HIGHWOODS PROPERTIES INC - 10-Q Quarterly Report

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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 June 30, 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 53,715,681 shares outstanding as of December 2, 2004.

HIGHWOODS PROPERTIES, INC.

QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2004

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	3

	Consolidated Income Statements for the three and six months ended June 30, 2004 and 2003	4

	Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2004	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	Disclosure Regarding Forward-Looking Statements	23

	Overview	23

	Results of Operations	31

	Liquidity and Capital Resources	39

	Critical Accounting Estimates	49

	Funds From Operations	49

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	52

PART II	OTHER INFORMATION

Item. 4	Submission of Matters to a Vote of Security Holders	55

Item 6.	Exhibits and Reports on Form 8-K	55

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 Company’s preferred stock as “Preferred Stock,” (5) the Operating Partnership’s common partnership interests as “Common Units,” (6) the Operating Partnership’s preferred partnership interests as “Preferred Units” and (7) in-service properties (excluding apartment units) to which the Company has title and 100.0% ownership rights as the “Wholly Owned Properties.”

The information furnished in the accompanying Consolidated Financial Statements 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 amended Annual Report on Form 10-K.

HIGHWOODS PROPERTIES, INC.

Consolidated Balance Sheets

(Unaudited and $ in thousands, except per share amounts)


	June 30, 2004			December 31, 2003
	(Unaudited)
Assets:
Real estate assets, at cost:
Land and improvements	$	402,896		$	426,297
Buildings and tenant improvements		2,936,760			3,105,309
Development in process		23,027			7,485
Land held for development		191,409			195,021
Furniture, fixtures and equipment		22,133			21,818

		3,576,225			3,755,930
Less – accumulated depreciation		(563,674	)		(544,559	)

Net real estate assets		3,012,551			3,211,371
Property held for sale		64,958			78,624
Cash and cash equivalents		11,672			21,551
Restricted cash		4,903			4,602
Accounts receivable, net		14,253			18,176
Notes receivable		10,705			10,066
Accrued straight-line rents receivable		58,276			58,912
Investments in unconsolidated affiliates		79,540			62,417
Other assets:
Deferred leasing costs		105,389			103,222
Deferred financing costs		16,081			19,286
Prepaid expenses and other		13,261			10,443

		134,731			132,951
Less – accumulated amortization		(58,927	)		(55,647	)

Other assets, net		75,804			77,304

Total Assets	$	3,332,662		$	3,543,023

Liabilities and Stockholders’ Equity:
Mortgages and notes payable	$	1,603,485		$	1,717,765
Accounts payable, accrued expenses and other liabilities		117,530			101,608
Financing obligations		63,345			124,063

Total Liabilities		1,784,360			1,943,436
Minority interest in the Operating Partnership		121,008			127,776
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 June 30, 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 June 30, 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 June 30, 2004 and December 31, 2003		100,000			100,000
Common stock, $.01 par value, 200,000,000 authorized shares; 53,716,340 shares issued and outstanding at June 30, 2004 and 53,474,403 at December 31, 2003, respectively		537			535
Additional paid-in capital		1,415,295			1,408,888
Distributions in excess of net earnings		(357,561	)		(306,938	)
Accumulated other comprehensive loss		(3,141	)		(3,650	)
Deferred compensation		(5,281	)		(4,469	)

Total Stockholders’ Equity		1,427,294			1,471,811

Total Liabilities and Stockholders’ Equity	$	3,332,662		$	3,543,023

See accompanying notes to consolidated financial statements.

HIGHWOODS PROPERTIES, INC.

Consolidated Income Statements

(Unaudited and in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Rental and other revenues	$	118,481		$	126,221		$	238,675		$	253,109

Operating expenses:
Rental property and other expenses		42,423			43,985			86,647			87,112
Depreciation and amortization		34,411			35,739			70,160			71,860
General and administrative		7,869			6,960			18,536			11,632

Total operating expenses		84,703			86,684			175,343			170,604

Interest expense:
Contractual		27,371			30,293			54,586			60,452
Amortization of deferred financing costs		925			903			2,069			1,800
Financing obligations		1,426			4,161			6,119			9,038

		29,722			35,357			62,774			71,290
Other income/expense:
Interest and other income		1,482			1,881			3,236			3,057
Loss on debt extinguishment		(12,457	)		—			(12,457	)		(14,653	)

		(10,975	)		1,881			(9,221	)		(11,596	)

(Loss)/income before disposition of property, co-venture expense, minority interest and equity in earnings of unconsolidated affiliates		(6,919	)		6,061			(8,663	)		(381	)

Gains on disposition of property, net		14,405			1,610			15,475			2,414
Co-venture expense		—			(2,169	)		—			(4,255	)
Minority interest in the Operating Partnership		(166	)		65			527			1,650
Equity in earnings of unconsolidated affiliates		1,549			1,377			2,833			2,526

Income from continuing operations		8,869			6,944			10,172			1,954
Discontinued operations:
(Loss)/income from discontinued operations, net of minority interest		(14	)		844			193			1,739
(Loss)/gain on sale of discontinued operations, net of minority interest		(3,457	)		894			(21	)		900

		(3,471	)		1,738			172			2,639

Net income		5,398			8,682			10,344			4,593
Dividends on preferred stock		(7,713	)		(7,713	)		(15,426	)		(15,426	)

Net (loss attributable to)/income available for common stockholders	$	(2,315	)	$	969		$	(5,082	)	$	(10,833	)

Net income per common share—basic:
Income/(loss) from continuing operations	$	0.02		$	(0.01	)	$	(0.10	)	$	(0.25	)
(Loss)/income from discontinued operations		(0.06	)		0.03			—			0.05

Net (loss)/income	$	(0.04	)	$	0.02		$	(0.10	)	$	(0.20	)

Weighted average common shares outstanding—basic		53,274			52,921			53,223			53,032

Net income per common share—diluted:
Income/(loss) fro

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