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, 2004
Commission file number: 001-13100
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 56-1871668 | |
| (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 x No ¨
The Company has only one class of common stock, par value $0.01 per share, with 53,630,160 shares outstanding as of April 12, 2004.
HIGHWOODS PROPERTIES, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2004
2
PART I—FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
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,” (4) the Operating Partnership’s common partnership interests as “Common Units” and (5) the Operating Partnership’s preferred partnership interests as “Preferred Units.”
The information furnished in the accompanying Consolidated Balance Sheets, Statements of Operations, Statement of Stockholders’ Equity 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 2003 Annual Report on Form 10-K.
3
HIGHWOODS PROPERTIES, INC.
(Unaudited and $ in thousands except per share amounts)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| Assets: |
||||||||
| Real estate assets, at cost: |
||||||||
| Land and improvements |
$ | 443,611 | $ | 397,150 | ||||
| Buildings and tenant improvements |
3,093,094 | 2,912,489 | ||||||
| Development in process |
9,071 | 6,899 | ||||||
| Land held for development |
199,228 | 196,620 | ||||||
| Furniture, fixtures and equipment |
21,950 | 21,818 | ||||||
| 3,766,954 | 3,534,976 | |||||||
| Less—accumulated depreciation |
(566,489 | ) | (542,328 | ) | ||||
| Net real estate assets |
3,200,465 | 2,992,648 | ||||||
| Property held for sale |
38,467 | 55,453 | ||||||
| Cash and cash equivalents |
17,001 | 18,564 | ||||||
| Restricted cash |
8,044 | 6,320 | ||||||
| Accounts receivable, net |
10,737 | 17,827 | ||||||
| Notes receivable |
24,309 | 24,623 | ||||||
| Accrued straight-line rents receivable |
54,732 | 51,189 | ||||||
| Investments in unconsolidated affiliates |
68,553 | 74,665 | ||||||
| Other assets: |
||||||||
| Deferred leasing costs |
114,687 | 110,488 | ||||||
| Deferred financing costs |
46,396 | 46,198 | ||||||
| Prepaid expenses and other |
14,287 | 13,799 | ||||||
| 175,370 | 170,485 | |||||||
| Less—accumulated amortization |
(89,155 | ) | (84,965 | ) | ||||
| Other assets, net |
86,215 | 85,520 | ||||||
| Total Assets |
$ | 3,508,523 | $ | 3,326,809 | ||||
| Liabilities and Stockholders’ Equity: |
||||||||
| Mortgages and notes payable |
$ | 1,767,239 | $ | 1,558,758 | ||||
| Accounts payable, accrued expenses and other liabilities |
108,199 | 111,772 | ||||||
| Total Liabilities |
1,875,438 | 1,670,530 | ||||||
| Minority interest |
161,884 | 165,250 | ||||||
| Stockholders’ Equity: |
||||||||
| Preferred stock, $.01 par value, 50,000,000 authorized shares; 8 5/8% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 104,945 shares issued and outstanding at March 31, 2004 and December 31, 2003 |
104,945 | 104,945 | ||||||
| 8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 6,900,000 shares issued and outstanding at March 31, 2004 and December 31, 2003 |
172,500 | 172,500 | ||||||
| 8% Series D Cumulative Redeemable Preferred Shares (liquidation preference $250 per share), 400,000 shares issued and outstanding at March 31, 2004 and December 31, 2003 |
100,000 | 100,000 | ||||||
| Common stock, $.01 par value, 200,000,000 authorized shares; 53,631,176 and 53,474,403 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
536 | 535 | ||||||
| Additional paid-in capital |
1,400,315 | 1,393,103 | ||||||
| Distributions in excess of net earnings |
(296,538 | ) | (271,971 | ) | ||||
| Accumulated other comprehensive loss |
(3,525 | ) | (3,650 | ) | ||||
| Deferred compensation |
(7,032 | ) | (4,433 | ) | ||||
| Total Stockholders’ Equity |
1,471,201 | 1,491,029 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 3,508,523 | $ | 3,326,809 | ||||
See accompanying notes to consolidated financial statements.
4
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Operations
(Unaudited and $ in thousands, except per share amounts)
| Three Months Ended March 31, |
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| 2004 |
2003 |
|||||||
| Rental revenue |
$ | 108,622 | $ | 103,924 | ||||
| Operating expenses: |
||||||||
| Rental property |
39,165 | 35,940 | ||||||
| Depreciation and amortization |
34,316 | 32,030 | ||||||
| General and administrative (includes $4,638 retirement compensation expense in 2004) |
12,167 | 5,344 | ||||||
| Total operating expenses |
85,648 | 73,314 | ||||||
| Interest expense: |
||||||||
| Contractual |
26,057 | 27,674 | ||||||
| Amortization of deferred financing costs |
855 | 626 | ||||||
| 26,912 | 28,300 | |||||||
| Other income: |
||||||||
| Interest and other income |
3,346 | 2,859 | ||||||
| Equity in earnings of unconsolidated affiliates |
1,402 | 1,761 | ||||||
| 4,748 | 4,620 | |||||||
| Income before gain/(loss) on disposition of land and depreciable assets, minority interest and discontinued operations |
810 | 6,930 | ||||||
| Gain on disposition of land |
1,138 | 863 | ||||||
| (Loss)/gain on disposition and impairment of depreciable assets, net |
(55 | ) | 20 | |||||
| Income before minority interest and discontinued operations |
1,893 | 7,813 | ||||||
| Minority interest |
(231 | ) | (938 | ) | ||||
| Income from continuing operations |
1,662 | 6,875 | ||||||
| Discontinued operations: |
||||||||
| Income from discontinued operations, net of minority interest |
667 | 4,467 | ||||||
| Gain/(loss) on sale of discontinued operations, net of minority interest |
3,555 | (170 | ) | |||||
| 4,222 | 4,297 | |||||||
| Net income |
5,884 | 11,172 | ||||||
| Dividends on preferred stock |
(7,713 | ) | (7,713 | ) | ||||
| Net (loss)/income attributable to common stockholders |
$ | (1,829 | ) | $ | 3,459 | |||
| Net (loss)/income per common share – basic: |
||||||||
| Loss from continuing operations |
$ | (0.11 | ) | $ | (0.02 | ) | ||
| Income from discontinued operations |
0.08 | 0.08 | ||||||
| Net (loss)/income |
$ | (0.03 | ) | $ | 0.06 | |||
| Weighted average common shares outstanding – basic |
53,542 | 53,428 | ||||||
| Net (loss)/income per common share – diluted: |
||||||||
| Loss from continuing operations |
$ | (0.11 | ) | $ | (0.02 | ) | ||
| Income from discontinued operations |
0.08 | 0.08 | ||||||
| Net (loss)/income |
$ | (0.03 | ) | $ | 0.06 | |||
| Weighted average common shares outstanding – diluted |
53,542 | 53,475 | ||||||
| Dividends declared per common share |
$ | 0.425 | $ | 0.585 | ||||
See accompanying notes to consolidated financial statements.
5
Consolidated Statement of Stockholders’ Equity
(Unaudited and $ in thousands except share amounts)
For the Three Months Ended March 31, 2004
| Common Stock |
Series A Preferred |
Series B Preferred |
Series D Preferred |
Additional Paid-In Capital |
Deferred sation |
Accumulated Other hensive Loss |
Distributions in Excess of Net Earnings |
Total |
|||||||||||||||||||||||
| Balance at December 31, 2003 |
$ | 535 | $ | 104,945 | $ | 172,500 | $ | 100,000 | $ | 1,393,103 | $ | (4,433 | ) | $ | (3,650 | ) | $ | (271,971 | ) | $ | 1,491,029 | ||||||||||
| Issuance of Common Stock |
— | — | — | — | 320 | — | — | — | 320 | ||||||||||||||||||||||
| Conversion of Common Units to Common Stock |
— | — | — | — | 1,404 | — | — | — | 1,404 | ||||||||||||||||||||||
| Common Stock Dividends |
— | — | — | — | — | — | — | (22,738 | ) | (22,738 | ) | ||||||||||||||||||||
| Preferred Stock dividends |
— | — | — | — | — | — | — | (7,713 | ) | (7,713 | ) | ||||||||||||||||||||
| Issuance of restricted stock |
1 | — | — | — | 2,633 | (2,634 | ) | — | — | — | |||||||||||||||||||||
| Fair value of stock options issued |
— | — | — | — | 2,855 | (2,855 | ) | — | — | — | |||||||||||||||||||||
| Amortization of deferred compensation |
— | — | — | ||||||||||||||||||||||||||||