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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, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 1-13100
------------------------------
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 56-1871668
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- -------------------------------------------------------------------------------
Common stock, $.01 par value.......................... New York Stock Exchange
8 5/8% Series A Cumulative Redeemable Preferred Shares New York Stock Exchange
8% Series B Cumulative Redeemable Preferred Shares.... New York Stock Exchange
Depositary Shares Each Representing a 1/10 Fractional
Interest in an 8% Series D Cumulative Redeemable
Preferred Share....................................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the shares of common stock held by
non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on February 26, 2002 was $1,412,352,570. As of February 26, 2002,
there were 52,897,100 shares of common stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its Annual
Meeting of Shareholders to be held May 20, 2002, are incorporated by reference
in Part III, Items 10, 11, 12 and 13, of the Form 10-K.
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HIGHWOODS PROPERTIES, INC.
TABLE OF CONTENTS
Item No. Page No.
- -------- --------
PART I
1. Business....................................................... 3
2. Properties..................................................... 12
3. Legal Proceedings.............................................. 17
4. Submission of Matters to a Vote of Security Holders............ 17
X. Executive Officers of the Registrant........................... 18
PART II
5. Market for Registrant's Common Stock and Related Stockholder
Matters...................................................... 19
6. Selected Financial Data........................................ 20
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 21
7A. Quantitative and Qualitative Disclosures About Market Risk..... 32
8. Financial Statements......................................... 32
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................... 32
PART III
10. Directors and Executive Officers of the Registrant............. 33
11. Executive Compensation......................................... 33
12. Security Ownership of Certain Beneficial Owners and Management. 33
13. Certain Relationships and Related Transactions................. 33
PART IV
14. Exhibits and Reports on Form 8-K............................... 34
2
PART I
We refer to (1) Highwoods Properties, Inc. as the "Company," (2) Highwoods
Realty Limited Partnership as the "Operating Partnership," (3) the Company's
common stock as "Common Stock" and (4) the Operating Partnership's common
partnership interests as "Common Units."
ITEM 1. BUSINESS
GENERAL
The Company is a self-administered and self-managed equity REIT that began
operations through a predecessor in 1978. Since the Company's initial public
offering in 1994, we have evolved into one of the largest owners and operators
of suburban office, industrial and retail properties in the southeastern and
midwestern United States. At December 31, 2001, we:
. owned 498 in-service office, industrial and retail properties,
encompassing approximately 37.2 million rentable square feet and
213 apartment units;
. owned an interest (50% or less) in 74 in-service office and
industrial properties, encompassing approximately 7.2 million
rentable square feet and 418 apartment units;
. owned 1,327 acres of undeveloped land suitable for future
development; and
. were developing an additional 25 properties, which will encompass
approximately 2.8 million rentable square feet (including three
properties encompassing 347,000 rentable square feet that we are
developing with our joint venture partners).
The following summarizes our capital recycling program during the past
three years ending December 31, 2001:
2001 2000 1999 Total
------- ------ ------ --------
Office, Industrial and Retail Properties
(rentable square feet in thousands)
Dispositions /(1)/ (268) (4,743) (7,595) (12,606)
Contributions to Joint Ventures /(1)/ (118) (2,199) (1,198) (3,515)
Developments Placed In-Service 1,351 3,480 2,167 6,998
Acquisitions 72 669 960 1,701
------- ------- ------- --------
Net Change in Wholly-owned
In-Service Properties 1,037 (2,793) (5,666) (7,422)
======= ======= ======= ========
Apartment Properties
(in units)
Dispositions (1,672) -- -- (1,672)
======= ======= ======= ========
- -------------------
/(1)/ Excludes wholly-owned development properties sold or contributed to joint
ventures.
In addition to the above property activity, we repurchased $148.8 million,
$101.8 million and $25.5 million of Common Stock and Common Units during 2001,
2000 and 1999, respectively, and $18.5 million of Preferred Stock during 2001.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 2001, the Company owned
87.7% of the Common Units in the Operating Partnership. Limited partners
(including certain officers and directors of the Company) own the remaining
Common Units. Holders of Common Units may redeem them for the cash value of one
share of the Company's Common Stock or, at the Company's option, one share
(subject to certain adjustments) of Common Stock.
The Company was incorporated in Maryland in 1994. The Operating
Partnership was formed in North Carolina in 1994. Our executive offices are
located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and
our telephone number is (919) 872-4924. We maintain offices in each of our
primary markets.
3
OPERATING STRATEGY
Diversification. Since the Company's initial public offering in 1994, we
have significantly reduced our dependence on any particular market, property
type or tenant. We initially owned only a limited number of office properties
in North Carolina, most of which were in the Research Triangle. Today, with our
various joint venture partners, our portfolio includes office, industrial and
retail properties, development projects and development land throughout the
Southeast and Midwest.
Development and Acquisition Opportunities. We generally seek to engage in
the development of office and industrial projects in our existing geographic
markets, primarily in suburban business parks. We intend to focus our
development efforts on build-to-suit projects and projects where we have
identified sufficient demand. In build-to-suit development, the building is
significantly pre-leased to one or more tenants prior to construction.
Build-to-suit projects often foster strong long-term relationships with
tenants, creating future development opportunities as the facility needs of
tenants increase. We believe our commercially zoned and unencumbered
development land in existing business parks is an advantage we have over many
of our competitors in pursuing development opportunities.
We also seek to acquire selective suburban office and industrial
properties in our existing geographic markets at prices below replacement cost
that offer attractive returns. These would include acquisitions of
underperforming, high-quality properties in our existing markets that offer us
opportunities to improve such properties' operating performance.
Managed Growth Strategy. Our strategy has been to focus our real estate
activities in markets where we believe our extensive local knowledge gives us a
competitive advantage over other real estate developers and operators. As we
expanded into new markets, we have continued to maintain this localized
approach by combining with local real estate operators with many years of
development and management experience in their respective markets. Our capital
recycling activities also benefit from our local market presence and knowledge.
Our property-level officers have significant real estate experience in their
respective markets. Because of this experience, we are in a better position to
evaluate capital recycling opportunities. In addition, our relationships with
our tenants and those tenants at properties for which we conduct third-party
fee-based services may lead to development projects when these tenants seek new
space.
Efficient, Customer Service-Oriented Organization. We provide a complete
line of real estate services to our tenants and third parties. We believe that
our in-house development, acquisition, construction management, leasing and
management services allow us to respond to the many demands of our existing and
potential tenant base. We provide our tenants cost-effective services such as
build-to-suit construction and space modification, including tenant
improvements and expansions. In addition, the breadth of our capabilities and
resources provides us with market information not generally available. We
believe that the operating efficiencies achieved through our fully integrated
organization also provide a competitive advantage in setting our lease rates
and pricing other services.
Flexible Capital Structure. We are committed to maintaining a flexible
capital structure that: (1) allows growth through development and acquisition
opportunities; (2) promotes future earnings growth; and (3) provides access to
the private and public equity and debt markets on favorable terms. Accordingly,
we expect to meet our long-term liquidity requirements, including funding our
existing and future development activity, through a combination of any one or
more of:
. borrowings under our unsecured and secured revolving credit
facilities;
. the issuance of unsecured debt;
. the issuance of secured debt;
. the issuance of equity securities by both the Company and the
Operating Partnership;
. the selective disposition of non-core assets; and
. the sale or contribution of our wholly-owned properties,
development projects and development land to strategic joint
ventures formed with unrelated investors.
4
CAPITAL RECYCLING PROGRAM
The following table summarizes our capital recycling program during 2001
($ in thousands):
ACQUISITION ACTIVITY
Building Date Rentable Initial
Property Market Type /(1)/ Acquired Square Feet Cost
- -------- ------ ---------- -------- ----------- -------
University Center Charlotte O 1/17/01 72,000 $ 1,513
------- --------
Total 72,000 $ 1,513
======= ========
DISPOSITION ACTIVITY
Building Date Rentable Sales
Property Market Type /(1)/ Sold Square Feet Price
- -------- ------ ---------- ------- ----------- --------
Regency House Kansas City M 2/13/01 N/A $ 12,000
Sulgrave Kansas City M 2/13/01 N/A 25,900
Lakefront Plaza One Norfolk O 3/2/01 76,000 8,400
Coach House North Kansas City M 5/31/01 N/A 10,200
Coach House South Kansas City M 5/31/01 N/A 27,900
Coach Lamp Kansas City M 5/31/01 N/A 6,800
Corinth Place Kansas City M 5/31/01 N/A 5,400
5100 Indiana Avenue Piedmont Triad I 6/27/01 88,000 2,200
Expo Building Tampa O 8/15/01 26,000 1,300
Kirby Centre Memphis O 9/27/01 32,000 2,800
Corinth Gardens Kansas City M 9/28/01 N/A 2,200
Corinth Paddock Kansas City M 9/28/01 N/A 7,800
Kenilworth Kansas City M 9/28/01 N/A 17,100
Mission Valley Kansas City M 9/28/01 N/A 4,300
Clearwater Pointe Tampa O 9/28/01 26,000 1,700
Robinhood Piedmont Triad O 11/29/01 20,000 1,800
-------- ---------
Total 268,000 $ 137,800
======== =========
JOINT VENTURE ACTIVITY
Building Date Rentable Sales
Property Market Type/(1)/ Contributed square Feet Price
-------- ------ -------- ----------- ----------- --------
Situs III Research Triangle O 7/30/01 39,000 $ 5,100
ECPI/Concourse Center
One Piedmont Triad O 12/19/01 118,000 14,280
-------- ---------
Total 157,000 $ 19,380
-------- ---------
/(1)/ O = Office
I = Industrial
M = Multifamily
5
DEVELOPMENT ACTIVITY
The following wholly-owned development projects were placed in service
during 2001 ($ in thousands):
Placed In-Service
Month
Building Placed Number of Rentable Cost
Name Market Type/(1)/ In-Service Properties Square Feet to Date
- ---- ------ -------- ---------- ---------- ----------- ---------
Centre Green One Research Triangle O 02/01 1 97,000 $ 11,082
Valencia Place Kansas City O 02/01 1 250,000 39,685
Maplewood Research Triangle O 04/01 1 36,000 3,978
Tradeport Place III Atlanta I 05/01 1 122,000 4,787
ParkWest Two Research Triangle O 05/01 1 48,000 3,856
Highwoods Preserve V Tampa O 07/01 1 185,000 24,400
Romac Tampa O 09/01 1 128,000 14,078
Highwoods Center III
at Tradeport Atlanta O 11/01 1 43,000 3,533
Shadow Creek Memphis O 12/01 1 80,000 8,628
Tradeport Place IV Atlanta I 12/01 1 122,000 3,964
Deerfield III Atlanta O 12/01 1 54,000 4,306
Enterprise Center I Piedmont Triad I 12/01 1 120,000 3,695
Highwoods Plaza Tampa O 12/01 1 66,000 6,866
--- --------- ---------
Total 13 1,351,000 $ 132,858
=== ========= =========
- ---------------
/(1)/ O = Office
I = Industrial
As of December 31, 2001, we were developing 19 suburban office properties,
two industrial properties, and one retail property totaling 2.4 million
rentable square feet of office, industrial and retail space. The following
table summarizes these development projects. In addition to the properties
described in this table, we are developing with our joint venture partners (and
therefore, are not included in the following table) three additional properties
totaling 347,000 rentable square feet. At December 31, 2001, these three
development projects had an aggregate budgeted cost of $45.8 million and were
58.0% pre-leased.
IN-PROCESS
Rentable Estimated Cost at Pre-Leasing Estimated Estimated
Name Market Square Feet Cost 12/31/01 Percentage/(1)/ Completion Stabilization/(2)/
- ---- ------ ----------- --------- -------- -------------- ---------- -----------------
($ in thousands)
Office:
Verizon Wireless Greenville 193,000 $16,356 $16,124 100% 1Q02 1Q02
International Place 3 Memphis 214,000 34,272 26,761 100 2Q02 2Q02
1825 Century Center/(3)/ Atlanta 101,000 16,254 2,560 100 3Q02 3Q02
Seven Springs I Nashville 131,000 15,556 11,719 4 1Q02 1Q03
801 Raleigh Corporate
Center /(3)/ Research Triangle 100,000 12,016 1,396 40 4Q02 2Q04
------- ------- ------- ---- ---- ----
Total or Weighted
Average of all
In-Process
Development Projects 739,000 $94,454 $58,560 75%
======= ======= ======= ====
/(1)/ Letters of intent comprise 5.0% of the total pre-leasing percentage.
/(2)/ We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95% occupied or one
year from the date of completion.
/(3)/ We are developing these properties for a third party and own an option to
purchase each property.
6
COMPLETED-NOT STABILIZED
Percent
Rentable Estimated Cost at Leased/ Estimated Estimated
Name Market Square Feet Cost 12/31/01 Pre-leased/(1)/ Completion Stabilization/(2)/
- ---- ------ ----------- --------- -------- ------------- ---------- -------------
($ in thousands)
Office:
380 Park Place Tampa 82,000 $ 9,697 $ 9,591 93% 1Q01 1Q02
Innslake Richmond 65,000 7,192 7,102 100 4Q01 2Q02
Met Life Building at
Brookfield Greenville 117,000 13,220 12,502 84 3Q01 2Q02
Cool Springs II Nashville 205,000 22,718 19,280 70 2Q01 2Q02
Highwoods Tower II Research Triangle 167,000 25,134 22,065 94 1Q01 2Q02
Hickory Trace Nashville 52,000 5,933 5,578 53 3Q01 3Q02
ParkWest One Research Triangle 46,000 4,364 4,036 74 2Q01 3Q02
North Shore Commons A Richmond 115,000 13,084 12,479 79 2Q01 3Q02
Stony Point III Richmond 107,000 11,425 11,040 73 2Q01 3Q02
Shadow Creek II Memphis 81,000 8,750 6,919 19 4Q01 4Q02
Highwoods Park
at Jefferson Village Piedmond Triad 98,000 11,290 9,370 4 4Q01 4Q02
Centre Green Two Research Triangle 97,000 11,596 9,872 31 2Q01 1Q03
Centre Green Four Research Triangle 100,000 11,764 9,186 50 4Q01 2Q03
GlenLake One Research Triangle 158,000 22,417 17,801 -- 4Q01 2Q03
----------- -------- -------- ---
Completed-Not
Stabilized Office
Total or Weighted
Average 1,490,000 $178,584 $156,821 58%
=========== ======== ======== ===
Industrial:
Holden Road Piedmont Triad 64,000 $ 2,014 $ 1,872 60% 1Q01 2Q02
Newpoint IV Atlanta 136,000 5,288 4,182 29 4Q01 4Q02
----------- --------- -------- ---
Completed-Not
Stabilized
Industrial Total or
Weighted Average 200,000 $ 7,302 $ 6,054 39%
=========== ======== ======== ===
Retail:
Granada Shops Kansas City 20,000 $ 4,680 $ 4,131 90% 4Q01 4Q02
----------- -------- -------- ---
Completed-Not
Stabilized Retail
Total or Weighted
Average 20,000 $ 4,680 $ 4,131 90%
=========== ======== ======== ===
Total or Weighted
Average of all
Completed-Not Stabilized
Development Projects 1,710,000 $190,566 $167,006 57%
============ ======== ======== ===
Total or Weighted
Average of all
Development Projects 2,449,000 $285,020 $225,566 62%
============ ======== ======== ===
- ---------------
/(1)/ Letters of intent comprise 5.0% of the total pre-leasing percentage.
/(2)/ We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95% occupied or one
year from the date of completion.
7
DEVELOPMENT ANALYSIS
Rentable Estimated Pre-Leasing
Square Feet Cost Percentage/(1)/
----------- ----------- --------------
($ in thousands)
Summary By Estimated Stabilization Date
First Quarter 2002................... 275,000 $ 26,053 98%
Second Quarter 2002.................. 832,000 104,550 86
Third Quarter 2002................... 421,000 51,060 79
Fourth Quarter 2002.................. 335,000 30,008 23
First Quarter 2003................... 228,000 27,152 15
Second Quarter 2003.................. 258,000 34,181 19
Second Quarter 2004.................. 100,000 12,016 40
--------- --------- ---
Total or Weighted Average............ 2,449,000 $ 285,020 62%
========= ========= ===
Summary by Market:
Atlanta.............................. 237,000 $ 21,542 59%
Greenville........................... 310,000 29,576 94
Kansas City.......................... 20,000 4,680 90
Memphis.............................. 295,000 43,022 78
Nashville............................ 388,000 44,207 45
Piedmont Triad....................... 162,000 13,304 26
Research Triangle.................... 668,000 87,291 47
Richmond............................. 287,000 31,701 82
Tampa................................ 82,000 9,697 93
--------- --------- ---
Total or Weighted Average............ 2,449,000 $ 285,020 62%
========= ========= ===
Build-to-Suit........................ 508,000 $ 66,882 100%
Multi-tenant......................... 1,941,000 218,138 52
--------- --------- ---
Total or Weighted Average............ 2,449,000 $ 285,020 62%
========= ========= ===
Average
Rentable Average
Square Estimated Average
Feet Cost Pre-Leasing/(1)/
--------- -------------- ---------------
($ in thousands)
Average Per Property By Type:
Office............................... 117,316 $ 14,370 64%
Industrial........................... 100,000 3,651 39
Retail............................... 20,000 4,680 90
--------- --------- ---
Weighted Average..................... 111,318 $ 12,955 62%
========= ========= ===
- ---------------
/(1)/ Letters of intent comprise 5.0% of the total pre-leasing percentage.
COMPETITION
Our properties compete for tenants with similar properties located in our
markets primarily on the basis of location, rent, services provided and the
design and condition of the facilities. We also compete with other REITs,
financial institutions, pension funds, partnerships, individual investors and
others when attempting to acquire and develop properties.
EMPLOYEES
As of December 31, 2001, the Company employed 540 persons.
RISK FACTORS
An investment in our capital stock involves various risks. All investors
should carefully consider the following risk factors in conjunction with the
other information contained in this annual report before purchasing our
securities. If any of these risks actually occur, our business, operating
results, prospects and financial condition could be harmed.
8
Adverse conditions in the real estate market may impair our ability to
make distributions to you. Events or conditions which are beyond our control
may adversely affect our ability to generate revenues in excess of operating
expenses, including debt service and capital expenditures. Such events or
conditions could include:
. general and regional economic conditions, particularly in the
southeastern region of the United States;
. changes in interest rate levels and the availability of financing;
. increases in operating costs, including real estate taxes and
insurance premiums, due to inflation and other factors, which may
not necessarily be offset by increased rents; and
. inability of a significant number of tenants to pay rent.
Future acquisitions may fail to perform in accordance with our
expectations and may require development and renovation costs exceeding our
estimates. In the normal course of business, we typically evaluate potential
acquisitions, enter into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties. However,
changing market conditions, including competition from others, may diminish our
opportunities for making attractive acquisitions. Once made, our investments
may fail to perform in accordance with our expectations. In addition, the
renovation and improvement costs we incur in bringing an acquired property up
to market standards may exceed our estimates. Although we anticipate financing
future acquisitions and renovations through a combination of advances under our
revolving loans and other forms of secured or unsecured financing, no assurance
can be given that we will have the financial resources to make suitable
acquisitions or renovations. If new developments are financed through
construction loans, there is a risk that, upon completion of construction,
permanent financing for newly developed properties may not be available or may
be available only on disadvantageous terms.
In addition to acquisitions, we periodically consider developing and
constructing properties. Risks associated with development and construction
activities include:
. the unavailability of favorable financing;
. construction costs exceeding original estimates;
. construction and lease-up delays resulting in increased debt
service expense and construction costs; and
. insufficient occupancy rates and rents at a newly completed
property causing a property to be unprofitable.
Development activities are also subject to risks relating to our
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental and utility company
authorizations.
Because holders of our Common Units, including some of our officers and
directors, may suffer adverse tax consequences upon the sale of some of our
properties, we may sometimes make decisions that are not in your best interest.
Holders of Common Units may suffer adverse tax consequences upon certain of our
properties' sales. Therefore, holders of Common Units, including certain of our
officers and directors, may have different objectives regarding the appropriate
pricing and timing of a property's sale. Although we are the sole general
partner of the Operating Partnership and have the exclusive authority to sell
an individual property, officers and directors who hold Common Units may
influence us not to sell certain properties even if such sale might be
financially advantageous to stockholders.
The success of our joint venture activity depends upon our ability to work
effectively with financially sound partners. Instead of owning properties
directly, we have invested, and may continue to invest, as a partner or a
co-venturer. Under certain circumstances, this type of investment may involve
risks not otherwise present, including the possibility that a partner or
co-venturer might become bankrupt or that a partner or co-venturer might have
business interests or goals inconsistent with ours. Also, such a partner or
co-venturer may take action contrary to our instructions or requests or
contrary to provisions in our joint venture agreements that could harm us,
including jeopardize our qualification as a REIT. We may also risk an impasse
on decisions because neither the partner nor the co-venturer would have full
control over the partnership or joint venture.
9
Our insurance coverage on our properties may be inadequate. We currently
carry comprehensive insurance on all of our properties, including insurance for
liability, fire and flood. Our existing insurance policies expire in July 2002.
In addition, insurance companies may no longer offer coverage against certain
types of losses, such as losses due to terrorist acts and toxic mold, or, if
offered, these types of insurance may be prohibitively expensive. If any or all
of the foregoing should occur, we may not have insurance coverage against
certain types of losses and/or there may be decreases in the limits of
insurance available. Should an uninsured loss or a loss in excess of our
insured limits occur, we could lose all or a portion of the capital we have
invested in a property or properties, as well as the anticipated future revenue
from the property or properties. If any of our properties were to experience a
catastrophic loss, it could seriously disrupt our operations, delay revenue and
result in large expenses to repair or rebuild the property. Such events could
adversely affect our ability to make distributions to our stockholders.
We may be unable to repay or refinance our existing indebtedness. We are
subject to risks normally associated with debt financing, such as the
insufficiency of cash flow to meet required payment obligations and the
inability to refinance existing indebtedness. A portion of our existing
indebtedness will become due in the next several years. If our debt cannot be
paid, refinanced or extended at maturity, in addition to our failure to repay
our debt, we may not be able to make distributions to stockholders at expected
levels or at all. Furthermore, if any refinancing is done at higher interest
rates, the increased interest expense could adversely affect our cash flow and
ability to make distributions to stockholders. If we do not meet our mortgage
financing obligations, any properties securing such indebtedness could be
foreclosed on, which would have a material adverse effect our cash flow and
ability to make distributions and, depending on the number of properties
foreclosed on, could threaten our continued viability.
We may be subject to taxation as a regular corporation if we fail to
maintain our REIT status. Our failure to qualify as a REIT would have serious
adverse consequences to our stockholders. Many of the requirements for taxation
as a REIT, however, are highly technical and complex. The determination that we
are a REIT requires an analysis of various factual matters and circumstances
that may not be totally within our control. For example, to qualify as a REIT,
at least 95% of our gross income must come from certain sources that are
itemized in the REIT tax laws. We are also required to distribute to
stockholders at least 90% of our REIT taxable income, excluding capital gains.
The fact that we hold our assets through the Operating Partnership and its
subsidiaries further complicates the application of the REIT requirements. Even
a technical or inadvertent mistake could jeopardize our REIT status.
Furthermore, Congress and the IRS might change the tax laws and regulations,
and the courts might issue new rulings that make it more difficult, or
impossible, for us to remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income
tax at regular corporate rates. Also, unless the IRS granted us relief under
certain statutory provisions, we would remain disqualified as a REIT for four
years following the year we first failed to qualify. If we failed to qualify as
a REIT, we would have to pay significant income taxes and would therefore have
less money available for investments or for distributions to stockholders. This
would likely have a significant adverse effect of the value of our securities.
In addition, we would no longer be required to make any distributions to
stockholders.
We may need to borrow money or sell assets in order to make required
distributions. In order to make the distributions required to maintain our REIT
status, we may need to borrow funds. To obtain the favorable tax treatment
associated with REIT qualification, we generally will be required to distribute
to stockholders at least 90% of our annual REIT taxable income, excluding net
capital gain. We intend to make distributions to stockholders to comply with
the distribution provisions of the Internal Revenue Code and to avoid income
and other taxes. Differences in timing between the receipt of income and the
payment of expenses in arriving at taxable income and the effect of required
debt amortization payments could require us to borrow funds on a short-term
basis or liquidate funds on adverse terms to meet the REIT qualification
distribution requirements.
Because provisions contained in Maryland law, our charter and our bylaws
may have an anti-takeover effect, investors may be prevented from receiving a
"control premium" for their shares. Provisions contained in our charter and
bylaws, as well as Maryland general corporation law, may have anti-takeover
effects that delay, defer or prevent a takeover attempt, which may prevent
stockholders from receiving a "control premium" for their shares. For example,
these provisions may defer or prevent tender offers for our common stock or
purchases of large blocks of our common stock, thereby limiting the
opportunities for our stockholders to receive a premium for their common stock
over then-prevailing market prices. These provisions include the following:
10
. Ownership limit. Our charter prohibits direct or constructive
ownership by any person of more than 9.8% of our outstanding
capital stock. Any attempt to own or transfer shares of our capital
stock in excess of the ownership limit without the consent of our
board of directors will be void.
. Preferred stock. Our charter authorizes our board of directors to
issue preferred stock in one or more classes and to establish the
preferences and rights of any class of preferred stock issued.
These actions can be taken without soliciting stockholder approval.
The issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change
in control were in our stockholders' best interests.
. Staggered board. Our board of directors is divided into three
classes. As a result each director serves for a three-year term.
This staggering of our board may discourage offers for us or make
an acquisition of us more difficult, even when an acquisition is in
the best interest of our stockholders.
. Maryland control share acquisition statute. Maryland law limits the
voting rights of "control shares" of a corporation in the event of
a "control share acquisition."
. Maryland unsolicited takeover statute. Under Maryland law, our
board of directors could adopt various anti-takeover provisions
without the consent of stockholders. The adoption of such measures
could discourage offers for us or make an acquisition of us more
difficult, even when an acquisition is in the best interest of our
stockholders.
. Anti-Takeover Protections of Operating Partnership Agreement. The
Operating Partnership Agreement contains certain provisions that
may require a potential acquiror to maintain the Operating
Partnership structure and maintain the limited partners' right to
continue to hold Common Units with future redemption rights. These
provisions might limit the possibility of a change of control
transaction involving the Company, even if such a transaction would
be in your best interest.
. Dilutive Effect of Shareholders' Rights Plan. On October 4, 1997,
our board of directors adopted a Shareholders' Rights Plan and
declared a distribution of one preferred share purchase right for
each outstanding share of Common Stock. The rights were issued on
October 16, 1997 to each stockholder of record on such date. Since
the rights would cause substantial dilution to a person or group
that attempts to acquire us on terms of which our board of
directors does not approve, such rights could discourage offers for
us or make an acquisition of us more difficult, even when an
acquisition is in the best interest of our stockholders. The rights
should not interfere with any merger or other business combination
the board of directors approves since we may redeem the rights for
$.01 per right, prior to the time that a person or group has
acquired beneficial ownership of 15% or more of the Common Stock.
11
ITEM 2. PROPERTIES
GENERAL
As of December 31, 2001, we owned 498 in-service office, industrial and
retail properties, encompassing approximately 37.2 million rentable square
feet, and 213 apartment units. The following table sets forth information about
our wholly-owned in-service properties at December 31, 2001:
Percentage of December 2001 Rental Revenue
Rentable --------------------------------------------
Square Feet/(1)/ Occupancy Office Industrial Retail Total
-------------- --------- ------ ---------- ------ --------
Piedmont Triad....... 8,233,000 92.3% 6.5% 4.4% -- 10.9%
Atlanta.............. 6,484,000 89.9 9.9 3.3 -- 13.2
Tampa................ 4,383,000 93.5 15.3 0.3 -- 15.6
Research Triangle.... 3,923,000 91.9 12.6 0.2 -- 12.8
Kansas City.......... 2,857,000 94.7 4.7 -- 7.8% 12.5
Nashville............ 2,787,000 90.3 10.4 -- -- 10.4
Richmond............. 2,703,000 98.4 8.4 0.4 -- 8.8
Charlotte............ 2,229,000 89.1 4.5 0.6 -- 5.1
Greenville........... 1,216,000 86.5 3.3 0.2 -- 3.5
Memphis.............. 1,134,000 91.1 4.1 -- -- 4.1
Orlando.............. 664,000 90.5 1.3 -- -- 1.3
Columbia............. 426,000 77.6 1.2 -- -- 1.2
Other................ 182,000 99.4 0.6 -- -- 0.6
---------- ---- ---- --- --- -----
Total 37,221,000 91.9% 82.8% 9.4% 7.8% 100.0%
========== ==== ==== === === =====
- ---------------
/(1)/ Excludes Kansas City's basement space.
12
The following table sets forth information about our wholly-owned
in-service and development properties as of December 31, 2001 and 2000:
December 31, 2001 December 31, 2000
----------------------------- -----------------------------
Percent Percent
Rentable Leased/ Rentable Leased/
Square Feet Pre-Leased Square Feet Pre-Leased
----------- ---------- ----------- ----------
In-Service
Office............................ 24,945,000 91.9% 24,177,000 94.0%
Industrial........................ 10,640,000 91.9 10,357,000 95.0
Retail /(1)/...................... 1,636,000 96.0 1,649,000 94.4
----------- ---- ----------- ----
Total or Weighted Average...... 37,221,000 91.9% 36,183,000 94.1%
=========== ==== =========== ====
Development
Completed -- Not Stabilized
Office............................ 1,490,000 58.4% 547,000 84.0%
Industrial........................ 200,000 39.2 122,000 90.0
Retail............................ 20,000 90.0 -- --
----------- ---- ----------- ----
Total or Weighted Average...... 1,710,000 56.5% 669,000 85.0%
=========== ==== =========== ====
In-Process
Office............................ 739,000 74.9% 1,998,000 56.0%
Industrial........................ -- -- 186,000 14.0
Retail............................ -- -- -- --
----------- ---- ----------- ----
Total or Weighted Average...... 739,000 74.9% 2,184,000 53.0%
=========== ==== =========== ====
Total
Office............................ 27,174,000 26,722,000
Industrial........................ 10,840,000 10,665,000
Retail /(1)/....................... 1,656,000 1,649,000
----------- -----------
Total.......................... 39,670,000 39,036,000
=========== ===========
- -----------------
/(1)/ Excludes Kansas City's basement space.
Tenants
The following table sets forth information concerning the 20 largest
tenants of our wholly-owned properties as of December 31, 2001:
Number Annualized Annualized
Tenant of Leases Rental Revenue /(1)/ Rental Revenue
- ------ --------- -------------------- --------------
($ in thousands)
AT&T............................... 12 $ 14,432 3.0%
Intermedia Communications /(2)/.... 5 14,329 2.9
Federal Government................. 56 11,761 2.4
Capital One Services............... 9 10,150 2.1
Caterpillar Financial Services..... 1 7,677 1.6
IBM................................ 7 7,513 1.5
State of Georgia................... 10 6,888 1.4
PricewaterhouseCoopers............. 7 6,841 1.4
US Air............................. 9 6,621 1.4
Northern Telecom, Inc.............. 3 5,331 1.1
WorldCom........................... 17 4,711 1.0
Bell South......................... 13 4,652 1.0
Sara Lee........................... 8 4,384 0.9
DST Realty, Inc.................... 12 3,223 0.7
BB&T............................... 9 3,160 0.6
Lockton Companies, Inc............. 1 3,060 0.6
Volvo.............................. 5 2,946 0.6
International Paper Co............. 10 2,886 0.6
Romac.............................. 1 2,867 0.6
Business Telecom, Inc.............. 4 2,775 0.6
--- --------- ----
Total.............................. 199 $ 126,207 26.0%
=== ========= ====
- -----------------
/(1)/ Annualized Rental Revenue is December 2001 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12.
/(2)/ A wholly-owned subsidiary of WorldCom.
13
The following tables set forth information about leasing activities at our
wholly-owned in-service properties (excluding apartment units) for the years
ended December 31, 2001, 2000 and 1999.
2001
-----------------------------------------------
Office Industrial Retail
------------- ------------- ------------
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases) 538 107 44
Rentable square footage leased...................... 2,782,331 1,524,276 125,992
Average per rentable square foot over the
lease term:......................................
Base rent ....................................... $ 17.24 $ 4.99 $ 21.06
Tenant improvements.............................. (1.10) (0.27) (1.16)
Leasing commissions.............................. (0.70) (0.11) (0.61)
Rent concessions ............................... (0.06) - (0.06)
-------------- ------------ ------------
Effective rent................................... $ 15.38 $ 4.61 $ 19.23
Expense stop /(1)/................................. (3.84) (0.43) -
-------------- ------------ ------------
Equivalent effective net rent.................... $ 11.54 $ 4.18 $ 19.23
============== ============ ============
Average term in years............................... 4.8 2.6 7.5
============== ============ ============
Rental Rate Trends:
Average final rate with expense
Pass-throughs.................................... $ 15.66 $ 4.76 $ 14.08
Average first year cash rental rate................. $ 16.34 $ 4.73 $ 18.06
-------------- ------------ ------------
Percentage increase................................. 4.34% (0.80%) 28.26%
============== ============ ============
Capital Expenditures Related to Re-leased Space:
Tenant Improvements:
Total dollars committed under
signed leases.................................... $ 7,648,567 $ 468,962 $ 424,192
Rentable square feet............................. 2,782,331 1,524,276 125,992
-------------- ------------ ------------
Per rentable square foot......................... $ 2.75 $ 0.31 $ 3.37
============== ============ ============
Leasing Commissions:
Total dollars committed under
Signed leases.................................... $ 7,648,567 $ 468,962 $ 424,192
Rentable square feet............................. 2,782,331 1,524,276 125,992
-------------- ------------ ------------
Per rentable square foot......................... $ 2.75 $ 0.31 $ 3.37
============== ============ ============
Total:
Total dollars committed under
Signed leases.................................... $ 24,883,337 $ 2,004,013 $ 1,950,745
Rentable square feet............................. 2,782,331 1,524,276 125,992
-------------- ------------ ------------
Per rentable square foot......................... $ 8.94 $ 1.31 $ 15.48
============== ============ ============
2000
-----------------------------------------------
Office Industrial Retail
------------- ------------- ------------
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases) 801 174 71
Rentable square footage leased...................... 4,166,054 2,373,244 162,866
Average per rentable square foot over the
lease term:
Base rent........................................ $ 17.05 $ 4.64 $ 21.99
Tenant improvements.............................. (1.20) (0.24) (1.41)
Leasing commissions.............................. (0.50) (0.12) (0.60)
Rent concessions................................. (0.03) - -
-------------- ------------ ------------
Effective rent................................... $ 15.32 $ 4.28 $ 19.98
Expense stop /(1)/............................... (4.76) (0.23) (0.03)
-------------- ------------ ------------
Equivalent effective net rent.................... $ 10.56 $ 4.05 $ 19.95
============== ============ ============
Average term in years............................... 4.6 4.1 7.0
============== ============ ============
Rental Rate Trends:
Average final rate with expense
Pass-throughs.................................... $ 15.56 $ 4.16 $ 15.71
Average first year cash rental rate................. $ 16.33 $ 4.46 $ 19.89
-------------- ------------ ------------
Percentage increase................................. 4.90% 7.20% 26.60%
============== ============ ============
Capital Expenditures Related to Re-leased Space:
Tenant Improvements:
Total dollars committed under
signed leases.................................... $ 24,215,684 $ 2,279,129 $ 2,252,002
Rentable square feet............................. 4,166,054 2,373,244 162,866
-------------- ------------ ------------
Per rentable square foot......................... $ 5.81 $ 0.96 $ 13.83
============== ============ ============
Leasing Commissions:
Total dollars committed under
Signed leases.................................... $ 9,398,696 $ 1,203,586 $ 530,437
Rentable square feet............................. 4,166,054 2,373,244 162,866
-------------- ------------ ------------
Per rentable square foot............................ $ 2.26 $ 0.51 $ 3.26
============== ============ ============
Total:
Total dollars committed under
Signed leases.................................... $ 33,614,380 $ 3,482,715 $ 2,782,439
Rentable square feet............................. 4,166,054 2,373,244 162,866
-------------- ------------ ------------
Per rentable square foot......................... $ 8.07 $ 1.47 $ 17.08
============== ============ ============
1999
-----------------------------------------------
Office Industrial Retail
------------- ------------- ------------
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases) 1,051 249 101
Rentable square footage leased...................... 5,086,408 2,786,017 378,304
Average per rentable square foot over the
lease term:
Base rent........................................ $ 15.58 $ 5.35 $ 17.24
Tenant improvements.............................. (0.82) (0.28) (1.02)
Leasing commissions.............................. (0.39) (0.13) (0.44)
Rent concessions................................. (0.03) (0.01) (0.01)
-------------- ------------ ------------
Effective rent................................... $ 14.34 $ 4.93 $ 15.77
Expense stop /(1)/............................... (4.19) (0.28) (0.07)
-------------- ------------ ------------
Equivalent effective net rent.................... $ 10.15 $ 4.65 $ 15.70
============== ============ ============
Average term in years............................... 4.6 3.7 6.4
============== ============ ============
Rental Rate Trends:
Average final rate with expense
Pass-throughs.................................... $ 15.13 $ 5.05 $ 12.21
Average first year cash rental rate................. $ 15.68 $ 5.24 $ 16.28
-------------- ------------ ------------
Percentage increase................................. 3.64% 3.76% 33.33%
============== ============ ============
Capital Expenditures Related to Re-leased Space:
Tenant Improvements:
Total dollars committed under
signed leases.................................... $ 21,748,441 $ 3,621,621 $ 4,589,543
Rentable square feet............................. 5,086,408 2,786,017 378,304
-------------- ------------ ------------
Per rentable square foot......................... $ 4.28 $ 1.30 $ 12.13
============== ============ ============
Leasing Commissions:
Total dollars committed under
Signed leases.................................... $ 8,990,333 $ 1,336,828 $ 1,069,227
Rentable square feet............................. 5,086,408 2,786,017 378,304
-------------- ------------ ------------
Per rentable square foot......................... $ 1.77 $ 0.48 $ 2.83
============== ============ ============
Total:
Total dollars committed under
Signed leases.................................... $ 30,738,774 $ 4,958,449 $ 5,658,770
Rentable square feet............................. 5,086,40 2,786,017 378,304
-------------- ------------ ------------
Per rentable square foot......................... $ 6.04 $ 1.78 $ 14.96
============== ============ ============
- -----------------
/(1)/ "Expense stop" represents operating expenses (generally including taxes,
utilities, routine building expense and common area maintenance) for
which we will not be reimbursed by our tenants.
14
The following tables set forth scheduled lease expirations for executed
leases at our wholly-owned properties (excluding apartment units) as of
December 31, 2001, assuming no tenant exercises renewal options.
OFFICE PROPERTIES:
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases
- -------- -------- --------------- --------------- --------------- ----------- ---------------
($ in thousands)
2002 697 3,246,295 13.9% $ 54,591 $16.82 13.6%
2003 563 3,659,444 15.8 62,603 17.11 15.6
2004 468 2,798,023 12.0 48,934 17.49 12.2
2005 451 3,131,115 13.4 54,953 17.55 13.6
2006 419 2,783,494 12.0 48,503 17.43 12.0
2007 66 942,377 4.0 14,936 15.85 3.7
2008 86 1,859,431 8.0 28,101 15.11 7.0
2009 26 1,136,417 4.9 18,990 16.71 4.7
2010 41 1,419,478 6.1 26,317 18.54 6.5
2011 38 882,132 3.8 18,044 20.45 4.5
Thereafter 84 1,428,058 6.1 26,665 18.67 6.6
------ ---------- ----- -------- ------- -------
2,939 23,286,264 100.0% $402,637 $17.29 100.0%
====== ========== ===== ======== ======= =======
INDUSTRIAL PROPERTIES:
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases
- -------- -------- --------------- --------------- ---------------- ----------- --------------
($ in thousands)
2002 133 2,104,382 21.9% $ 9,337 $4.44 20.5%
2003 117 1,284,888 13.3 6,701 5.22 14.6
2004 89 2,544,294 26.5 10,254 4.03 22.5
2005 42 725,542 7.5 4,253 5.86 9.3
2006 39 757,279 7.9 4,585 6.05 10.0
2007 16 1,177,306 12.2 4,903 4.16 10.7
2008 8 252,274 2.6 1,611 6.39 3.5
2009 6 268,813 2.8 1,890 7.03 4.1
2010 4 182,746 1.9 1,063 5.82 2.3
2011 1 33,555 0.3 159 4.74 0.3
Thereafter 11 297,519 3.1 986 3.31 2.2
---- ---------- ----- -------- ----- ------
466 9,628,598 100.0% $ 45,742 $4.75 100.0%
==== ========== ===== ======== ===== ======
- -----------------
/(1)/ Annual Rents Under Expiring Leases are December 2001 rental revenue (base
rent plus operating expense pass-throughs) multiplied by 12.
15
RETAIL PROPERTIES:
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases
- --------- -------- --------------- --------------- --------------- ----------- ------------
($ in thousands)
2002 40 106,061 6.8% $ 1,631 $15.38 4.3%
2003 48 128,732 8.2 2,973 23.09 7.9
2004 35 154,003 9.8 2,202 14.30 5.8
2005 51 161,312 10.3 3,119 19.34 8.3
2006 34 106,658 6.8 2,658 24.92 7.0
2007 25 85,895 5.5 1,891 22.02 5.0
2008 24 108,038 6.9 3,764 34.84 10.0
2009 17 138,661 8.9 2,813 20.29 7.4
2010 20 125,470 8.0 3,195 25.46 8.5
2011 15 82,880 5.3 1,798 21.69 4.8
Thereafter 29 366,356 23.5 11,720 31.99 31.0
---- --------- ----- ------- ------ ------
338 1,564,066 100.0% $37,764 $24.14 100.0%
==== ========= ===== ======= ====== ======
TOTAL:
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Foot for Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases /(1)/ Expirations Leases
- --------- -------- --------------- --------------- ---------------- ----------- ------------
($ in thousands)
2002 870 5,456,738 15.8% $ 65,559 $12.01 13.5%
2003 728 5,073,064 14.7 72,277 14.25 14.8
2004 592 5,496,320 15.9 61,390 11.17 12.6
2005 544 4,017,969 11.7 62,325 15.51 12.8
2006 492 3,647,431 10.6 55,746 15.28 11.5
2007 107 2,205,578 6.4 21,730 9.85 4.5
2008 118 2,219,743 6.4 33,476 15.08 6.9
2009 49 1,543,891 4.5 23,693 15.35 4.9
2010 65 1,727,694 5.0 30,575 17.70 6.3
2011 54 998,567 2.9 20,001 20.03 4.1
Thereafter 124 2,091,933 6.1 39,371 18.82 8.1
----- ---------- ----- -------- ------ -----
3,743 34,478,928 100.0% $486,143 $14.10 100.0%
===== ========== ===== ======== ====== =====
- -----------------
/(1)/ Annual Rents Under Expiring Leases are December 2001 rental revenue (base
rent plus operating expense pass-throughs) multiplied by 12.
16
DEVELOPMENT LAND
We estimate that we can develop approximately 13.7 million square feet of
office, industrial and retail space on our wholly-owned development land. All
of this development land is zoned and available for office, industrial or
retail development, substantially all of which has utility infrastructure
already in place. We believe that our commercially zoned and unencumbered land
in existing business parks gives us a development advantage over other
commercial real estate development companies in many of our markets. Any future
development, however, is dependent on the demand for industrial or office space
in the area, the availability of favorable financing and other factors, and no
assurance can be given that any construction will take place on the development
land. In addition, if construction is undertaken on the development land, we
will be subject to the risks associated with construction activities, including
the risk that occupancy rates and rents at a newly completed property may not
be sufficient to make the property profitable, construction costs may exceed
original estimates and construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction expense.
ITEM 3. LEGAL PROCEEDINGS
We are a party to a variety of legal proceedings arising in the ordinary
course of our business. We believe that we are adequately covered by insurance
and indemnification agreements. Accordingly, none of such proceedings are
expected to have a material adverse effect on our business, financial condition
and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to our executive
officers:
Name Age Position and Background
- ---- --- -----------------------
Ronald P. Gibson 57 Director, President and Chief Executive Officer.
Mr. Gibson is one of our founders and has served as president or managing
partner of our predecessor since its formation in 1978.
Edward J. Fritsch 43 Director, Executive Vice President, Chief Operating Officer and Secretary.
Mr. Fritsch joined us in 1982 and was a partner of our predecessor.
Gene H. Anderson 56 Director and Senior Vice President.
Mr. Anderson manages the operations of our Georgia properties and the
Piedmont Triad division of North Carolina. Mr. Anderson was the founder
and president of Anderson Properties, Inc. prior to its merger with the
Company.
Michael F. Beale 48 Senior Vice President.
Mr. Beale is responsible for our operations in Florida. Prior to joining us in
2000, Mr. Beale was vice president of Koger Equity, Inc.
Michael E. Harris 52 Senior Vice President.
Mr. Harris is responsible for our operations in Tennessee, Missouri, Kansas
and Charlotte. Mr. Harris was executive vice president of Crocker Realty
Trust prior to its merger with us. Before joining Crocker Realty Trust, Mr.
Harris served as senior vice president, general counsel and chief financial
officer of Towermarc Corporation, a privately owned real estate development
firm.
Marcus H. Jackson 45 Senior Vice President.
Mr. Jackson is responsible for our operations in Virginia and the Research
Triangle division of North Carolina. Prior to joining us in 1998, Mr. Jackson
was senior vice president of Compass Development and Construction
Services.
Carman J. Liuzzo 41 Vice President, Chief Financial Officer and Treasurer.
Prior to joining us in 1994, Mr. Liuzzo was vice president and chief
accounting officer for Boddie-Noell Enterprises, Inc. and Boddie-Noell
Restaurant Properties, Inc. Mr. Liuzzo is a certified public accountant.
Mack D. Pridgen III 52 Vice President and General Counsel.
Prior to joining us in 1997, Mr. Pridgen was a partner with Smith Helms
Mulliss & Moore, L.L.P.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Stock has been traded on the New York Stock Exchange ("NYSE")
under the symbol "HIW" since the Company's initial public offering. The
following table sets forth the quarterly high and low stock prices per share
reported on the NYSE for the quarters indicated and the distributions paid per
share during such quarter.
Quarter 2001 2000
-------------------------------- --------------------------------
Ended: High Low Distribution High Low Distribution
- ----- ----- ----- ------------ ----- ----- ------------
March 31 $ 25.99 $ 24.00 $ .57 $ 23.50 $ 20.25 $ .555
June 30 26.65 24.15 .57 25.94 21.31 .555
September 30 26.67 23.45 .585 27.19 23.50 .57
December 31 26.42 23.52 .585 24.94 21.25 .57
- ------------------
On February 26, 2002, the last reported stock price of the Common Stock on
the NYSE was $26.70 per share and the Company had 1,474 stockholders of record.
The Company intends to continue to pay regular quarterly distributions to
holders of shares of Common Stock and holders of Common Units. Although the
Company intends to maintain its current distribution rate, future distributions
by the Company will be at the discretion of the Board of Directors and will
depend on the actual funds from operations of the Company, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code and such other factors as the
Board of Directors deems relevant.
During 2001, the Company's Common Stock distributions totaled
$125,380,000, $8,924,000 of which represented return of capital for income tax
purposes. In accordance with the 1999 Tax Relief Extension Act, the 95.0%
distribution requirement was reduced to 90.0% beginning in 2001. The minimum
distribution per share of Common Stock required to maintain REIT status
(excluding any distribution of net capital gains) was approximately $1.52 per
share in 2001 and $1.54 per share in 2000.
The Company has instituted a Dividend Reinvestment and Stock Purchase Plan
under which holders of Common Stock may elect to automatically reinvest their
distributions in additional shares of Common Stock and may make optional cash
payments for additional shares of Common Stock. The Company may issue
additional shares of Common Stock or repurchase Common Stock in the open market
for purposes of satisfying its obligations under the Dividend Reinvestment and
Stock Purchase Plan.
In August 1997, the Company instituted an Employee Stock Purchase Plan for
all active employees. At the end of each three-month offering period, each
participant's account balance is applied to acquire shares of Common Stock at
85.0% of the market value of the Common Stock, calculated as the lower of the
average closing price on the NYSE on the five consecutive days preceding the
first day of the quarter or the five days preceding the last day of the
quarter. A participant may contribute up to 25.0% of their pay. During 2001,
employees purchased 40,935 shares of Common Stock under the Employee Stock
Purchase Plan.
19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information for the Company as of and for the years ended December 31, 2001,
2000, 1999, 1998 and 1997 ($ in thousands, except per share amounts):
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Operating Data:
Total revenue.................................. $ 540,615 $ 566,431 $ 584,935 $ 512,471 $ 274,470
Rental property operating expenses............. 154,942 159,767 174,075 154,323 76,743
General and administrative..................... 21,404 21,864 22,345 20,776 10,216
Interest expense............................... 108,501 112,827 117,134 97,011 47,394
Depreciation and amortization.................. 121,067 119,443 112,347 91,705 47,533
----------- ----------- ----------- ----------- -----------
Income before cost of unsuccessfultransactions,
Gain on disposition of land and depreciable
assets, minority interest and extraordinary
item......................................... 134,701 152,530 159,034 148,656 92,584
Cost of unsuccessful transactions.............. - - (1,500) - -
Gain on disposition of land and depreciable
assets....................................... 16,172 4,659 8,679 1,716 -
----------- ----------- ----------- ----------- -----------
Income before minority interest and
Extraordinary item........................... 150,873 157,189 166,213 150,372 92,584
Minority interest.............................. (18,948) (18,991) (20,779) (24,335) (15,106)
----------- ----------- ----------- ----------- -----------
Income before extraordinary item............... 131,925 138,198 145,434 126,037 77,478
Extraordinary item-loss on early
Extinguishment of debt....................... (714) (4,711) (7,341) (387) (5,799)
----------- ----------- ----------- ----------- -----------
Net income..................................... 131,211 133,487 138,093 125,650 71,679
Dividends on preferred stock................... (31,500) (32,580) (32,580) (30,092) (13,117)
----------- ----------- ----------- ----------- -----------
Net income available for common shareholders... $ 99,711 $ 100,907 $ 105,513 $ 95,558 $ 58,562
=========== =========== =========== =========== ===========
Net income per common share - basic............ $ 1.84 $ 1.70 $ 1.72 $ 1.74 $ 1.51
=========== =========== =========== =========== ===========
Net income per common share - diluted.......... $ 1.83 $ 1.70 $ 1.71 $ 1.74 $ 1.50
=========== =========== =========== =========== ===========
Distributions declared per common share........ $ 2.31 $ 2.25 $ 2.19 $ 2.10 $ 1.98
=========== =========== =========== =========== ===========
Balance Sheet Data
(at end of period):
Net real estate assets......................... $ 3,280,155 $ 3,128,259 $ 3,673,338 $ 3,924,192 $ 2,614,654
Total assets.................................. 3,648,286 3,701,602 4,016,197 4,314,333 2,722,306
Total mortgages and notes payable.............. 1,719,230 1,587,019 1,766,177 2,008,716 978,558
Other Data:
Number of in-service properties................ 498 493 563 658 481
Total rentable square feet..................... 37,221,000 36,183,000 38,976,000 44,642,000 30,721,000
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the accompanying consolidated financial statements and related notes contained
elsewhere in this Annual Report on Form 10-K.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Annual Report on Form 10-K may contain
forward-looking statements. Such statements include, in particular, statements
about our plans, strategies and prospects under this section and under the
heading "Business". You can identify forward-looking statements by our use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. Although we believe that our
plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement:
. speculative development activity by our competitors in our
existing markets could result in an excessive supply of office,
industrial and retail properties relative to tenant demand;
. the financial condition of our tenants could deteriorate;
. the costs of our development projects could exceed our original
estimates;
. we may not be able to complete development, acquisition,
reinvestment, disposition or joint venture projects as quickly or
on as favorable terms as anticipated;
. we may not be able to lease or release space quickly or on as
favorable terms as old leases;
. we may have incorrectly assessed the environmental condition of
our properties;
. an unexpected increase in interest rates would increase our debt
service costs;
. we may not be able to continue to meet our long-term liquidity
requirements on favorable terms;
. we could lose key executive officers; and
. our southeastern and midwestern markets may suffer additional
declines in economic growth.
This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
"Business - Risk Factors" set forth elsewhere in this Annual Report.
Given these uncertainties, we caution you not to place undue reliance on
forward-looking statements. We undertake no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
OVERVIEW
We are a self-administered and self-managed equity REIT that began
operations through a predecessor in 1978. Since the Company's initial public
offering in 1994, we have evolved into one of the largest owners and operators
of suburban office, industrial and retail properties in the southeastern and
midwestern United States. At December 31, 2001, we:
. owned 498 in-service office, industrial and retail properties,
encompassing approximately 37.2 million rentable square feet and
213 apartment units;
21
. owned an interest (50% or less) in 74 in-service office and
industrial properties, encompassing approximately 7.2 million
rentable square feet and 418 apartment units;
. owned 1,327 acres (and have agreed to purchase an additional eight
acres over the next year) of undeveloped land suitable for future
development; and
. were developing an additional 25 properties, which will encompass
approximately 2.8 million rentable square feet (including three
properties encompassing 347,000 rentable square feet that we are
developing with our joint venture partners).
The following summarizes our capital recycling program during the past
three years ending December 31, 2001:
2001 2000 1999 Total
-------- ------- ------- -------
Office, Industrial and Retail Properties
(rentable square feet in thousands)
Dispositions /(1)/..................... (268) (4,743) (7,595) (12,606)
Contributions to Joint Ventures /(1)/.. (118) (2,199) (1,198) (3,515)
Developments Placed In-Service......... 1,351 3,480 2,167 6,998
Acquisitions........................... 72 669 960 1,701
-------- ------- ------- -------
Net Change in Wholly-owned
In-Service Properties................ 1,037 (2,793) (5,666) (7,422)
======== ======= ======= =======
Apartment Properties
(in units)
Dispositions........................... (1,672) -- -- (1,672)
======== ======= ======= =======
- -----------------
/(1)/ Excludes wholly-owned development properties sold or contributed to joint
ventures.
In addition to the above property activity, we repurchased $148.8 million,
$101.8 million and $25.5 million of Common Stock and Common Units during 2001,
2000 and 1999, respectively, and $18.5 million of Preferred Stock during 2001.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 2001, the Company owned
87.7% of the Common Units in the Operating Partnership.
22
RESULTS OF OPERATIONS
The following table sets forth information regarding our results of
operations for the years ended December 31, 2001, 2000 and 1999 ($ in millions):
Year Ended December 31, 2001 2000
-------------------------- to 2000 to 1999
2001 2000 1999 $ Change $ Change
--------- ------- ------- ---------- ---------
Revenue:
Rental property.................................. $ 506.8 $543.4 $566.8 $ (36.6) $ (23.4)
Equity in earnings of unconsolidated affiliates.. 8.9 3.8 1.2 5.1 2.6
Interest and other income........................ 24.9 19.2 16.9 5.7 2.3
--------- ------- ------- ---------- ---------
Total revenue 540.6 566.4 584.9 (25.8) (18.5)
Operating expenses:................................
Rental property.................................. 154.9 159.8 174.1 (4.9) (14.3)
Depreciation and amortization.................... 121.1 119.4 112.3 1.7 7.1
Interest expense:
Contractual.................................... 106.5 110.3 114.3 (3.8) (4.0)
Amortization of deferred financing costs....... 2.0 2.5 2.8 (0.5) (0.3)
--------- ------- ------- ---------- ---------
108.5 112.8 117.1 (4.3) (4.3)
General and administrative....................... 21.4 21.9 22.4 (0.5) (0.5)
--------- ------- ------- ---------- ---------
Income before gain on disposition of land
and depreciable assets, minority
interest and extraordinary item.............. 134.7 152.5 159.0 (17.8) (6.5)
Cost of unsuccessful transactions.............. -- -- (1.5) -- 1.5
Gain on disposition of land and
depreciable assets........................... 16.2 4.7 8.7 11.5 (4.0)
--------- ------- ------- ---------- ---------
Income before minority interest and
extraordinary item........................... 150.9 157.2 166.2 (6.3) (9.0)
Minority interest.................................. (19.0) (19.0) (20.8) -- 1.8
--------- ------- ------- ---------- ---------
Income before extraordinary item 131.9 138.2 145.4 (6.3) (7.2)
Extraordinary item -- loss on early extinguishment
of debt......................................... (0.7) (4.7) (7.3) 4.0 2.6
--------- ------- ------- ---------- ---------
Net income..................................... 131.2 133.5 138.1 (2.3) (4.6)
Dividends on preferred shares...................... (31.5) (32.6) (32.6) 1.1 --
--------- ------- ------- ---------- ---------
Net income available for common
Shareholders................................... $ 99.7 $100.9 $105.5 $ (1.2) $ (4.6)
========= ======= ======= ========== =========
Comparison of 2001 to 2000. Revenues from rental operations decreased
$36.6 million, or 6.7%, from $543.4 million for the year ended December 31,
2000 to $506.8 million for the year ended December 31, 2001. The decrease was
primarily a result of the changes in our property portfolio as a result of our
capital recycling program and a decrease in the average occupancy rates from
93.8% in 2000 to 92.9% in 2001, offset in part by an increase in rental rates
on new leases and rollovers. Additionally, due to lower expected economic
growth and increasing market vacancy rates in our core markets, we expect a
slight decline in occupancy during 2002. Our in-service wholly-owned portfolio
increased from 36.2 million square feet at December 31, 2000 to 37.2 million
square feet at December 31, 2001.
Same property rental revenues, which are the revenues of the 449
in-service properties wholly-owned on January 1, 2000, increased $6.7 million,
or 1.66%, for the year ended December 31, 2001, compared to the year ended
December 31, 2000. This increase was primarily a result of scheduled increases
in rental rates on existing leases, an overall increase in rental rates on new
leases and rollovers and an increase in recoveries from tenants. Partially
offsetting the increase in rental revenue was a decrease in termination fees
from $4.0 million in 2000 to $2.5 million in 2001. In addition, same store
straight-line rent declined from $6.3 million in 2000 to $4.4 million in 2001.
Same store average occupancy declined from 94.2% in 2000 to 93.2% in 2001.
During the year ended December 31, 2001, 689 second generation leases
representing 4.4 million square feet of office, industrial and retail space
were executed at an average rate per square foot which was 4.7% higher than the
average rate per square foot on the previous leases.
Rental revenue is comprised of base rent, including termination fees,
recoveries from tenants and parking and other income. Base rental revenue is
recognized on a straight-line basis over the terms of the respective leases.
Accrued straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents
23
currently billed in accordance with lease agreements. Recoveries from tenants
represent reimbursements for certain costs as provided in the lease agreements.
These costs generally include real estate taxes, utilities, insurance, common
area maintenance and other recoverable costs.
Equity in earnings of unconsolidated affiliates increased $5.1 million
from $3.8 million for the year ended December 31, 2000 to $8.9 million for the
year ended December 31, 2001. The increase was primarily a result of the
inclusion of a full year of earnings in 2001 for two joint ventures that were
formed with unrelated investors during May and December of 2000. We account for
our investments in unconsolidated joint ventures using the equity method of
accounting because we do not control these joint venture entities. These
investments are initially recorded at cost, as investments in unconsolidated
affiliates, and are subsequently adjusted for equity in earnings and cash
contributions and distributions. Any difference between the carrying amount of
these investments on our balance sheet and the underlying equity in net assets
is amortized as an adjustment to equity in earnings of unconsolidated
affiliates over 40 years.
Interest and other income increased $5.7 million, or 29.7%, from $19.2
million for the year ended December 31, 2000 to $24.9 million for the year
ended December 31, 2001. The increase resulted from additional interest income
and leasing and management fees earned from our joint ventures during 2001,
partly offset by an adjustment related to the adoption of SFAS 133 (see
Consolidated Financial Statements Note #8) along with other income generated
from our apartments which were sold during 2001.
Rental operating expenses (real estate taxes, utilities, insurance,
repairs and maintenance and other property-related expenses) decreased $4.9
million, or 3.1%, from $159.8 million for the year ended December 31, 2000 to
$154.9 million for the year ended December 31, 2001. The decrease was primarily
a result of the net decrease in our property portfolio as a result of our
capital recycling program along with a decrease in variable expenses related to
lower average occupancy. Rental operating expenses as a percentage of related
revenues increased from 29.4% for the year ended December 31, 2000 to 30.6% for
the year ended December 31, 2001.
Same property rental property expenses, which are the expenses of the 449
in-service properties wholly-owned on January 1, 2000, increased $5.3 million,
or 4.4 %, for the year ended December 31, 2001, compared to the year ended
December 31, 2000. This increase was primarily a result of increases in real
estate taxes, utilities and small increases in various other rental expense
accounts. The increase in real estate taxes is primarily due to higher property
tax assessments.
Depreciation and amortization for the years ended December 31, 2001 and
2000 totaled $121.1 million and $119.4 million, respectively. The increase of
$1.7 million, or 1.4%, was due to an increase in the amortization of leasing
commissions and tenant improvements, partly offset by a decrease in the
depreciation on buildings that resulted from owning fewer properties as a
result of our capital recycling program during 2001 and 2000.
Interest expense decreased $4.3 million, or 3.8 %, from $ 112.8 million
for the year ended December 31, 2000 to $108.5 million for the year ended
December 31, 2001. The decrease was primarily attributable to the decrease in
the weighted average interest rates for the entire year of 2001, partly offset
by an increase in the average outstanding debt in 2001. Interest expense for
the years ended December 31, 2001 and 2000 included $2.0 million and $2.5
million, respectively, of amortization of deferred financing costs and the
costs related to our interest rate hedge contracts.
General and administrative expenses as a percentage of total revenues was
4.0% in 2001 and 3.9% in 2000.
Costs directly related to the development of rental properties are
capitalized. Capitalized development costs include interest, wages, property
taxes, insurance and other project costs incurred during the period of
development. Capitalized interest for the years ended December 31, 2001 and
2000 was $16.9 million and $23.7 million, respectively.
Gain on dispositions of assets increased $11.5 million from $4.7 million
for the year ended December 31, 2000 to $16.2 million for the year ended
December 31, 2001. During 2001, the primary source of the gain was the
disposition of 1,672 apartment units. During 2000, the Jacksonville portfolio
was sold at a loss, which was offset by gains recognized on joint venture
transactions along with dispositions of land and office, industrial, and retail
properties.
24
Income before minority interest and extraordinary item equaled $150.9
million and $157.2 million for the years ended December 31, 2001 and 2000,
respectively. The Company's net income allocated to minority interest totaled
$19.0 million for the years ended December 31, 2001 and 2000, respectively. The
Company recorded $31.5 million and $32.6 million in preferred stock dividends
for each of the years ended December 31, 2001 and 2000, respectively. The
decrease was a result of the $18.5 million repurchase by the Company of its
preferred stock during 2001.
Comparison of 2000 to 1999. Revenues from rental operations decreased
$23.4 million, or 4.1%, from $566.8 million for the year ended December 31,
1999 to $543.4 million for the year ended December 31, 2000. The decrease was
primarily a result of the changes in our portfolio as a result of our capital
recycling program, which was partially offset by an increase in rental rates on
new leases and rollovers and a slight increase in average occupancy from 93.2%
in 1999 to 93.8% in 2000. Our in-service wholly-owned portfolio decreased from
39.0 million square feet at December 31, 1999 to 36.2 million square feet at
December 31, 2000.
Same property rental property revenues, which are the revenues of the 443
in-service properties wholly-owned on January 1, 1999, increased $6.3 million,
or 1.7 %, for the year ended December 31, 2000, compared to the year ended
December 31, 1999. This increase was primarily a result of scheduled increases
in rental rates on existing leases, an overall increase in rental rates on new
leases and rollovers and an increase in termination fees from $3.0 million in
1999 to $4.0 million in 2000. Partially offsetting the increase in rental
revenues was a decrease in same property straight-line rent from $7.0 million
in 1999 to $6.3 million in 2000. Same store average occupancy remained flat at
93.2% for 2000 and 1999.
During the year ended December 31, 2000, 1,046 second generation leases
representing 6.3 million square feet of office, industrial and retail space
were executed at an average rate per square foot which was 5.9% higher than the
average rate per square foot on the expired leases.
Equity in earnings of unconsolidated affiliates increased $2.6 million from
$1.2 million for the year ended December 31, 1999 to $3.8 million for the year
ended December 31, 2000. The increase was primarily a result of the inclusion
of a full year of earnings for a joint venture that was formed with unrelated
investors during 1999 and a partial year of earnings for a joint venture formed
with unrelated investors during 2000.
Interest and other income increased $2.3 million, or 13.6%, from $16.9
million for the year ended December 31, 1999 to $19.2 million for the year
ended December 31, 2000. The increase resulted from additional interest income
related to a $30.0 million note receivable that was recorded as a result of
certain property dispositions in June 1999 and an increase in development fee
income in 2000 related to a joint venture.
Rental operating expenses decreased $14.3 million, or 8.2%, from $174.1
million for the year ended December 31, 1999 to $159.8 million for the year
ended December 31, 2000. The decrease was primarily a result of the net
decrease in our property portfolio as a result of our capital recycling
program. Rental operating expenses as a percentage of related revenues
decreased from 30.7% for the year ended December 31, 1999 to 29.4% for the year
ended December 31, 2000.
Same property rental property expenses, which are the expenses of the 443
in-service properties wholly-owned on January 1, 1999, increased $1.6 million,
or 1.4 %, for the year ended December 31, 2000, compared to the year ended
December 31, 1999. This increase was primarily a result of small increases in
various rental expense accounts.
Depreciation and amortization for the years ended December 31, 2000 and
1999 totaled $119.4 million and $112.3 million, respectively. The increase of
$7.1 million, or 6.3%, was due to an increase in amortization of leasing
commissions and tenant improvements, partly offset by a decrease in
depreciation on buildings that resulted from owning fewer buildings as a result
of our capital recycling program during 1999 and 2000.
Interest expense decreased $4.3 million, or 3.7%, from $117.1 million for
the year ended December 31, 1999 to $112.8 million for the year ended December
31, 2000. The decrease was primarily attributable to the decrease in the
outstanding debt for the entire year of 2000. Interest expense for the years
ended December 31, 2000 and 1999 included $2.5 million and $2.8 million,
respectively, of amortization of deferred financing costs and the costs related
25
to our interest rate hedge contracts. Capitalized interest for the years ended
December 31, 2000 and 1999 was $23.7 million and $29.1 million, respectively.
General and administrative expenses as a percentage of total revenues was
3.8% in 1999 and 3.9% in 2000.
Gain on dispositions of assets decreased $4.0 million from $8.7 million for
the year ended December 31, 1999 to $4.7 million for the year ended December 31,
2000. During 2000, the Jacksonville portfolio was sold at a loss, which was
offset by gains on joint venture transactions along with dispositions of land
and office, industrial, and retail properties. During 1999, the sale of the
Baltimore portfolio along with other office, industrial and retail properties
generated a gain, which was offset by a slight loss on the disposition of the
South Florida portfolio.
Income before minority interest and extraordinary item equaled $157.2
million and $166.2 million for the years ended December 31, 2000 and 1999,
respectively. The Company's net income allocated to minority interest totaled
$19.0 million and $20.8 million for the years ended December 31, 2000 and 1999,
respectively. The Company recorded $32.6 million in preferred stock dividends
for each of the years ended December 31, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows. The following table sets forth the changes in the
Company's cash flows from 2000 to 2001 ($ in thousands):
Year Ended December 31,
----------------------------------
2001 2000 Change
-------------- -------------- --------------
Cash Provided By Operating Activities $ 247,564 $ 256,400 $ (8,836)
Cash (Used in)/Provided By Investing Activities (139,645) 286,212 (425,857)
Cash Used in Financing Activities (212,123) (472,328) 260,205
The decrease in cash provided by operating activities was primarily the
result of our capital recycling program and a decrease in average occupancy
rates for our wholly-owned portfolio. Real estate taxes were higher in 2001
primarily due to higher property assessments. The level of net cash provided by
operating activities is also affected by the timing of receipt of revenues and
payment of expenses.
The increase in cash used for investing activities was primarily a result
of a decrease of $568.6 million in the proceeds from the disposition of real
estate assets in 2001, partly offset by the collection of advances from
subsidiaries of $27.6 million in 2001, the collection of notes receivables in
the amount of $37.2 million in 2001 and the reduction in additions to real
estate assets of $71.3 million in 2001.
The decrease in cash used in financing activities was primarily a result
of a decrease of $307.4 million in net repayments on the unsecured revolving
loan, mortgages and notes payable in 2001 and a $10.1 million decrease in the
payment of distributions on the Common Stock and Common Units and the payment
of dividends on the Preferred Stock, partly offset by an increase of $47.0
million related to the repurchase of Common Stock and Common Units and an
increase of $18.5 million related to the repurchase of Preferred Stock during
2001.
Capitalization. Based on our total market capitalization of $3.66 billion
at December 31, 2001 (at the December 31, 2001 stock price of $25.95 and
assuming the redemption for shares of Common Stock of the 7.4 million Common
Units of minority interest in the Operating Partnership), our debt represented
approximately 47.0% of our total market capitalization. Our total indebtedness
at December 31, 2001 was $1.72 billion and was comprised of $540.1 million of
secured indebtedness with a weighted average interest rate of 8.0% and $1.2
billion of unsecured indebtedness with a weighted average interest rate of
6.4%. We do not intend to reserve funds to retire existing secured or unsecured
debt upon maturity. For a more complete discussion of our long-term liquidity
needs, see "Current and Future Cash Needs."
26
The following table sets forth the maturity schedule of our long-term debt as
of December 31, 2001 ($ in thousands):
---------------------------------------------------
2-3 4-5 6 or more
Total 1 Year Years Years Years
---------- ------- -------- -------- ----------
Fixed Rate Debt:
Unsecured:
MOPPRS /(1)/.................... $ 125,000 $ -- $ -- $ -- $ 125,000
Put Option Notes /(2)/.......... 100,000 -- -- -- 100,000
Notes........................... 706,500 -- 246,500 110,000 350,000
Term Loan....................... 19,165 19,165 -- -- --
Secured:
Mortgages and loans payable..... 536,143 27,664 23,853 91,901 392,725
---------- ------- -------- -------- ----------
Total Fixed Rate Debt............... 1,486,808 46,829 270,353 201,901 967,725
---------- ------- -------- -------- ----------
Variable Rate Debt:
Unsecured:
Revolving Loan.................. 228,500 -- 228,500 -- --
Secured:
Revolving Loan.................. 3,922 -- 3,922 -- --
---------- ------- -------- -------- ----------
Total Variable Rate Debt 232,422 -- 232,422 -- --
---------- ------- -------- -------- ----------
Total Long Term Debt..................... $1,719,230 $46,829 $502,775 $201,901 $ 967,725
========== ======= ======== ========= ==========
- ------------------------
/(1)/ On February 2, 1998, the Operating Partnership sold $125.0 million of
MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1,
2013. The MOPPRS bear an interest rate of 6.835% from the date of
issuance through January 31, 2003. After January 31, 2003, the
interest rate to maturity on such MOPPRS will be 5.715% plus the
applicable spread determined as of January 31, 2003. In connection
with the initial issuance of the MOPPRS, a counter party was granted