 yrs.
Country Club Plaza - Plaza Central 6,074 856 1958 5-40 yrs.
Country Club Plaza - Savings South 6,692 727 1948 5-40 yrs.
Country Club Plaza - Granada Shops 4,558 54 2002 5-40 yrs.
Country Club Plaza - Seville Shops West 15,603 1,640 1999 5-40 yrs.
Country Club Plaza - Seville Square 22,852 1,911 1999 5-40 yrs.
Country Club Plaza - Swanson Block 12,540 1,278 1967 5-40 yrs.
Country Club Plaza - Theatre Retail 18,490 2,130 1928 5-40 yrs.
Country Club Plaza - Time Retail 21,020 1,909 1929 5-40 yrs.
Country Club Plaza - Triangle Block 4,453 525 1925 5-40 yrs.
Country Club Plaza - Valencia Place Retail 17,986 1,301 1999 5-40 yrs.
Country Club Plaza - Balcony Office 905 137 1928 5-40 yrs.
Country Club Plaza - Esplanade Office 3,858 397 1945 5-40 yrs.
Country Club Plaza - Millcreek Office 1,011 139 1925 5-40 yrs.
Country Club Plaza - Theatre Office 3,075 380 1928 5-40 yrs.
Country Club Plaza - Time Office 2,519 313 1945 5-40 yrs.
Brookside Shopping Center 11,981 1,293 1919 5-40 yrs.
Colonial Shops 864 155 1907 5-40 yrs.
Retail Ground Leases 1,061 - N/A N/A
Red Bridge Shops - - 1959 5-40 yrs.
Neptune Apartments 7,532 803 1988 5-40 yrs.
Parklane 1,990 190 1924 5-40 yrs.
Wornall Road Apartments 224 22 1918 5-40 yrs.
4900 Main - - 1986 5-40 yrs.
63rd & Brookside 402 44 1919 5-40 yrs.
Land - Missouri 2,152 21 N/A 5-40 yrs.
Nichols Block Office 829 128 1938 5-40 yrs.
One Ward Parkway 5,465 639 1980 5-40 yrs.
Park Plaza 8,579 878 1983 5-40 yrs.
Parkway Building 2,697 339 1906-1910 5-40 yrs.
Somerset 152 14 1998 5-40 yrs.
Two Brush Creek 5,683 581 1983 5-40 yrs.
Valencia Place Office 38,089 3,195 1999 5-40 yrs.
Alameda Towers 231 - N/A N/A
KC Residential 553 - N/A N/A
MEMPHIS, TN
Atrium I & II 8,351 1,129 1984 5-40 yrs.
Centrum 6,892 910 1979 5-40 yrs.
The Colonnade 9,314 1,685 1998 5-40 yrs.
Hickory Hill Medical Plaza 2,785 407 1988 5-40 yrs.
F-43
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
3400 Players Club Parkway 22850 Memphis (5) 1,005 5,515
International Place II 22860 Memphis 4,847 27,469
International Place 3 Memphis - 25,761
6000 Poplar Ave 28290 Memphis 2,340 11,385
6060 Poplar Ave 28300 Memphis 1,980 8,677
Shadow Creek I 28310 Memphis 973 5,493
Shadow Creek II 28650 Memphis 723 6,041
Southwind Office Center A 22890 Memphis 996 5,643
Southwind Office Center B 22900 Memphis 1,356 7,684
Southwind Office Center C 22920 Memphis (5) 1,070 5,924
Southwind Office Center D 22910 Memphis 744 6,232
NORFOLK, VA
Greenbrier Business Center 22570 Norfolk 936 5,305
NASHVILLE, TN
Eakin & Smith 11140 Nashville 2,692 11,914
3322 West End 22930 Nashville 3,021 27,266
3401 Westend 22940 Nashville 6,103 23,343
5310 Maryland Way 22950 Nashville 1,923 7,360
Hickory Trace 22960 Nashville 1,164 4,321
SouthPointe 22970 Nashville 1,655 9,059
BNA Corporate Center 22980 Nashville - 22,588
Caterpillar Financial Center 22990 Nashville 5,120 31,553
Century City Plaza I 23000 Nashville 903 3,612
Cool Springs II 23020 Nashville 2,285 15,535
Cool Springs I 23030 Nashville 1,983 13,854
Eastpark I, II, & III 23040 Nashville 3,137 11,842
Highwoods Plaza I 23090 Nashville 1,772 9,029
Highwoods Plaza II 23100 Nashville 1,448 6,948
Harpeth on the Green II 23110 Nashville 1,419 5,677
Harpeth on the Green III 23120 Nashville 1,658 6,633
Harpeth on the Green IV 23130 Nashville 1,709 6,835
Harpeth on The Green V 23140 Nashville 662 5,771
Lakeview Ridge I 23150 Nashville 2,179 7,545
Lakeview Ridge II 23160 Nashville 605 5,883
Lakeview Ridge III 23170 Nashville 1,073 9,708
The Ramparts at Brentwood 28320 Nashville 2,394 12,806
Seven Springs - Land I 28500 Nashville 3,115 -
Seven Springs - Land II 28620 Nashville 3,216 -
Seven Springs I 28630 Nashville 2,076 10,667
Sparrow Building 23190 Nashville 1,262 5,047
Winners Circle 23210 Nashville 1,495 7,072
Westwood South 23220 Nashville 2,106 10,517
ORLANDO, FL
Sunport Center 23230 Orlando 1,505 9,777
Oakridge Office Park 23240 Orlando 4,700 18,761
Lake Mary Land Orlando 6,365 -
In Charge Institute 23380 Orlando 501 2,085
Metrowest Center 23390 Orlando 1,344 7,618
MetroWest Land 23470 Orlando 3,112 -
Capital Plaza III 23520 Orlando 2,977 -
Interlachen Village 23560 Orlando 900 2,689
RESEARCH TRIANGLE, NC
Blue Ridge II 23600 Research Triangle 462 1,485
Blue Ridge I 23610 Research Triangle 722 4,538
3600 Glenwood Avenue 23640 Research Triangle - 10,994
3645 Trust Drive - One North Commerce Center 23650 Research Triangle 520 2,949
3737 Glenwood Avenue 23660 Research Triangle - 15,889
4401 Research Commons 23720 Research Triangle 1,249 8,929
4800 North Park 23740 Research Triangle 2,678 17,673
4900 North Park 23750 Research Triangle 1,207 770 1,989
5000 North Park 23760 Research Triangle (5) 1,010 4,697
5200 Greens Dairy-One North Commerce Center 23770 Research Triangle 169 959
5220 Greens Dairy-One North Commerce Center 23780 Research Triangle 382 2,165
801 Corporate Center 28520 Research Triangle 828 7,672
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
3400 Players Club Parkway - 13 1,005 5,528
International Place II - 1,313 4,847 28,782
International Place 3 - (25,761) - -
6000 Poplar Ave - 382 2,340 11,767
6060 Poplar Ave - 357 1,980 9,034
Shadow Creek I - 1,892 973 7,385
Shadow Creek II 11 445 734 6,486
Southwind Office Center A - 369 996 6,012
Southwind Office Center B - 449 1,356 8,133
Southwind Office Center C - - 1,070 5,924
Southwind Office Center D - (35) 744 6,197
NORFOLK, VA
Greenbrier Business Center - 177 936 5,482
NASHVILLE, TN
Eakin & Smith 2,692 11,914
3322 West End 4 1,851 3,025 29,117
3401 Westend (1,224) (260) 4,879 23,083
5310 Maryland Way (368) (1,036) 1,555 6,324
Hickory Trace - 1,741 1,164 6,062
SouthPointe - 203 1,655 9,262
BNA Corporate Center - (1,091) - 21,497
Caterpillar Financial Center (5,120) (31,553) - -
Century City Plaza I - 732 903 4,344
Cool Springs II - 5,273 2,285 20,808
Cool Springs I - 1,345 1,983 15,199
Eastpark I, II, & III (766) (10) 2,371 11,832
Highwoods Plaza I - 246 1,772 9,275
Highwoods Plaza II - 1,674 1,448 8,622
Harpeth on the Green II 1 868 1,420 6,545
Harpeth on the Green III 2 639 1,660 7,272
Harpeth on the Green IV 5 975 1,714 7,810
Harpeth on The Green V - 39 662 5,810
Lakeview Ridge I (411) (1,012) 1,768 6,533
Lakeview Ridge II - (24) 605 5,859
Lakeview Ridge III - 2,100 1,073 11,808
The Ramparts at Brentwood - 487 2,394 13,293
Seven Springs - Land I - - 3,115 -
Seven Springs - Land II - - 3,216 -
Seven Springs I - 569 2,076 11,236
Sparrow Building - 331 1,262 5,378
Winners Circle 2 701 1,497 7,773
Westwood South - 701 2,106 11,218
ORLANDO, FL
Sunport Center - 205 1,505 9,982
Oakridge Office Park (4,700) (18,761) - -
Lake Mary Land - - 6,365 -
In Charge Institute - 710 501 2,795
Metrowest Center - 999 1,344 8,617
MetroWest Land - - 3,112 -
Capital Plaza III - - 2,977 -
Interlachen Village - (306) 900 2,383
RESEARCH TRIANGLE, NC
Blue Ridge II - 221 462 1,706
Blue Ridge I - 1,251 722 5,789
3600 Glenwood Avenue - - - 10,994
3645 Trust Drive - One North Commerce Center 268 842 788 3,791
3737 Glenwood Avenue - 2,423 - 18,312
4401 Research Commons - 6,607 1,249 15,536
4800 North Park - 1,443 2,678 19,116
4900 North Park - 574 770 2,563
5000 North Park - 2,691 1,010 7,388
5200 Greens Dairy-One North Commerce Center - 170 169 1,129
5220 Greens Dairy-One North Commerce Center - 318 382 2,483
801 Corporate Center - 955 828 8,627
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
3400 Players Club Parkway 6,533 1,494 1997 5-40 yrs.
International Place II 33,629 5,279 1988 5-40 yrs.
International Place 3 - - 2001 5-40 yrs.
6000 Poplar Ave 14,107 681 1985 5-40 yrs.
6060 Poplar Ave 11,014 484 1987 5-40 yrs.
Shadow Creek I 8,358 674 2000 5-40 yrs.
Shadow Creek II 7,220 104 2001 5-40 yrs.
Southwind Office Center A 7,008 1,080 1991 5-40 yrs.
Southwind Office Center B 9,489 1,503 1990 5-40 yrs.
Southwind Office Center C 6,994 958 1998 5-40 yrs.
Southwind Office Center D 6,941 1,101 1999 5-40 yrs.
NORFOLK, VA
Greenbrier Business Center 6,418 904 1984 5-40 yrs.
NASHVILLE, TN
Eakin & Smith 14,606 2,086 1999 5-40 yrs.
3322 West End 32,142 2,325 1986 5-40 yrs.
3401 Westend 27,962 4,739 1982 5-40 yrs.
5310 Maryland Way 7,879 1,059 1994 5-40 yrs.
Hickory Trace 7,226 241 N/A N/A
SouthPointe 10,917 2,423 1998 5-40 yrs.
BNA Corporate Center 21,497 4,010 1985 5-40 yrs.
Caterpillar Financial Center - - 1999 5-40 yrs.
Century City Plaza I 5,247 962 1987 5-40 yrs.
Cool Springs II 23,093 981 N/A N/A
Cool Springs I 17,182 2,994 1999 5-40 yrs.
Eastpark I, II, & III 14,203 2,425 1978 5-40 yrs.
Highwoods Plaza I 11,047 2,583 1996 5-40 yrs.
Highwoods Plaza II 10,070 2,663 1997 5-40 yrs.
Harpeth on the Green II 7,965 1,226 1984 5-40 yrs.
Harpeth on the Green III 8,932 1,290 1987 5-40 yrs.
Harpeth on the Green IV 9,524 1,594 1989 5-40 yrs.
Harpeth on The Green V 6,472 1,543 1998 5-40 yrs.
Lakeview Ridge I 8,301 1,096 1986 5-40 yrs.
Lakeview Ridge II 6,464 1,711 1998 5-40 yrs.
Lakeview Ridge III 12,881 1,796 1999 5-40 yrs.
The Ramparts at Brentwood 15,687 895 1986 5-40 yrs.
Seven Springs - Land I 3,115 - N/A N/A
Seven Springs - Land II 3,216 - N/A N/A
Seven Springs I 13,312 47 2002
Sparrow Building 6,640 859 1982 5-40 yrs.
Winners Circle 9,270 1,131 1987 5-40 yrs.
Westwood South 13,324 1,931 1999 5-40 yrs.
ORLANDO, FL
Sunport Center 11,487 1,397 1990 5-40 yrs.
Oakridge Office Park - - 1966-1992 -40 yrs.
Lake Mary Land 6,365 - N/A N/A
In Charge Institute 3,296 307 2000 5-40 yrs.
Metrowest Center 9,961 1,410 1988 5-40 yrs.
MetroWest Land 3,112 - N/A N/A
Capital Plaza III 2,977 - N/A N/A
Interlachen Village 3,283 370 1987 5-40 yrs.
RESEARCH TRIANGLE, NC
Blue Ridge II 2,168 661 1988 5-40 yrs.
Blue Ridge I 6,511 1,646 1982 5-40 yrs.
3600 Glenwood Avenue 10,994 1,591 1986 5-40 yrs.
3645 Trust Drive - One North Commerce Center 4,579 601 1984 5-40 yrs.
3737 Glenwood Avenue 18,312 2,008 1999 5-40 yrs.
4401 Research Commons 16,785 6,146 1987 5-40 yrs.
4800 North Park 21,794 4,371 1985 5-40 yrs.
4900 North Park 3,333 667 1984 5-40 yrs.
5000 North Park 8,398 2,018 1980 5-40 yrs.
5200 Greens Dairy-One North Commerce Center 1,298 227 1984 5-40 yrs.
5220 Greens Dairy-One North Commerce Center 2,865 531 1984 5-40 yrs.
801 Corporate Center 9,455 191 2002 5-40 yrs.
F-44
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
Amica 23810 Research Triangle 289 1,517
Arrowwood 23820 Research Triangle 955 3,406
Aspen Building 23830 Research Triangle 560 2,088
4300 Six Forks Road 23850 Research Triangle - 15,504
Cedar East 23880 Research Triangle 563 2,491
Cedar West 23890 Research Triangle 563 2,475
CentreGreen One - Weston 28200 Research Triangle 1,648 7,133
CentreGreen Two - Weston 28440 Research Triangle 1,667 7,478
CentreGreen Three Land - Weston 28690 Research Triangle 1,955 -
CentreGreen Four 28510 Research Triangle 1,694 7,984
CentreGreen Five Land - Weston 28680 Research Triangle 3,133 -
Inveresk Land Parcel 2 23900 Research Triangle 657 -
Inveresk Land Parcel 3 23910 Research Triangle 548 -
Cape Fear 23950 Research Triangle 131 -
Creekstone Crossings 23960 Research Triangle 728 3,841
Catawba 23980 Research Triangle 125 1,635
Cottonwood 23990 Research Triangle 609 3,253
Cypress 24000 Research Triangle 567 1,729
Dogwood 24010 Research Triangle 766 2,777
EPA Annex 24020 Research Triangle 2,601 10,920
Global Software 24040 Research Triangle (5) 465 7,471
GlenLake Bldg I 28660 Research Triangle 1,205 18,288
Hawthorn 24050 Research Triangle 904 3,782
Pulse Athletic Club at Highwoods 24060 Research Triangle 142 524
Holiday Inn Reservations Center 24070 Research Triangle 867 2,735
Healthsource 24090 Research Triangle 1,294 10,593
Highwoods Tower One 24100 Research Triangle (5) 203 16,914
Highwoods Tower Two 24110 Research Triangle 365 20,164
Highwoods Centre-Weston 24120 Research Triangle 532 7,902
Ironwood 24130 Research Triangle 319 1,276
Kaiser 24140 Research Triangle 133 3,625
Laurel 24150 Research Triangle 884 2,524
Highwoods Office Center North Land 24170 Research Triangle 355 49
Highwoods Office Center South Land 24180 Research Triangle 2,409 -
Leatherwood 24190 Research Triangle 213 851
Maplewood 24210 Research Triangle 149 2,928
Northpark - Wake Forest 24240 Research Triangle 405 -
Northpark Land - Wake Forest 24250 Research Triangle 1,596 -
ParkWest One - Weston 28450 Research Triangle 374 2,938
ParkWest Two - Weston 28460 Research Triangle 488 2,642
ParkWest Three - Land - Weston 28470 Research Triangle 510 -
Phase I - One North Commerce Center 24260 Research Triangle 768 4,353
W Building - One North Commerce Center 24270 Research Triangle 1,163 6,592
Overlook 24280 Research Triangle 398 10,401
Pamlico 24290 Research Triangle 269 -
Raleigh Corp Center Lot D 24320 Research Triangle 1,211 -
Red Oak 24330 Research Triangle 389 6,086
Rexwoods Center I 24350 Research Triangle (3) 775 -
Rexwoods Center II 24360 Research Triangle 355 -
Rexwoods Center III 24370 Research Triangle 886 -
Rexwoods Center IV 24380 Research Triangle (3) 586 -
Rexwoods Center V 24390 Research Triangle (5) 1,301 5,979
Riverbirch 24400 Research Triangle (5) 448 -
Six Forks Center I 24430 Research Triangle 666 2,663
Six Forks Center II 24440 Research Triangle 1,086 4,345
Six Forks Center III 24450 Research Triangle (5) 862 4,411
Smoketree Tower 24460 Research Triangle 2,353 11,802
South Square I 24470 Research Triangle 606 3,785
South Square II 24480 Research Triangle 525 4,710
Sycamore 24490 Research Triangle (5) 255 5,830
WESPEC - Tract 3 60030 Research Triangle 2,008 -
Weston Tract 5C 60040 Research Triangle 2,789 -
Weston Oaks Court 60050 Research Triangle 2,257 -
Weston Commons Tract 2B 60060 Research Triangle 928 -
Weston Commons Tract 5A 60070 Research Triangle 1,148 -
Weston Commons Tract 6C 60080 Research Triangle 651 -
Day Tract Residential 60200 Research Triangle 7,575 -
Weston - Land 24540 Research Triangle 436 -
Weston Tract - 6B 28530 Research Triangle 2,355 -
Weston Tract - 6A 28540 Research Triangle 1,521 -
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
Amica (289) (1,517) - -
Arrowwood (955) (3,406) - -
Aspen Building - 779 560 2,867
4300 Six Forks Road - 4,321 - 19,825
Cedar East - 578 563 3,069
Cedar West - 844 563 3,319
CentreGreen One - Weston - 2,268 1,648 9,401
CentreGreen Two - Weston - 1,957 1,667 9,435
CentreGreen Three Land - Weston - - 1,955 -
CentreGreen Four - 4 1,694 7,988
CentreGreen Five Land - Weston - - 3,133 -
Inveresk Land Parcel 2 - - 657 -
Inveresk Land Parcel 3 - - 548 -
Cape Fear - 2,883 131 2,883
Creekstone Crossings - 370 728 4,211
Catawba - 2,582 125 4,217
Cottonwood - 68 609 3,321
Cypress - 474 567 2,203
Dogwood - 632 766 3,409
EPA Annex - (10,920) 2,601 -
Global Software - 163 465 7,634
GlenLake Bldg I - 561 1,205 18,849
Hawthorn - 710 904 4,492
Pulse Athletic Club at Highwoods - 2,516 142 3,040
Holiday Inn Reservations Center - 135 867 2,870
Healthsource 10 1,696 1,304 12,289
Highwoods Tower One - 1,056 203 17,970
Highwoods Tower Two - 4,139 365 24,303
Highwoods Centre-Weston - (124) 532 7,778
Ironwood - 481 319 1,757
Kaiser - 935 133 4,560
Laurel - 956 884 3,480
Highwoods Office Center North Land - 1 355 50
Highwoods Office Center South Land - - 2,409 -
Leatherwood - 633 213 1,484
Maplewood - 697 149 3,625
Northpark - Wake Forest 93 4,032 498 4,032
Northpark Land - Wake Forest - 1,596 -
ParkWest One - Weston 4 1,164 378 4,102
ParkWest Two - Weston 4 743 492 3,385
ParkWest Three - Land - Weston - - 510 -
Phase I - One North Commerce Center - 1,651 768 6,004
W Building - One North Commerce Center - 2,062 1,163 8,654
Overlook - 670 398 11,071
Pamlico 20 11,087 289 11,087
Raleigh Corp Center Lot D - 1,211 -
Red Oak - 632 389 6,718
Rexwoods Center I 103 4,123 878 4,123
Rexwoods Center II 7 1,904 362 1,904
Rexwoods Center III 34 3,112 920 3,112
Rexwoods Center IV - 3,774 586 3,774
Rexwoods Center V - 166 1,301 6,145
Riverbirch 21 4,611 469 4,611
Six Forks Center I - 677 666 3,340
Six Forks Center II - 1,240 1,086 5,585
Six Forks Center III - 668 862 5,079
Smoketree Tower - 2,355 2,353 14,157
South Square I - 1,278 606 5,063
South Square II - 531 525 5,241
Sycamore - 175 255 6,005
WESPEC - Tract 3 - - 2,008 -
Weston Tract 5C - - 2,789 -
Weston Oaks Court - - 2,257 -
Weston Commons Tract 2B - - 928 -
Weston Commons Tract 5A - - 1,148 -
Weston Commons Tract 6C - - 651 -
Day Tract Residential - - 7,575 -
Weston - Land - - 436 -
Weston Tract - 6B - - 2,355 -
Weston Tract - 6A - - 1,521 -
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
Amica - - 1983 5-40 yrs.
Arrowwood - - 1979 5-40 yrs.
Aspen Building 3,427 855 1980 5-40 yrs.
4300 Six Forks Road 19,825 2,442 1995 5-40 yrs.
Cedar East 3,632 840 1981 5-40 yrs.
Cedar West 3,882 1,062 1981 5-40 yrs.
CentreGreen One - Weston 11,049 1,065 2000 5-40 yrs.
CentreGreen Two - Weston 11,102 457 2001 5-40 yrs.
CentreGreen Three Land - Weston 1,955 - N/A N/A
CentreGreen Four 9,682 50 2002
CentreGreen Five Land - Weston 3,133 - N/A N/A
Inveresk Land Parcel 2 657 - N/A N/A
Inveresk Land Parcel 3 548 - N/A N/A
Cape Fear 3,014 1,994 1979 5-40 yrs.
Creekstone Crossings 4,939 857 1990 5-40 yrs.
Catawba 4,342 1,411 1980 5-40 yrs.
Cottonwood 3,930 730 1983 5-40 yrs.
Cypress 2,770 656 1980 5-40 yrs.
Dogwood 4,175 605 1983 5-40 yrs.
EPA Annex 2,601 - 1966 5-40 yrs.
Global Software 8,099 2,393 1996 5-40 yrs.
GlenLake Bldg I 20,054 136 2002 5-40 yrs.
Hawthorn 5,396 2,408 1987 5-40 yrs.
Pulse Athletic Club at Highwoods 3,182 694 1998 5-40 yrs.
Holiday Inn Reservations Center 3,737 646 1984 5-40 yrs.
Healthsource 13,593 2,471 1996 5-40 yrs.
Highwoods Tower One 18,173 5,579 1991 5-40 yrs.
Highwoods Tower Two 24,668 1,274 2001 5-40 yrs.
Highwoods Centre-Weston 8,310 1,573 1998 5-40 yrs.
Ironwood 2,076 577 1978 5-40 yrs.
Kaiser 4,693 2,165 1988 5-40 yrs.
Laurel 4,364 876 1982 5-40 yrs.
Highwoods Office Center North Land 405 19 N/A N/A
Highwoods Office Center South Land 2,409 - N/A N/A
Leatherwood 1,697 532 1979 5-40 yrs.
Maplewood 3,774 294 N/A 5-40 yrs.
Northpark - Wake Forest 4,530 957 1997 5-40 yrs.
Northpark Land - Wake Forest 1,596 - N/A N/A
ParkWest One - Weston 4,480 243 2001 5-40 yrs.
ParkWest Two - Weston 3,877 275 2001 5-40 yrs.
ParkWest Three - Land - Weston 510 - N/A N/A
Phase I - One North Commerce Center 6,772 1,061 1981 5-40 yrs.
W Building - One North Commerce Center 9,817 1,959 1983 5-40 yrs.
Overlook 11,469 1,989 1999 5-40 yrs.
Pamlico 11,376 4,348 1980 5-40 yrs.
Raleigh Corp Center Lot D 1,211 - N/A N/A
Red Oak 7,107 1,191 1999 5-40 yrs.
Rexwoods Center I 5,001 1,387 1990 5-40 yrs.
Rexwoods Center II 2,266 491 1993 5-40 yrs.
Rexwoods Center III 4,032 891 1992 5-40 yrs.
Rexwoods Center IV 4,360 1,269 1995 5-40 yrs.
Rexwoods Center V 7,446 1,452 1998 5-40 yrs.
Riverbirch 5,080 1,909 1987 5-40 yrs.
Six Forks Center I 4,006 756 1982 5-40 yrs.
Six Forks Center II 6,671 1,173 1983 5-40 yrs.
Six Forks Center III 5,941 1,251 1987 5-40 yrs.
Smoketree Tower 16,510 3,855 1984 5-40 yrs.
South Square I 5,669 1,230 1988 5-40 yrs.
South Square II 5,766 1,263 1989 5-40 yrs.
Sycamore 6,260 1,672 1997 5-40 yrs.
WESPEC - Tract 3 2,008 - N/A N/A
Weston Tract 5C 2,789 - N/A N/A
Weston Oaks Court 2,257 - N/A N/A
Weston Commons Tract 2B 928 - N/A N/A
Weston Commons Tract 5A 1,148 - N/A N/A
Weston Commons Tract 6C 651 - N/A N/A
Day Tract Residential 7,575 - N/A N/A
Weston - Land 436 - N/A N/A
Weston Tract - 6B 2,355 - N/A N/A
Weston Tract - 6A 1,521 - N/A N/A
F-45
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
Weston Tract - 8A 28550 Research Triangle 2,415 -
Weston Tract - 6A2 28570 Research Triangle 2,088 -
Weston Tract - 8A 28790 Research Triangle 2,681 -
Weston Tract - 5B 28800 Research Triangle 2,424 -
WESPEC Tract 1 28810 Research Triangle 1,543 -
WESPEC Tract 2E 28830 Research Triangle 644 -
Willow Oak 24550 Research Triangle (5) 458 4,685
Other Property 11180 Research Triangle
RICHMOND, VA
HDC Land Site - Parcel 6 24560 Richmond 1,275 -
Airport Center I Richmond 693 4,422
Airport Center II Richmond 336 2,772
Capital One Building I 24590 Richmond 1,278 10,690
Capital One Building II 24600 Richmond 477 3,946
Capital One Building III 24610 Richmond 1,278 11,515
Capital One Parking Deck 24620 Richmond - 2,288
1309 E. Cary Street 24630 Richmond 171 685
4900 Cox Road 24640 Richmond 1,324 5,305
Technology Park 1 24650 Richmond 541 2,166
Dominion Place - Pitts Parcel 28720 Richmond 1,084 -
East Shore I 24660 Richmond - 1,254
East Shore II 24670 Richmond 907 6,662
East Shore III 24680 Richmond - 2,220
East Shore IV 28390 Richmond 1,445 -
Grove Park I 24690 Richmond 349 2,685
Grove Park II 24700 Richmond 983 -
Grove Park Square 60310 Richmond 1,283 -
Highwoods Distribution Center Richmond 523 5,699
HDC Land Site E - Parcel 3 28760 Richmond 1,804 -
HDC Land Site D - Parcel 4 28770 Richmond 1,721 -
HDC Land Site C - Parcel 5 28780 Richmond 942 -
Highwoods One 24720 Richmond (5) 1,846 8,613
Highwoods Two 24730 Richmond 785 5,170
Highwoods Five 24760 Richmond 806 4,948
Sadler & Cox Land 24770 Richmond 1,755 -
Highwoods Plaza 24790 Richmond 909 4,937
Highwoods Commons 24800 Richmond 547 4,342
Innsbrook Centre 24810 Richmond 914 6,768
Innslake Center 28560 Richmond 844 4,730
Liberty Mutual 24820 Richmond 2,956 1,205 4,819
Mercer Plaza 24830 Richmond 1,556 12,350
Markel American 24840 Richmond 1,372 8,667
North Park 24850 Richmond 2,163 8,659
North Shore Commons A 24860 Richmond 1,344 10,447
North Shore Commons B - Land 24870 Richmond 1,714 -
North Shore Commons C - Land 24880 Richmond 1,698 -
North Shore Commons D - Land 28240 Richmond 618 1,261 -
Hamilton Beach 24890 Richmond 1,086 4,344
One Shockoe Plaza 24910 Richmond - 19,324
Stony Point I 24930 Richmond 1,384 11,445
Stony Point II 24940 Richmond 2,224 10,949
Stony Point III 28430 Richmond 1,190 8,131
Stony Point F Land 24950 Richmond 2,777 -
Technology Park 2 24960 Richmond 264 1,058
Vantage Place A 24980 Richmond 203 811
Vantage Place B 24990 Richmond 233 931
Vantage Place C 25000 Richmond 235 940
Vantage Place D 25010 Richmond 218 873
Vantage Pointe 25020 Richmond 1,089 4,354
Waterfront Plaza 25030 Richmond 585 2,347
West Shore I 25040 Richmond 358 1,431
West Shore II 25050 Richmond 545 2,181
West Shore III 25060 Richmond 961 3,601
Virginia Mutual 28250 Richmond 1,301 6,034
SOUTH FLORIDA
The 1800 Eller Drive Building 25080 South Florida - 9,724
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
Weston Tract - 8A - - 2,415 -
Weston Tract - 6A2 - - 2,088 -
Weston Tract - 8A - - 2,681 -
Weston Tract - 5B - - 2,424 -
WESPEC Tract 1 - - 1,543 -
WESPEC Tract 2E 19 - 663 -
Willow Oak - 1,875 458 6,560
Other Property - 10,387 - 10,387
RICHMOND, VA
HDC Land Site - Parcel 6 - - 1,275 -
Airport Center I - - 693 4,422
Airport Center II - - 336 2,772
Capital One Building I - 322 1,278 11,012
Capital One Building II - 248 477 4,194
Capital One Building III - (169) 1,278 11,346
Capital One Parking Deck - 141 - 2,429
1309 E. Cary Street - 100 171 785
4900 Cox Road - 686 1,324 5,991
Technology Park 1 - 498 541 2,664
Dominion Place - Pitts Parcel - - 1,084 -
East Shore I - (1,254) - -
East Shore II (907) (6,662) - -
East Shore III - (2,220) - -
East Shore IV - - 1,445 -
Grove Park I 364 3,189 713 5,874
Grove Park II (983) - - -
Grove Park Square - - 1,283 -
Highwoods Distribution Center - - 523 5,699
HDC Land Site E - Parcel 3 - - 1,804 -
HDC Land Site D - Parcel 4 - - 1,721 -
HDC Land Site C - Parcel 5 - - 942 -
Highwoods One - 2,268 1,846 10,881
Highwoods Two - 1,287 785 6,457
Highwoods Five - 945 806 5,893
Sadler & Cox Land - 1,755 -
Highwoods Plaza - 1,228 909 6,165
Highwoods Commons (26) (42) 521 4,300
Innsbrook Centre - 284 914 7,052
Innslake Center - 1,802 844 6,532
Liberty Mutual - 991 1,205 5,810
Mercer Plaza - 124 1,556 12,474
Markel American - 985 1,372 9,652
North Park - 701 2,163 9,360
North Shore Commons A - 2,440 1,344 12,887
North Shore Commons B - Land - - 1,714 -
North Shore Commons C - Land - - 1,698 -
North Shore Commons D - Land - - 1,261 -
Hamilton Beach - 483 1,086 4,827
One Shockoe Plaza - (3,885) - 15,439
Stony Point I - 1,584 1,384 13,029
Stony Point II - 1,923 2,224 12,872
Stony Point III - 2,221 1,190 10,352
Stony Point F Land - - 2,777 -
Technology Park 2 - 109 264 1,167
Vantage Place A - 202 203 1,013
Vantage Place B - 208 233 1,139
Vantage Place C - 223 235 1,163
Vantage Place D - 219 218 1,092
Vantage Pointe - 755 1,089 5,109
Waterfront Plaza - 783 585 3,130
West Shore I - 83 358 1,514
West Shore II - 144 545 2,325
West Shore III - 1,575 961 5,176
Virginia Mutual - 38 1,301 6,072
SOUTH FLORIDA
The 1800 Eller Drive Building - 699 - 10,423
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
Weston Tract - 8A 2,415 - N/A N/A
Weston Tract - 6A2 2,088 - N/A N/A
Weston Tract - 8A 2,681 - N/A N/A
Weston Tract - 5B 2,424 - N/A N/A
WESPEC Tract 1 1,543 - N/A N/A
WESPEC Tract 2E 663 - N/A N/A
Willow Oak 7,018 2,334 1995 5-40 yrs.
Other Property 10,387 1,988 N/A 5-40 yrs.
RICHMOND, VA
HDC Land Site - Parcel 6 1,275 - N/A
Airport Center I 5,115 - 1997 5-40 yrs.
Airport Center II 3,108 - 1998 5-40 yrs.
Capital One Building I 12,290 1,417 1999 5-40 yrs.
Capital One Building II 4,671 506 1999 5-40 yrs.
Capital One Building III 12,624 1,343 1999 5-40 yrs.
Capital One Parking Deck 2,429 200 1999 5-40 yrs.
1309 E. Cary Street 956 161 1987 5-40 yrs.
4900 Cox Road 7,315 1,135 1991 5-40 yrs.
Technology Park 1 3,205 618 1991 5-40 yrs.
Dominion Place - Pitts Parcel 1,084 - N/A
East Shore I - - N/A N/A
East Shore II - - 1999 5-40 yrs.
East Shore III - - 1999 5-40 yrs.
East Shore IV 1,445 - N/A
Grove Park I 6,587 1,421 1997 5-40 yrs.
Grove Park II - - N/A N/A
Grove Park Square 1,283 - N/A N/A
Highwoods Distribution Center 6,222 - 1999 5-40 yrs.
HDC Land Site E - Parcel 3 1,804 - N/A
HDC Land Site D - Parcel 4 1,721 - N/A
HDC Land Site C - Parcel 5 942 - N/A
Highwoods One 12,727 3,013 1996 5-40 yrs.
Highwoods Two 7,242 1,526 1997 5-40 yrs.
Highwoods Five 6,699 1,232 1998 5-40 yrs.
Sadler & Cox Land 1,755 - N/A N/A
Highwoods Plaza 7,074 664 2000 5-40 yrs.
Highwoods Commons 4,821 734 1999 5-40 yrs.
Innsbrook Centre 7,966 581 1989 5-40 yrs.
Innslake Center 7,376 246 2001 5-40 yrs.
Liberty Mutual 7,015 1,196 1990 5-40 yrs.
Mercer Plaza 14,030 1,072 1984 5-40 yrs.
Markel American 11,024 1,476 1998 5-40 yrs.
North Park 11,523 1,776 1989 5-40 yrs.
North Shore Commons A 14,231 804 2002 5-40 yrs.
North Shore Commons B - Land 1,714 - N/A N/A
North Shore Commons C - Land 1,698 - N/A N/A
North Shore Commons D - Land 1,261 - N/A
Hamilton Beach 5,913 926 1986 5-40 yrs.
One Shockoe Plaza 15,439 2,727 1996 5-40 yrs.
Stony Point I 14,413 2,252 1990 5-40 yrs.
Stony Point II 15,096 1,931 1999 5-40 yrs.
Stony Point III 11,542 619 2002 5-40 yrs.
Stony Point F Land 2,777 - N/A N/A
Technology Park 2 1,431 256 1991 5-40 yrs.
Vantage Place A 1,216 277 1987 5-40 yrs.
Vantage Place B 1,372 292 1988 5-40 yrs.
Vantage Place C 1,398 310 1987 5-40 yrs.
Vantage Place D 1,310 325 1988 5-40 yrs.
Vantage Pointe 6,198 1,174 1990 5-40 yrs.
Waterfront Plaza 3,715 877 1988 5-40 yrs.
West Shore I 1,872 278 1995 5-40 yrs.
West Shore II 2,870 401 1995 5-40 yrs.
West Shore III 6,137 1,397 1997 5-40 yrs.
Virginia Mutual 7,373 585 1996 5-40 yrs.
SOUTH FLORIDA
The 1800 Eller Drive Building 10,423 1,743 1983 5-40 yrs.
F-46
INITIAL COST
------------------------
2002 BUILDING &
DESCRIPTION JDE CITY ENCUMBERANCE LAND IMPROVEMENTS
- --------------------------------------------- ------- ----------------- -------------- ---------- -------------
Atrium 25120 Tampa 1,639 9,286
Bay View Office Centre 25210 Tampa 1,304 5,964
Bay Vista Gardens 25220 Tampa 447 4,777
Bay Vista Gardens II 25230 Tampa 1,328 6,981
Bay Vista Office Building 25250 Tampa 935 4,480
Bay Vista Retail 25260 Tampa 283 1,135
Countryside Place 25270 Tampa 843 3,731
Cypress Commons 25330 Tampa 1,211 11,488
Cypress Center I 25340 Tampa 3,171 12,635
Cypress Center III 25350 Tampa 1,190 7,690
Cypress IV Land 28730 Tampa 2,771 303
Cypress West 25360 Tampa 1,983 615 4,988
Brookwood Day Care Center 25370 Tampa 61 347
Feathersound Corporate Center II 25400 Tampa 2,152 800 7,282
Firemans Fund Building 25410 Tampa 500 4,107
Horizon 25460 Tampa (1) - 6,114
Highwoods Preserve I 25470 Tampa - 2,268
Highwoods Preserve II 25480 Tampa 276 274
Highwoods Preserve III 25490 Tampa 1,383 1,524
Highwoods Preserve IV 25500 Tampa 1,639 16,355
Highwoods Preserve V 25510 Tampa 1,440 21,189
Highwoods Preserve VI 25520 Tampa 639 -
Highwoods Plaza 25530 Tampa 545 4,650
Highwoods Preserve Land 25540 Tampa 2,032 -
Highwoods Preserve Energy Plant 28360 Tampa - 500
LakePointe I 25640 Tampa (1) 2,000 20,376
Lakeside 25650 Tampa (1) - 7,272
LakePointe II 25660 Tampa (1) 2,100 31,390
Northside Square Office 25720 Tampa 601 3,601
Northside Square Office/Retail 25730 Tampa 800 2,808
One Harbour Place 28180 Tampa (3) 2,015 25,252
Parkside 25740 Tampa (1) - 9,193
Pavilion 25750 Tampa (1) - 16,022
Pavilion Parking Garage 25760 Tampa - 5,618
380 Park Place 25770 Tampa 1,508 6,782
REO Building 25790 Tampa 795 4,484
Registry I 25800 Tampa 744 4,216
Registry II 25810 Tampa 908 5,147
Registry Square 25820 Tampa 344 1,951
Romac Tampa 1,256 17,950
Sabal Business Center I 25840 Tampa 375 2,127
Sabal Business Center II 25850 Tampa 342 1,935
Sabal Business Center III 25860 Tampa 290 1,642
Sabal Business Center IV 25870 Tampa 819 4,638
Sabal Business Center V 25880 Tampa 1,026 5,813
Sabal Business Center VI 25890 Tampa 1,609 9,116
Sabal Business Center VII 25900 Tampa 1,519 8,605
Sabal Lake Building 25910 Tampa 572 3,241
Sabal Industrial Park Land 25920 Tampa 316 -
Sabal Park Plaza 25930 Tampa 611 3,460
Sabal Tech Center 25940 Tampa 548 3,107
Summit Office Building 25950 Tampa 579 2,749
Spectrum 25960 Tampa (1) 1,450 14,173
Sabal Pavilion I 25970 Tampa 660 8,633
Sabal Pavilion II 25980 Tampa 510 -
USF&G 26130 Tampa 1,366 7,742
Westshore Square 26140 Tampa 2,624 1,130 5,155
27,330 625,679 2,648,046
===========================================
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH
TO ACQUISTION CARRIED AT CLOSE OF PERIOD
--------------------------- --------------------------
BUILDING & BUILDING &
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ---------- -------------- ---------- --------------
Atrium (287) 2,302 1,352 11,588
Bay View Office Centre - 613 1,304 6,577
Bay Vista Gardens - 74 447 4,851
Bay Vista Gardens II 134 500 1,462 7,481
Bay Vista Office Building - 584 935 5,064
Bay Vista Retail - 164 283 1,299
Countryside Place - 1,036 843 4,767
Cypress Commons - 207 1,211 11,695
Cypress Center I - 135 3,171 12,770
Cypress Center III - 83 1,190 7,773
Cypress IV Land - - 2,771 303
Cypress West - 843 615 5,831
Brookwood Day Care Center - 28 61 375
Feathersound Corporate Center II - 657 800 7,939
Firemans Fund Building - 170 500 4,277
Horizon - 829 - 6,943
Highwoods Preserve I 1,618 23,436 1,618 25,704
Highwoods Preserve II 1,365 276 1,639
Highwoods Preserve III - 21,300 1,383 22,824
Highwoods Preserve IV - 8,702 1,639 25,057
Highwoods Preserve V - (195) 1,440 20,994
Highwoods Preserve VI - - 639 -
Highwoods Plaza - 1,939 545 6,589
Highwoods Preserve Land - - 2,032 -
Highwoods Preserve Energy Plant - - - 500
LakePointe I - 7,717 2,000 28,093
Lakeside - 146 - 7,418
LakePointe II - 1,136 2,100 32,526
Northside Square Office - 278 601 3,879
Northside Square Office/Retail - 124 800 2,932
One Harbour Place - 866 2,015 26,118
Parkside - 405 - 9,598
Pavilion - 700 - 16,722
Pavilion Parking Garage - - - 5,618
380 Park Place - 1,346 1,508 8,128
REO Building (795) (4,484) - -
Registry I - 646 744 4,862
Registry II - 532 908 5,679
Registry Square - 186 344 2,137
Romac (1,256) (17,950) - -
Sabal Business Center I - 256 375 2,383
Sabal Business Center II - 142 342 2,077
Sabal Business Center III - 49 290 1,691
Sabal Business Center IV - 207 819 4,845
Sabal Business Center V - 273 1,026 6,086
Sabal Business Center VI - 102 1,609 9,218
Sabal Business Center VII - 81 1,519 8,686
Sabal Lake Building - 160 572 3,401
Sabal Industrial Park Land - 316 -
Sabal Park Plaza - 416 611 3,876
Sabal Tech Center - 97 548 3,204
Summit Office Building - 28 579 2,777
Spectrum - 719 1,450 14,892
Sabal Pavilion I 304 2,934 964 11,567
Sabal Pavilion II - 510 -
USF&G - 1,619 1,366 9,361
Westshore Square - 386 1,130 5,541
(22,719) 300,936 602,960 2,948,982
=========================================================
LIFE ON
WHICH
ACCUMULATED DATE OF DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION IS COMPUTED
- --------------------------------------------- ----------- ------------ ------------ ------------
Atrium 12,940 1,809 1989 5-40 yrs.
Bay View Office Centre 7,881 922 1982 5-40 yrs.
Bay Vista Gardens 5,298 642 1982 5-40 yrs.
Bay Vista Gardens II 8,943 1,305 1997 5-40 yrs.
Bay Vista Office Building 5,999 879 1982 5-40 yrs.
Bay Vista Retail 1,582 227 1987 5-40 yrs.
Countryside Place 5,610 589 1988 5-40 yrs.
Cypress Commons 12,906 2,748 1985 5-40 yrs.
Cypress Center I 15,941 3,553 1982 5-40 yrs.
Cypress Center III 8,963 750 1983 5-40 yrs.
Cypress IV Land 3,074 39 N/A
Cypress West 6,446 991 1985 5-40 yrs.
Brookwood Day Care Center 436 64 1986 5-40 yrs.
Feathersound Corporate Center II 8,739 1,331 1986 5-40 yrs.
Firemans Fund Building 4,777 625 1982 5-40 yrs.
Horizon 6,943 964 1980 5-40 yrs.
Highwoods Preserve I 27,322 2,406 1999 5-40 yrs.
Highwoods Preserve II 1,915 312 2001 5-40 yrs.
Highwoods Preserve III 24,207 1,788 1999 5-40 yrs.
Highwoods Preserve IV 26,696 1,587 1999 5-40 yrs.
Highwoods Preserve V 22,434 826 2001 5-40 yrs.
Highwoods Preserve VI 639 - N/A
Highwoods Plaza 7,134 504 1999 5-40 yrs.
Highwoods Preserve Land 2,032 - N/A N/A
Highwoods Preserve Energy Plant 500 - N/A
LakePointe I 30,093 3,037 1999 5-40 yrs.
Lakeside 7,418 967 1978 5-40 yrs.
LakePointe II 34,626 4,391 1986 5-40 yrs.
Northside Square Office 4,480 590 1986 5-40 yrs.
Northside Square Office/Retail 3,732 433 1986 5-40 yrs.
One Harbour Place 28,133 1,903 1985 5-40 yrs.
Parkside 9,598 1,252 1979 5-40 yrs.
Pavilion 16,722 2,327 1982 5-40 yrs.
Pavilion Parking Garage 5,618 449 1999 5-40 yrs.
380 Park Place 9,636 553 N/A N/A
REO Building - - 1983 5-40 yrs.
Registry I 5,606 908 1985 5-40 yrs.
Registry II 6,587 1,037 1987 5-40 yrs.
Registry Square 2,481 362 1988 5-40 yrs.
Romac - - 2001 5-40 yrs.
Sabal Business Center I 2,758 459 1982 5-40 yrs.
Sabal Business Center II 2,419 422 1984 5-40 yrs.
Sabal Business Center III 1,981 285 1984 5-40 yrs.
Sabal Business Center IV 5,664 812 1984 5-40 yrs.
Sabal Business Center V 7,112 1,003 1988 5-40 yrs.
Sabal Business Center VI 10,827 1,459 1988 5-40 yrs.
Sabal Business Center VII 10,205 1,373 1990 5-40 yrs.
Sabal Lake Building 3,973 637 1986 5-40 yrs.
Sabal Industrial Park Land 316 - N/A N/A
Sabal Park Plaza 4,487 889 1987 5-40 yrs.
Sabal Tech Center 3,752 506 1989 5-40 yrs.
Summit Office Building 3,356 353 1988 5-40 yrs.
Spectrum 16,342 1,990 1984 5-40 yrs.
Sabal Pavilion I 12,531 1,412 1998 5-40 yrs.
Sabal Pavilion II 510 - N/A N/A
USF&G 10,727 2,204 1988 5-40 yrs.
Westshore Square 6,671 769 1976 5-40 yrs.
3,551,942 461,843
=========================
(1) These assets are pledged as collateral for a $69,442,000 first mortgage
loan.
(2) These assets are pledged as collateral for an $43,480,000 first mortgage
loan.
(3) These assets are pledged as collateral for a $28,004,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $142,841,000 first mortgage
loan.
(5) These assets are pledged as collateral for a $179,954,000 first mortgage
loan.
(6) These assets are pledged as collateral for a $10,667,000 first mortgage
loan.
F-47
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTE TO SCHEDULE III
(In Thousands)
As of December 31, 2002, 2001, and 2000
A summary of activity for Real estate and accumulated depreciation is as follows
December 31,
----------------------------------------------------
2002 2001 2000
-------------- ------------- ------------
Real Estate:
Balance at beginning of year............................. 3,597,181 3,419,351 3,743,934
Additions
Acquisitions, Development and Improvments............. 210,756 336,105 403,546
Cost of real estate sold.............................. (255,995) (158,275) (728,129)
-------------- ------------- ------------
Balance at close of year (a)............................. 3,551,942 3,597,181 3,419,351
============== ============= ============
Accumulated Depreciaition
Balance at beginning of year............................. 377,103 280,772 237,979
Depreciation expense.................................. 109,927 104,691 103,435
Real estate sold...................................... (25,187) (8,360) (60,642)
-------------- ------------- ------------
Balance at close of year (b)........................... 461,843 377,103 280,772
============== ============= ============
- ------------------------------------------------------------------------------ ------------ ------------
(a) Reconciliation of total cost to balance sheet caption
at December 31, 2002, 2001, and 2000 (in Thousands)
2002 2001 2000
-------------- ------------- ------------
Total per schedule III...................................... 3,551,942 3,597,181 3,419,351
Constuction in progress exclusive...........................
of land included in schedule III......................... 6,847 108,272 86,577
Furniture, fixtures and equipment........................... 20,960 19,392 11,433
Property held for sale...................................... (113,731) (191,479) (255,602)
Reclassification adjustment for discontinued operations..... - 856 2,205
-------------- ------------- ------------
Total real estate assets at cost............................ 3,466,018 3,534,222 3,263,964
============== ============= ============
- ------------------------------------------------------------------------------ ------------- ------------
(b) Reconciliation of total Accumulated Depreciation to balance sheet caption
at December 31, 2002, 2001, and 2000 (in Thousands)
2002 2001 2000
-------------- ------------- ------------
Total per Schedule III...................................... 461,843 377,103 280,772
Accumulated Depreciation - furniture, fixtures and equipment 9,208 9,649 5,317
Property held for sale...................................... (8,952) (12,838) (14,209)
-------------- ------------- ------------
Total accumulated depreciation.............................. 462,099 373,914 271,880
============== ============= ============
F-48