SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission file number: 000-21731
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
| North Carolina |
56-1864557 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
3100 Smoketree Court, Suite 600, Raleigh, N.C.
(Address of principal executive office)
27604
(Zip Code)
(919) 872-4924
(Registrant’s telephone number, including area code)
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 whether the Registrant is an accelerated filer (as defined in rule 12b-2 of the Securities Exchange Act). Yes ¨ No x
HIGHWOODS REALTY LIMITED PARTNERSHIP
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2003
TABLE OF CONTENTS
| Page | ||||
| PART I |
||||
| Item 1. |
3 | |||
| Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 |
4 | |||
| Consolidated Statements of Income for the three months ended March 31, 2003 and 2002 |
5 | |||
| Consolidated Statements of Partners’ Capital for the three months ended March 31, 2003 |
6 | |||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 |
7 | |||
| 9 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 | ||
| 22 | ||||
| 22 | ||||
| 23 | ||||
| 25 | ||||
| 28 | ||||
| 30 | ||||
| 38 | ||||
| 39 | ||||
| 41 | ||||
| 48 | ||||
| Item 3. |
48 | |||
| Item 4. |
48 | |||
| PART II |
||||
| Item 6. |
50 | |||
| Certifications |
52 |
2
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.”
The information furnished in the accompanying balance sheets, statements of income, statements of partners’ capital and statements of cash flows reflect all adjustments (consisting of normal recurring accruals) that are, in our opinion, necessary for a fair presentation of the aforementioned financial statements for the interim period.
The aforementioned financial statements should be read in conjunction with the notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and in our 2002 Annual Report on Form 10-K.
3
HIGHWOODS REALTY LIMITED PARTNERSHIP
($ in thousands)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) |
||||||||
| ASSETS: |
||||||||
| Real estate assets, at cost: |
||||||||
| Land and improvements |
$ |
391,025 |
|
$ |
392,704 |
| ||
| Buildings and tenant improvements |
|
2,875,874 |
|
|
2,863,060 |
| ||
| Development in process |
|
7,797 |
|
|
6,847 |
| ||
| Land held for development |
|
174,496 |
|
|
175,302 |
| ||
| Furniture, fixtures and equipment |
|
21,144 |
|
|
20,960 |
| ||
|
|
3,470,336 |
|
|
3,458,873 |
| |||
| Less—accumulated depreciation |
|
(488,783 |
) |
|
(461,254 |
) | ||
| Net real estate assets |
|
2,981,553 |
|
|
2,997,619 |
| ||
| Property held for sale |
|
116,762 |
|
|
111,089 |
| ||
| Cash and cash equivalents |
|
18,308 |
|
|
10,730 |
| ||
| Restricted cash |
|
2,943 |
|
|
8,582 |
| ||
| Accounts receivable, net of allowance |
|
12,595 |
|
|
13,389 |
| ||
| Notes receivable |
|
9,687 |
|
|
9,949 |
| ||
| Accrued straight-line rents receivable |
|
50,462 |
|
|
48,777 |
| ||
| Investment in unconsolidated affiliates |
|
74,860 |
|
|
75,019 |
| ||
| Other assets: |
||||||||
| Deferred leasing costs |
|
99,640 |
|
|
100,143 |
| ||
| Deferred financing costs |
|
42,548 |
|
|
26,120 |
| ||
| Prepaid expenses and other |
|
16,351 |
|
|
15,295 |
| ||
|
|
158,539 |
|
|
141,558 |
| |||
| Less—accumulated amortization |
|
(73,579 |
) |
|
(71,658 |
) | ||
| Other assets, net |
|
84,960 |
|
|
69,900 |
| ||
| Total Assets |
$ |
3,352,130 |
|
$ |
3,345,054 |
| ||
| LIABILITIES AND PARTNERS’ CAPITAL: |
||||||||
| Mortgages and notes payable |
$ |
1,538,835 |
|
$ |
1,489,220 |
| ||
| Accounts payable, accrued expenses and other liabilities |
|
102,510 |
|
|
114,870 |
| ||
| Total Liabilities |
|
1,641,345 |
|
|
1,604,090 |
| ||
| Redeemable operating partnership units: |
||||||||
| Class A Common Units, 6,847,816 and 6,974,524 outstanding at March 31, 2003 and December 31, 2002, respectively |
|
139,969 |
|
|
154,137 |
| ||
| Series A Preferred Units, 104,945 outstanding at March 31, 2003 and December 31, 2002 |
|
103,308 |
|
|
103,308 |
| ||
| Series B Preferred Units, 6,900,000 outstanding at March 31, 2003 and December 31, 2002 |
|
166,346 |
|
|
166,346 |
| ||
| Series D Preferred Units, 400,000 outstanding at March 31, 2003 and December 31, 2002 |
|
96,842 |
|
|
96,842 |
| ||
| Partners’ Capital: |
||||||||
| Class A common units: |
||||||||
| General partner Common Units, 599,234 and 599,659 outstanding at March 31, 2003 and December 31, 2002, respectively |
|
12,182 |
|
|
12,332 |
| ||
| Limited partner Common Units, 52,476,365 and 52,391,727 outstanding at March 31, 2003 and December 31, 2002, respectively |
|
1,206,180 |
|
|
1,220,902 |
| ||
| Accumulated other comprehensive loss |
|
(8,767 |
) |
|
(9,204 |
) | ||
| Deferred compensation |
|
(5,275 |
) |
|
(3,699 |
) | ||
| Total Partners’ Capital |
|
1,204,320 |
|
|
1,220,331 |
| ||
| Total Liabilities and Partners’ Capital |
$ |
3,352,130 |
|
$ |
3,345,054 |
| ||
See accompanying notes to consolidated financial statements
4
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(Unaudited and $ in thousands, except per unit amounts)
| Three Months Ended |
||||||||
| 2003 |
2002 |
|||||||
| Rental revenue |
$ |
108,960 |
|
$ |
116,149 |
| ||
| Operating expenses: |
||||||||
| Rental property |
|
37,016 |
|
|
35,893 |
| ||
| Depreciation and amortization |
|
33,286 |
|
|
29,353 |
| ||
| Interest expense: |
||||||||
| Contractual |
|
27,549 |
|
|
25,427 |
| ||
| Amortization of deferred financing costs |
|
626 |
|
|
339 |
| ||
|
|
28,175 |
|
|
25,766 |
| |||
| General and administrative |
|
5,215 |
|
|
5,180 |
| ||
| Total operating expenses |
|
103,692 |
|
|
96,192 |
| ||
| Other income: |
||||||||
| Interest and other income |
|
2,870 |
|
|
3,202 |
| ||
| Equity in earnings of unconsolidated affiliates |
|
1,714 |
|
|
2,490 |
| ||
|
|
4,584 |
|
|
5,692 |
| |||
| Income before gain/(loss) on disposition of land and depreciable assets and discontinued operations |
|
9,852 |
|
|
25,649 |
| ||
| Gain/(loss) on disposition of land |
|
863 |
|
|
(232 |
) | ||
| Gain on disposition of depreciable assets |
|
20 |
|
|
1,176 |
| ||
| Income from continuing operations |
|
10,735 |
|
|
26,593 |
| ||
| Discontinued operations: |
||||||||
| Income from discontinued operations |
|
2,648 |
|
|
4,434 |
| ||
| Loss on sale of discontinued operations |
|
(325 |
) |
|
— |
| ||
|
|
2,323 |
|
|
4,434 |
| |||
| Net income |
|
13,058 |
|
|
31,027 |
| ||
| Distributions on preferred units |
|
(7,713 |
) |
|
(7,713 |
) | ||
| Net income available for unitholders |
$ |
5,345 |
|
$ |
23,314 |
| ||
| Net income per common unit—basic: |
||||||||
| Income from continuing operations |
$ |
0.05 |
|
$ |
0.32 |
| ||
| Income from discontinued operations |
|
0.04 |
|
|
0.07 |
| ||
| Net income |
$ |
0.09 |
|
$ |
0.39 |
| ||