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 September 30, 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 SEPTEMBER 30, 2004
TABLE OF CONTENTS
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 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 Operating Partnership 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.
2
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Unaudited and in thousands, except per unit amounts)
| September 30, 2004 |
December 31, 2003 |
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| (Unaudited) | ||||||||
| Assets: |
||||||||
| Real estate assets, at cost: |
||||||||
| Land and improvements |
$ | 402,446 | $ | 424,672 | ||||
| Buildings and tenant improvements |
2,937,859 | 3,084,030 | ||||||
| Development in process |
14,051 | 7,088 | ||||||
| Land held for development |
181,954 | 179,231 | ||||||
| Furniture, fixtures and equipment |
22,134 | 21,813 | ||||||
| 3,558,444 | 3,716,834 | |||||||
| Less – accumulated depreciation |
(584,187 | ) | (539,562 | ) | ||||
| Net real estate assets |
2,974,257 | 3,177,272 | ||||||
| Property held for sale |
69,011 | 101,002 | ||||||
| Cash and cash equivalents |
19,904 | 21,329 | ||||||
| Restricted cash |
4,927 | 4,602 | ||||||
| Accounts receivable, net |
14,852 | 18,131 | ||||||
| Notes receivable |
9,743 | 10,026 | ||||||
| Accrued straight-line rents receivable |
60,873 | 58,912 | ||||||
| Investments in unconsolidated affiliates |
75,460 | 59,005 | ||||||
| Other assets: |
||||||||
| Deferred leasing costs |
108,986 | 102,661 | ||||||
| Deferred financing costs |
16,972 | 19,286 | ||||||
| Prepaid expenses and other |
11,956 | 10,131 | ||||||
| 137,914 | 132,078 | |||||||
| Less – accumulated amortization |
(63,484 | ) | (55,299 | ) | ||||
| Other assets net |
74,430 | 76,779 | ||||||
| Total Assets |
$ | 3,303,457 | $ | 3,527,058 | ||||
| Liabilities and Partners’ Capital: |
||||||||
| Mortgages and notes payable |
$ | 1,595,127 | $ | 1,708,765 | ||||
| Accounts payable accrued expenses and other liabilities |
106,467 | 95,845 | ||||||
| Financing obligations |
62,992 | 124,063 | ||||||
| Total Liabilities |
1,764,586 | 1,928,673 | ||||||
| Redeemable operating partnership units: |
||||||||
| Class A Common Units, 6,128,061 and 6,202,640 outstanding at September 30, 2004 and December 31, 2003, respectively |
150,812 | 157,547 | ||||||
| Series A Preferred Units (liquidation preference $1,000 per unit), 104,945 outstanding at September 30, 2004 and December 31, 2003 |
104,945 | 104,945 | ||||||
| Series B Preferred Units (liquidation preference $25 per unit), 6,900,000 outstanding at September 30, 2004 and December 31, 2003 |
172,500 | 172,500 | ||||||
| Series D Preferred Units (liquidation preference $250 per unit), 400,000 outstanding at September 30, 2004 and December 31, 2003 |
100,000 | 100,000 | ||||||
| Partners’ Capital: |
||||||||
| Class A common units: |
||||||||
| General partner Common Units, 594,324 and 592,682 outstanding at September 30, 2004 and December 31, 2003, respectively |
10,185 | 10,715 | ||||||
| Limited partner Common Units, 52,710,048 and 52,472,912 outstanding at September 30, 2004 and December 31, 2003, respectively |
1,008,193 | 1,060,797 | ||||||
| Accumulated other comprehensive loss |
(3,003 | ) | (3,650 | ) | ||||
| Deferred compensation |
(4,761 | ) | (4,469 | ) | ||||
| Total Partners’ Capital |
1,010,614 | 1,063,393 | ||||||
| Total Liabilities, Redeemable Operating Partnership Units and Partners’ Capital |
$ | 3,303,457 | $ | 3,527,058 | ||||
See accompanying notes to consolidated financial statements
3
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Income Statements
(Unaudited and in thousands, except per unit amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Rental and other revenues |
$ | 114,198 | $ | 121,688 | $ | 350,905 | $ | 372,778 | ||||||||
| Operating expenses: |
||||||||||||||||
| Rental property and other expenses |
41,556 | 42,893 | 126,843 | 128,716 | ||||||||||||
| Depreciation and amortization |
33,411 | 34,043 | 103,086 | 105,372 | ||||||||||||
| Impairment of assets held for use |
500 | — | 500 | — | ||||||||||||
| General and administrative |
10,069 | 6,520 | 28,047 | 17,908 | ||||||||||||
| Total operating expenses |
85,536 | 83,456 | 258,476 | 251,996 | ||||||||||||
| Interest expense: |
||||||||||||||||
| Contractual |
25,596 | 29,880 | 80,084 | 90,096 | ||||||||||||
| Amortization of deferred financing costs |
782 | 1,690 | 2,851 | 3,490 | ||||||||||||
| Financing obligations |
1,378 | 4,478 | 7,497 | 13,516 | ||||||||||||
| 27,756 | 36,048 | 90,432 | 107,102 | |||||||||||||
| Other income/(expense): |
||||||||||||||||
| Interest and other income |
1,760 | 1,246 | 4,805 | 4,341 | ||||||||||||
| Settlement of bankruptcy claim |
14,435 | — | 14,435 | — | ||||||||||||
| Loss on debt extinguishment |
— | — | (12,457 | ) | (14,653 | ) | ||||||||||
| Gain on extinguishment of co-venture obligation |
— | 16,301 | — | 16,301 | ||||||||||||
| 16,195 | 17,547 | 6,783 | 5,989 | |||||||||||||
| Income before disposition of property, co-venture expense and equity in earnings of unconsolidated affiliates |
17,101 | 19,731 | 8,780 | 19,669 | ||||||||||||
| Gains on disposition of property, net |
2,308 | 5,556 | 17,783 | 7,971 | ||||||||||||
| Co-venture expense |
— | (333 | ) | — | (4,588 | ) | ||||||||||
| Equity in earnings of unconsolidated affiliates |
2,557 | 1,020 | 5,279 | 3,466 | ||||||||||||
| Income from continuing operations |
21,966 | 25,974 | 31,842 | 26,518 | ||||||||||||
| Discontinued operations: |
||||||||||||||||
| Income from discontinued operations |
611 | 844 | 1,302 | 3,432 | ||||||||||||
| Gain on sale of discontinued operations |
703 | 7,796 | 682 | 8,675 | ||||||||||||
| 1,314 | 8,640 | 1,984 | 12,107 | |||||||||||||
| Net income |
23,280 | 34,614 | 33,826 | 38,625 | ||||||||||||
| Distributions on preferred units |
(7,713 | ) | (7,713 | ) | (23,139 | ) | (23,139 | ) | ||||||||
| Net income/(loss) available for/(attributable to) common unitholders |
$ | 15,567 | $ | 26,901 | $ | 10,687 | $ | 15,486 | ||||||||
| Net income per common unit – basic: |
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| Income from continuing operations |
$ | 0.24 | $ | 0.31 | $ | 0.15 | $ | 0.06 | ||||||||
| Income from discontinued operations |
0.02 | 0.15 | 0.03 | 0.20 | ||||||||||||
| Net income |
$ | 0.26 | $ | 0.46 | $ | 0.18 | $ | 0.26 | ||||||||
| Weighted average common units outstanding |
59,097 | 58,894 | 59,016 | 59,243 | ||||||||||||
| Net income per common unit – diluted: |
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