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: 000-21731
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
| North Carolina | 56-1869557 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
3100 Smoketree Court, Suite 600, Raleigh, N.C.
(Address of principal executive office)
27604
(Zip Code)
(919) 872-4924
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in rule 12b-2 of the Securities Exchange Act). Yes ¨ No x
HIGHWOODS REALTY LIMITED PARTNERSHIP
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2004
| Page | ||||
| PART I |
FINANCIAL INFORMATION | |||
| Item 1. |
3 | |||
| Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 |
4 | |||
| Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 |
5 | |||
| Consolidated Statements of Partners’ Capital for the three months ended March 31, 2004 |
6 | |||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 |
7 | |||
| 9 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 | ||
| 21 | ||||
| 21 | ||||
| 29 | ||||
| 33 | ||||
| 41 | ||||
| 41 | ||||
| Item 3. |
44 | |||
| Item 4. |
44 | |||
| PART II |
OTHER INFORMATION | |||
| Item 6. |
46 | |||
2
PART I - FINANCIAL INFORMATION
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 Partners’ Capital and Statements of Cash Flows reflect all adjustments (consisting of normal recurring accruals) that are, in our opinion, necessary for a fair presentation of the aforementioned financial statements for the interim period.
The aforementioned financial statements should be read in conjunction with the notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and in our 2003 Annual Report on Form 10-K.
3
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Unaudited and $ in thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| Assets: |
||||||||
| Real estate assets, at cost: |
||||||||
| Land and improvements |
$ | 443,582 | $ | 397,121 | ||||
| Buildings and tenant improvements |
3,092,063 | 2,911,458 | ||||||
| Development in process |
9,071 | 6,899 | ||||||
| Land held for development |
197,140 | 194,534 | ||||||
| Furniture, fixtures and equipment |
21,945 | 21,813 | ||||||
| 3,763,801 | 3,531,825 | |||||||
| Less – accumulated depreciation |
(566,344 | ) | (542,190 | ) | ||||
| Net real estate assets |
3,197,457 | 2,989,635 | ||||||
| Property held for sale |
38,467 | 55,453 | ||||||
| Cash and cash equivalents |
16,226 | 18,342 | ||||||
| Restricted cash |
8,044 | 6,320 | ||||||
| Accounts receivable, net |
10,687 | 17,782 | ||||||
| Notes receivable |
16,603 | 15,703 | ||||||
| Accrued straight-line rents receivable |
54,732 | 51,189 | ||||||
| Investments in unconsolidated affiliates |
65,310 | 71,253 | ||||||
| Other assets: |
||||||||
| Deferred leasing costs |
114,687 | 110,488 | ||||||
| Deferred financing costs |
46,396 | 46,198 | ||||||
| Prepaid expenses and other |
14,236 | 13,793 | ||||||
| 175,319 | 170,479 | |||||||
| Less – accumulated amortization |
(89,155 | ) | (84,965 | ) | ||||
| Other assets, net |
86,164 | 85,514 | ||||||
| Total Assets |
$ | 3,493,690 | $ | 3,311,191 | ||||
| Liabilities and Partners’ Capital: |
||||||||
| Mortgages and notes payable |
$ | 1,758,239 | $ | 1,549,758 | ||||
| Accounts payable, accrued expenses and other liabilities |
101,370 | 106,055 | ||||||
| Total Liabilities |
1,859,609 | 1,655,813 | ||||||
| Redeemable operating partnership units: |
||||||||
| Common Units, 6,146,372 and 6,202,640 outstanding at March 31, 2004 and December 31, 2003, respectively |
161,096 | 157,547 | ||||||
| Series A Preferred Units, 104,945 outstanding at March 31, 2004 and December 31, 2003 |
103,308 | 103,308 | ||||||
| Series B Preferred Units, 6,900,000 outstanding at March 31, 2004 and December 31, 2003 |
166,346 | 166,346 | ||||||
| Series D Preferred Units, 400,000 outstanding at March 31, 2004 and December 31, 2003 |
96,842 | 96,842 | ||||||
| Partners’ Capital: |
||||||||
| Common units: |
||||||||
| General partner Common Units, 593,687 and 592,682 outstanding at March 31, 2004 and December 31, 2003, respectively |
11,169 | 11,393 | ||||||
| Limited partner Common Units, 52,628,680 and 52,472,912 outstanding at March 31, 2004 and December 31, 2003, respectively |
1,105,877 | 1,128,025 | ||||||
| Accumulated other comprehensive loss |
(3,525 | ) | (3,650 | ) | ||||
| Deferred compensation |
(7,032 | ) | (4,433 | ) | ||||
| Total Partners’ Capital |
1,106,489 | 1,131,335 | ||||||
| Total Liabilities and Partners’ Capital |
$ | 3,493,690 | $ | 3,311,191 | ||||
See accompanying notes to consolidated financial statements
4
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Operations
(Unaudited and in thousands, except per unit amounts)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Rental revenue |
$ | 108,562 | $ | 103,865 | ||||
| Operating expenses: |
||||||||
| Rental property |
38,901 | 35,637 | ||||||
| Depreciation and amortization |
34,309 | 32,022 | ||||||
| General and administrative (includes $4,638 retirement compensation expense in 2004) |
11,851 | 5,215 | ||||||
| Total operating expenses |
85,061 | 72,874 | ||||||
| Interest expense: |
||||||||
| Contractual |
26,008 | 27,549 | ||||||
| Amortization of deferred financing costs |
855 | 626 | ||||||
| 26,863 | 28,175 | |||||||
| Other income: |
||||||||
| Interest and other income |
3,145 | 2,839 | ||||||
| Equity in earnings of unconsolidated affiliates |
1,373 | 1,714 | ||||||
| 4,518 | 4,553 | |||||||
| Income before gain/(loss) on disposition of land and depreciable assets and discontinued operations |
1,156 | 7,369 | ||||||
| Gain on disposition of land |
1,138 | 863 | ||||||
| (Loss)/gain on disposition and impairment of depreciable assets, net |
(55 | ) | 20 | |||||
| Income from continuing operations |
2,239 | 8,252 | ||||||
| Discontinued operations: |
||||||||
| Income from discontinued operations |
744 | 5,131 | ||||||
| Gain/(loss) on sale of discontinued operations |
3,965 | (325 | ) | |||||
| 4,709 | 4,806 | |||||||
| Net income |
6,948 | 13,058 | ||||||
| Distributions on preferred units |
(7,713 | ) | (7,713 | ) | ||||
| Net (loss)/income attributable to common unitholders |
$ | (765 | ) | $ | 5,345 | |||
| Net (loss)/income per common unit – basic: |
||||||||
| (Loss)/income from continuing operations |
$ | (0.09 | ) | $ | 0.01 | |||
| Income from discontinued operations |
0.08 | 0.08 | ||||||
| Net (loss)/income |
$ | (0.01 | ) | $ | 0.09 | |||
| Net (loss)/income per common unit – diluted: |
||||||||
| (Loss)/income from continuing operations |
$ | (0.09 | ) | $ | 0.01 | |||
| Income from discontinued operations |
0.08 | 0.08 | ||||||
| Net (loss)/income |
$ | (0.01 | ) | $ | 0.09 | |||
| Weighted average common units outstanding – basic: |
||||||||
| Common units: |
||||||||
| General Partner |
593 | 599 | ||||||
| Limited Partners |
58,712 | 59,305 | ||||||
| Total |
59,305 | 59,904 | ||||||
| Weighted average common units outstanding – diluted: |
||||||||
| Common units: |
||||||||
| General Partner |
593 | 600 | ||||||
| Limited Partners |
58,712 | 59,352 | ||||||
| Total |
59,305 | 59,952 | ||||||
See accompanying notes to consolidated financial statements.
5
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Partners’ Capital
For the Three Months Ended March 31, 2004
(Unaudited and in thousands)
| Common Unit |
||||||||||||||||||||
| General Partners’ Capital |
Limited Partners’ Capital |
Accumulated Other Comprehensive Loss |
Deferred Compensation |
Total Partners’ Capital |
||||||||||||||||
| Balance at December 31, 2003 |
$ | 11,393 | $ | 1,128,025 | $ | (3,650 | ) | $ | (4,433 | ) | $ | 1,131,335 | ||||||||
| Issuance of Common Units |
4 | 316 | — | — | 320 | |||||||||||||||
| Redemption of Common Units |
(1 | ) | (49 | ) | — | — | (50 | ) | ||||||||||||
| Distributions paid on Common Units |
(254 | ) | (25,114 | ) | — | — | (25,368 | ) | ||||||||||||
| Preferred distributions paid on Common Units |
(77 | ) | (7,636 | ) | — | — | (7,713 | ) | ||||||||||||
| Net income |
69 | 6,879 | — | — | 6,948 | |||||||||||||||
| Adjustments of redeemable Common Units to fair value |
(20 | ) | (1,978 | ) | — | — | (1,998 | ) | ||||||||||||
| Other comprehensive loss |
— | — | 125 | — | 125 | |||||||||||||||
| Issuance of restricted units |
26 | 2,608 | — | (2,634 | ) | — | ||||||||||||||
| Fair value of stock options issued (see Note 8) |
29 | 2,826 | ||||||||||||||||||