UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2011
 
OR

[  ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the transition period from________ to___________

HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

					
 	Maryland	001-13100	56-1871668	 	
 	(State or other jurisdiction
of incorporation or organization)	(Commission
File Number)	(I.R.S. Employer
Identification Number)	 	
 
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

					
 	North Carolina	000-21731	56-1869557	 	
 	(State or other jurisdiction
of incorporation or organization)	(Commission
File Number)	(I.R.S. Employer
Identification Number)	 	
 
3100 Smoketree Court, Suite 600
Raleigh, NC 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrants’ telephone number, including area code)
______________
Securities registered pursuant to Section 12(b) of the Act:

		
Title of Each Class	Name of Each Exchange on Which Registered	
Common Stock, $.01 par value, of Highwoods Properties, Inc.	New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act:
NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Highwoods Properties, Inc.   Yes   S     No £      Highwoods Realty Limited Partnership   Yes   S     No £
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.
Highwoods Properties, Inc.   Yes   £     No S      Highwoods Realty Limited Partnership   Yes   £     No S
 
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.
Highwoods Properties, Inc.   Yes   S     No £      Highwoods Realty Limited Partnership   Yes   S     No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Highwoods Properties, Inc.   Yes   S     No £      Highwoods Realty Limited Partnership   Yes   S     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 such registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    S
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of ‘large accelerated filer,’ ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Securities Exchange Act.
 
Highwoods Properties, Inc.
Large accelerated filer S     Accelerated filer £       Non-accelerated filer £       Smaller reporting company £
 
Highwoods Realty Limited Partnership
Large accelerated filer £     Accelerated filer £       Non-accelerated filer S       Smaller reporting company £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
Highwoods Properties, Inc.   Yes   £     No S      Highwoods Realty Limited Partnership   Yes   £     No S
 
The aggregate market value of shares of Common Stock of Highwoods Properties, Inc. held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on June 30, 2011 was approximately $2.4 billion . At February 1, 2012 , there were 72,666,043 shares of Common Stock outstanding.
 
There is no public trading market for the Common Units of Highwoods Realty Limited Partnership. As a result, an aggregate market value of the Common Units of Highwoods Realty Limited Partnership cannot be determined.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Proxy Statement of Highwoods Properties, Inc. to be filed in connection with its Annual Meeting of Stockholders to be held May 15, 2012 are incorporated by reference in Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14.

	

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

TABLE OF CONTENTS

	
			
Item No.	 	Page	
 	PART I	 	
1.	BUSINESS	4	
1A.	RISK FACTORS	6	
1B.	UNRESOLVED STAFF COMMENTS	11	
2.	PROPERTIES	12	
3.	LEGAL PROCEEDINGS	18	
X.	EXECUTIVE OFFICERS OF THE REGISTRANT	19	
 	 	 	
 	PART II	 	
5.	MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	20	
6.	SELECTED FINANCIAL DATA	22	
7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24	
7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42 	
8.	FINANCIAL STATEMENTS	42	
9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	42	
9A.	CONTROLS AND PROCEDURES	43	
9B.	OTHER INFORMATION	46	
 	 	 	
 	PART III	 	
10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	47	
11.	EXECUTIVE COMPENSATION	47	
12.	SECURITY OWNERSIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	47	
13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	47	
14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	47	
 	 	 	
 	PART IV	 	
15.	EXHIBITS	48	

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PART I

We refer to Highwoods Properties, Inc. as the “Company,” Highwoods Realty Limited Partnership as the “Operating Partnership,” the Company’s common stock as “Common Stock” or “Common Shares,” the Company’s preferred stock as “Preferred Stock” or “Preferred Shares,” the Operating Partnership’s common partnership interests as “Common Units,” the Operating Partnership’s preferred partnership interests as “Preferred Units” and in-service properties (excluding rental residential units and for-sale residential condominiums) to which the Company and/or the Operating Partnership have title and 100.0% ownership rights as the “Wholly Owned Properties.” References to “we” and “our” mean the Company and the Operating Partnership, collectively, unless the context indicates otherwise. References to “same property” mean the Company's in-service properties that were wholly-owned during the entirety of the periods being compared.

The Company is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”). The Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HIW.” The Company conducts virtually all of its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

ITEM 1. BUSINESS
 
General
 
We are one of the largest owners and operators of office properties in the Southeastern and Midwestern United States. Our office properties represented 87.0% of rental and other revenues for the year ended December 31, 2011 . At December 31, 2011 , we:

•	wholly owned 303 in-service office, industrial and retail properties, encompassing approximately 29.3 million rentable square feet, one 228,000 square foot office property and an associated retail property under development, which are a combined 89.0% pre-leased, 96 rental residential units and 17 for-sale residential condominiums;	

•	owned an interest (50.0% or less) in 35 in-service office properties, encompassing approximately 5.3 million rentable square feet, one 215 -unit rental residential property under development and 11 acres of development land, including a 12.5% interest in a 261,000 square foot office property owned directly by the Company (not included in the Operating Partnership's Consolidated Financial Statements);	

•	wholly owned 586 acres of undeveloped land, approximately 524 acres of which are considered core assets expected to be held indefinitely and are suitable to develop approximately 5.7 million and 2.7 million rentable square feet of office and industrial space, respectively; and	

•	wholly owned one completed but not yet stabilized office redevelopment property encompassing 117,000 square feet that is 100.0% pre-leased. 	

At December 31, 2011 , the Company owned all of the Preferred Units and 72.2 million , or 95.1% , of the Common Units. Limited partners, including one officer and two directors of the Company, own the remaining 3.7 million Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption provided that the Company, at its option, may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable.
 
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, NC 27604, and our telephone number is (919) 872-4924.
 
Our business is the operation, acquisition and development of rental real estate properties. We operate office, industrial, retail and residential properties. There are no material inter-segment transactions. See Note 19 to our Consolidated Financial Statements for a summary of the rental and other revenues, net operating income and assets for each reportable segment.

In addition to this Annual Report, we file or furnish quarterly and current reports, proxy statements, interactive data and other information with the Securities and Exchange Commission (“SEC”). All documents that the Company files or furnishes with the SEC are made available as soon as reasonably practicable free of charge on our website, which is http://www.highwoods.com.

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The information on our website is not and should not be considered part of this Annual Report and is not incorporated by reference in this document. You may also read and copy any document that we file or furnish at the public reference facilities of the SEC at 100 F. Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at (800) 732-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC's website, which is http://www.sec.gov. In addition, you can read similar information about us at the offices of the NYSE at 20 Broad Street, New York, NY 10005.
 
During 2011 , the Company filed unqualified Section 303A certifications with the NYSE. The Company and the Operating Partnership have also filed the CEO and CFO certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report.
 
Business and Operating Strategy
 
Our Strategic Plan focuses on:

•	owning high-quality, differentiated real estate assets in the better submarkets in our core markets;	

•	improving the operating results of our existing properties through concentrated leasing, asset management, cost control and customer service efforts;	

•	developing and acquiring office properties in key infill submarkets that improve the overall quality of our portfolio and generate attractive returns over the long-term for our stockholders;	

•	selectively disposing of properties no longer considered to be core assets primarily due to location, age, quality and overall strategic fit; and	

•	maintaining a conservative, flexible balance sheet with ample liquidity to meet our funding needs and growth prospects. 	

Local Market Leadership . We focus our real estate activities in markets where we have extensive local knowledge and own a significant amount of assets. In each of our core markets, we maintain offices that are led by division officers with significant real estate experience. Our real estate professionals are seasoned and cycle-tested. Our senior leadership team has significant experience and maintains important relationships with market participants in each of our core markets.
 
Customer Service-Oriented Organization . We provide a complete line of real estate services to our customers. We believe that our in-house leasing and asset management, development, acquisition and construction management services generally allow us to respond to the many demands of our existing and potential customer base. We provide our customers with 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 operating efficiencies achieved through our fully integrated organization and the strength of our balance sheet also provide a competitive advantage in retaining existing customers and attracting new customers as well as setting our lease rates and pricing other services. In addition, our relationships with our customers may lead to development projects when these customers seek new space.
 
Geographic Diversification . Our core portfolio consists primarily of office properties in Raleigh, Tampa, Nashville, Memphis, Pittsburgh, Richmond and Orlando, office and industrial properties in Atlanta and Greensboro and retail and office properties in Kansas City. We do not believe that our operations are significantly dependent upon any particular geographic market.
 
Conservative and Flexible Balance Sheet . We are committed to maintaining a conservative and flexible balance sheet that allows us to capitalize on favorable development and acquisition opportunities as they arise. Our balance sheet also allows us to proactively assure our existing and prospective customers that we are able to fund tenant improvements and maintain our properties in good condition.
 
Competition
 
Our properties compete for customers with similar properties located in our markets primarily on the basis of location, rent, services provided and the design, quality and condition of the facilities. We also compete with other REITs, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire, develop and operate properties.
 
Employees
 
At December 31, 2011 , we had 415 full-time employees.

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ITEM 1A. RISK FACTORS
 
An investment in our securities involves various risks. Investors should carefully consider the following risk factors in conjunction with the other information contained in this Annual Report before trading in our securities. If any of these risks actually occur, our business, operating results, prospects and financial condition could be harmed.

Adverse economic conditions in our markets that negatively impact the demand for office space, such as high unemployment, may result in lower occupancy and rental rates for our portfolio, which would adversely affect our operating results . While we own and operate a limited number of industrial, retail and residential properties, our operating results depend heavily on successfully leasing and operating our office properties. Economic growth and employment levels in our core markets are and will continue to be important determinative factors in predicting our future operating results.

Key components affecting our rental and other revenues include average occupancy and rental rates. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth and decreasing office employment because new vacancies tend to outpace our ability to lease space. In addition, the timing of changes in occupancy levels tends to lag the timing of changes in overall economic activity and employment levels. For additional information regarding our average occupancy and rental rate trends over the past five years, please read “Item 2. Properties - Wholly Owned Properties”. Lower rental revenues that may result from lower average occupancy or lower rental rates with respect to our same property portfolio will generally reduce our operating results unless offset by the impact of any newly acquired or developed properties or lower variable operating expenses, general and administrative expenses and/or interest expense.

We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let space, which may adversely affect our operating results. Approximately 10-15% of our rental revenues at the beginning of any particular year are subject to leases that expire by the end of that year. Please read “Item 2. Properties - Lease Expirations”. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing leases on expiring space. Because we compete with a number of other developers, owners and operators of office and office-oriented, mixed-use properties, we may be unable to renew leases with our existing customers and, if our current customers do not renew their leases, we may be unable to re-let the space to new customers. To the extent that we are able to renew leases that are scheduled to expire in the short-term or re-let such space to new customers, heightened competition resulting from adverse market conditions may require us to utilize rent concessions and tenant improvements to a greater extent than we historically have. Further, customers may seek to downsize by leasing less space from us upon any renewal.

If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers upon expiration of their existing leases. Even if our customers renew their leases or we are able to re-let the space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, reduced rental rates and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. From time to time, we may also agree to modify the terms of existing leases to incentivize customers to renew their leases. If we are unable to renew leases or re-let space in a reasonable time, or if our rental rates decline or our tenant improvement costs, leasing commissions or other costs increase, our financial condition, cash flows, cash available for distribution, value of our common stock, and ability to satisfy our debt service obligations could be materially adversely affected.

Difficulties or delays in renewing leases with large customers or re-leasing space vacated by large customers could materially impact our operating results. While no customer other than the Federal Government currently accounts for more than 3.5% of our revenues, the 20 largest customers of our Wholly Owned Properties account for nearly one-third of our revenues. Please read “Item 2. Properties - Customers” and “Item 2. Properties - Lease Expirations”. Customers that currently account for more than 1.5% of our revenues include the Federal Government, AT&T, PPG Industries, PricewaterhouseCoopers and the State of Georgia. There are no assurances that these customers, or any of our other large customers, will renew all or any of their space upon expiration of their current leases.

Some of our leases provide customers with the right to terminate their leases early, which could have an adverse effect on our cash flow and results of operations . Certain of our leases permit our customers to terminate their leases as to all or a portion of the leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice by a certain date and, in most cases, paying a termination fee. To the extent that our customers exercise early termination rights, our

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cash flow and earnings will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net effective rent by leasing the vacated space to new third party customers.

An oversupply of space in our markets would typically cause rental rates and occupancies to decline, making it more difficult for us to lease space at attractive rental rates, if at all . Undeveloped land in many of the markets in which we operate is generally more readily available and less expensive than in higher barrier-to-entry markets such as New York, Chicago, Boston, San Francisco and Los Angeles. As a result, even during times of positive economic growth, our competitors could construct new buildings that would compete with our properties. Any such oversupply could result in lower occupancy and rental rates in our portfolio, which would have a negative impact on our operating results.

In order to maintain the quality of our properties and successfully compete against other properties, we regularly must spend money to maintain, repair and renovate our properties, which reduces our cash flows . If our properties are not as attractive to customers due to physical condition as properties owned by our competitors, we could lose customers or suffer lower rental rates. As a result, we may from time to time be required to make significant capital expenditures to maintain the competitiveness of our properties. There can be no assurances that any such expenditures would result in higher occupancy or higher rental rates or deter existing customers from relocating to properties owned by our competitors.

Our operating results and financial condition could be adversely affected by financial difficulties experienced by a major customer, or by a number of smaller customers, including bankruptcies, insolvencies or general downturns in business . The success of our investments and stability of our operations depend on the financial stability of our customers. A default or termination by a significant customer on its lease payments to us would cause us to lose the revenue associated with such lease. In the event of a customer default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing the property. We cannot evict a customer solely because of its bankruptcy. On the other hand, a court might authorize the customer to reject and terminate its lease. In such case, our claim against the bankrupt customer for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. As a result, our claim for unpaid rent would likely not be paid in full. If a customer defaults on or terminates a significant lease, we may not be able to recover the full amount of unpaid rent or be able to lease the property for the rent previously received, if at all. In any of these instances, we may also be required to write off deferred leasing costs and accrued straight-line rents receivable. These events would adversely impact our operating results.

Costs of complying with governmental laws and regulations may reduce our operating results . All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings.

Compliance with new laws or regulations or stricter interpretation of existing laws may require us to incur significant expenditures. Future laws or regulations may impose significant environmental liability. Additionally, our customers' operations, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and that may subject us to liability in the form of fines or damages for noncompliance. Any expenditures, fines or damages we must pay would reduce our operating results. Proposed legislation to address climate change could increase utility and other costs of operating our properties which, if not offset by rising rental income, would reduce our net income.

Discovery of previously undetected environmentally hazardous conditions may decrease our operating results and limit our ability to make distributions . Under various federal, state and local environmental laws and regulations, a current or previous property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on such property. These costs could be significant. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require significant expenditures or prevent us from entering into leases with prospective customers that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce our operating results.

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Our operating results may suffer if costs of operating our properties, such as real estate taxes, utilities, insurance, maintenance and other costs, rise faster than our ability to increase rental revenues . While we receive additional rent from our customers that is based on recovering a portion of operating expenses, increased operating expenses will negatively impact our operating results. Our revenues and expense recoveries are subject to longer-term leases and may not be quickly increased sufficient to recover an increase in operating costs and expenses. Furthermore, the costs associated with owning and operating a property are not necessarily reduced when circumstances such as market factors and competition cause a reduction in rental revenues from the property. Increases in same property operating expenses would reduce our operating results unless offset by higher rental rates, the impact of any newly acquired or developed properties, or lower general and administrative expenses and/or interest expense.

Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development 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 additional properties. Acquired properties may fail to perform in accordance with our expectations due to lease-up risk, renovation cost risks and other factors. In addition, the renovation and improvement costs we incur in bringing an acquired property up to market standards may exceed our estimates. We may not have the financial resources to make suitable acquisitions or renovations on favorable terms or at all.

Further, we face significant competition for attractive investment opportunities from an indeterminate number of other real estate investors, including investors with significantly greater capital resources and access to capital than we have, such as domestic and foreign corporations and financial institutions, publicly-traded and privately-held REITs, private institutional investment funds, investment banking firms, life insurance companies and pension funds. Moreover, owners of office properties may be reluctant to sell, resulting in fewer acquisition opportunities. As a result of such increased competition and limited opportunities, we may be unable to acquire additional properties or the purchase price of such properties may be significantly elevated, which may impede our growth and materially and adversely affect us.

In addition to acquisitions, we periodically consider developing or re-developing properties. Risks associated with development and re-development activities include:

•	the unavailability of favorable construction and/or permanent financing;	

•	construction costs exceeding original estimates;	

•	construction and lease-up delays resulting in increased debt service expense and construction costs; and	

•	lower than anticipated occupancy rates and rents causing a property to be unprofitable or less profitable than originally estimated.	

Development and re-development activities are also subject to risks relating to our ability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental and utility company authorizations.

Illiquidity of real estate investments and the tax effect of dispositions could significantly impede our ability to sell assets or respond to favorable or adverse changes in the performance of our properties. Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. In addition, we have a significant amount of mortgage debt under which we would incur significant prepayment penalties if such loans were paid off in connection with the sale of the underlying real estate assets.

We intend to continue to sell some of our properties in the future as part of our investment strategy and activities. However, we cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether the price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and close the sale of a property.

Certain of our properties have low tax bases relative to their estimated current fair values, and accordingly, the sale of such assets would generate significant taxable gains unless we sold such properties in a tax-deferred exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction. For an exchange to qualify for tax-deferred treatment under Section 1031, the net proceeds from the sale of a property must be held by an escrow agent until applied toward the purchase of real estate qualifying for gain deferral. Given the competition for properties meeting our investment criteria, there could be a delay in reinvesting such proceeds. Any delay in using the reinvestment proceeds to acquire additional income producing assets would reduce our operating results.

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Because holders of Common Units, including one of the Company's officers and two of the Company's directors, may suffer adverse tax consequences upon the sale of some of our properties, they may seek to influence us not to sell certain properties even if such a sale would otherwise be in our best interest . Holders of Common Units may suffer adverse tax consequences upon the sale of certain properties. Therefore, holders of Common Units, including one of our officers and two of our directors, may have different objectives than our stockholders regarding the appropriate pricing and timing of a property's sale. Although the Company is the sole general partner of the Operating Partnership and has the exclusive authority to sell any of our Wholly Owned Properties, those who hold Common Units may seek to influence us not to sell certain properties even if such sale might be financially advantageous to stockholders, creditors, bondholders or our business as a whole or influence us to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest.

The value of our joint venture investments could be adversely affected if we are unable to work effectively with our partners or our partners become unable to satisfy their financial obligations. Instead of owning properties directly, we have in some cases invested, and may continue to invest, as a partner or a co-venturer with one or more third parties. Under certain circumstances, this type of investment may involve risks not otherwise present, including the possibility that a partner or co-venturer might be unable to fund its obligations or might have business interests or goals inconsistent with ours. Also, such a partner or co-venturer may take action contrary to our requests or contrary to provisions in our joint venture agreements that could harm us. If we want to sell our interests in any of our joint ventures or believe that the properties in the joint venture should be sold, we may not be able to do so in a timely manner or at all, and our partner(s) may not cooperate with our desires, which could harm us.

Our insurance coverage on our properties may be inadequate. We carry insurance on all of our properties, including insurance for liability, fire, windstorms, floods, earthquakes and business interruption. Insurance companies, however, limit coverage against certain types of losses, such as losses due to terrorist acts, named windstorms, earthquakes and toxic mold. Thus, we may not have insurance coverage, or sufficient insurance coverage, against certain types of losses and/or there may be decreases in the insurance coverage 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 disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Further, if any our insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Such events could adversely affect our operating results and financial condition.

Our use of debt to finance our operations could have a material adverse effect on our cash flow and ability to make distributions. We are subject to risks associated with debt financing, such as the sufficiency of cash flow to meet required payment obligations, ability to comply with financial ratios and other covenants and the availability of capital to refinance existing indebtedness or fund important business initiatives. Increases in interest rates on our variable rate debt would increase our interest expense. If we fail to comply with the financial ratios and other covenants under our credit facilities, we would likely not be able to borrow any further amounts under such facilities, which could adversely affect our ability to fund our operations, and our lenders could accelerate outstanding debt. Further, we are currently assigned corporate credit ratings from Moody's Investors Service, Standard and Poor's Rating Services and Fitch Ratings based on their evaluation of our creditworthiness. These agencies' ratings are based on a number of factors, some of which are not within our control. In addition to factors specific to our financial strength and performance, the rating agencies also consider conditions affecting REITs generally. We cannot assure you that our credit ratings will not be downgraded. If our credit ratings are downgraded or other negative action is taken, we could be required, among other things, to pay additional interest and fees on outstanding borrowings under our revolving credit facility and term loans.

We generally do not intend to reserve funds to retire existing secured or unsecured debt upon maturity. We may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay distributions. Any such refinancing could also impose tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions. If we do not meet our mortgage financing obligations, any properties securing such indebtedness could be foreclosed on, which could have a material adverse effect on our cash flow and ability to pay distributions.

We depend on our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt upon maturity. Our ability to borrow under the revolving credit facility also allows us to quickly capitalize on accretive opportunities at short-term interest rates. If our lenders default under their obligations under the revolving credit facility or we become unable to borrow additional funds under the facility for any reason, we would be required to seek alternative equity or debt capital, which could be more costly and adversely impact

9

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our financial condition. If such alternative capital were unavailable, we may not be able to make new investments and could have difficulty repaying other debt.

The Company may be subject to taxation as a regular corporation if it fails to maintain its REIT status, which could also have a material adverse effect on the Company's stockholders and on the Operating Partnership. We may be subject to adverse consequences if the Company fails to continue to qualify as a REIT for federal income tax purposes. While we intend to operate in a manner that will allow the Company to continue to qualify as a REIT, we cannot provide any assurances that the Company will remain qualified as such in the future, which would have particularly adverse consequences to the Company's stockholders. Many of the requirements for taxation as a REIT are highly technical and complex and depend upon various factual matters and circumstances that may not be entirely within our control. The fact that the Company holds virtually all of its 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 Internal Revenue Service might change the tax laws and regulations and the courts might issue new rulings that make it more difficult, or impossible, for the Company to remain qualified as a REIT. If the Company fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates and would, therefore, have less cash available for investments or payment of principal and interest to creditors or bondholders. Such events would likely have a significant adverse effect on our operating results, financial condition and cash flows.

The market value of the Common Stock can be adversely affected by many factors. As with any public company, a number of factors may adversely influence the public market price of the Common Stock. These factors include:

•	the level of institutional interest in us;	

•	the perceived attractiveness of investment in us, in comparison to other REITs;	

•	the attractiveness of securities of REITs in comparison to other asset classes;	

•	our financial condition and performance;	

•	the market's perception of our growth potential and potential future cash dividends;	

•	government action or regulation, including changes in tax laws;	

•	increases in market interest rates, which may lead investors to expect a higher annual yield from our distributions in relation to the price of the Common Stock;	

•	changes in our credit ratings; and	

•	any negative change in the level of our dividend.	

We cannot assure you that we will continue to pay dividends at historical rates . We generally expect to use cash flows from operating activities to fund dividends. The following factors will affect such cash flows and, accordingly, influence the decisions of the Company's board of directors regarding dividends:

•	debt service requirements after taking into account debt covenants and the repayment and restructuring of certain indebtedness and the availability of alternative sources of debt and equity capital and their impact on our ability to refinance existing debt and grow our business;	

•	scheduled increases in base rents of existing leases;	

•	changes in rents attributable to the renewal of existing leases or replacement leases;	

•	changes in occupancy rates at existing properties and execution of leases for newly acquired or developed properties;	

•	changes in operating expenses;	

•	anticipated leasing capital expenditures attributable to the renewal of existing leases or replacement leases;	

•	anticipated building improvements; and	

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•	expected cash flows from financing and investing activities.	

The decision to declare and pay dividends on the Common Stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of the Company's board of directors Any change in our dividend policy could have a material adverse effect on the market price of the Common Stock.

Cash distributions reduce the amount of cash that would otherwise be available for other business purposes, including funding debt maturities or future growth initiatives. For the Company to maintain its qualification as a REIT, it must annually distribute to its stockholders at least 90% of REIT taxable income, excluding net capital gains. In addition, although capital gains are not required to be distributed to maintain REIT status, capital gains, if any, that are generated as part of our capital recycling program are subject to federal and state income tax unless such gains are distributed to our stockholders. Cash distributions made to stockholders to maintain REIT status or to distribute otherwise taxable capital gains limit our ability to accumulate capital for other business purposes, including funding debt maturities or growth initiatives.

Because provisions contained in Maryland law, the Company's charter and the Company's bylaws may have an anti-takeover effect, stockholders may be prevented from receiving a “control premium” for the Common Stock. Provisions contained in the Company's charter and bylaws as well as Maryland general corporation law may have anti-takeover effects that delay, defer or prevent a takeover attempt, and thereby prevent our stockholders from receiving a “control premium” for their shares. For example, these provisions may defer or prevent tender offers for the Common Stock or purchases of large blocks of the Common Stock, thus limiting the opportunities for the Company's stockholders to receive a premium for their shares of Common Stock over then-prevailing market prices. These provisions include the following:

•	Ownership limit . The Company's charter prohibits direct, indirect or constructive ownership by any person or entity of more than 9.8% of the Company's outstanding capital stock. Any attempt to own or transfer shares of capital stock in excess of the ownership limit without the consent of the Company's board of directors will be void.	

•	Preferred Stock . The Company's charter authorizes the 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 stockholder approval. The issuance of preferred stock could have the effect of delaying or preventing someone from taking control of the Company, even if a change in control were in our best interest.	

•	Maryland unsolicited takeover statute. Under Maryland law, the Company's board of directors could adopt various anti-takeover provisions without the consent of stockholders. The adoption of such measures could discourage offers for the Company or make an acquisition of the Company more difficult, even when an acquisition would be in the best interest of the Company's stockholders.	

•	Anti‑takeover protections of operating partnership agreement . Upon a change in control of the Company, the partnership agreement of the Operating Partnership requires certain acquirers to maintain an umbrella partnership real estate investment trust structure with terms at least as favorable to the limited partners as are currently in place. For instance, the acquirer would be required to preserve the limited partner's right to continue to hold tax-deferred partnership interests that are redeemable for capital stock of the acquirer. Exceptions would require the approval of two-thirds of the limited partners of our Operating Partnership (other than the Company). These provisions may make a change of control transaction involving the Company more complicated and therefore might decrease the likelihood of such a transaction occurring, even if such a transaction would be in the best interest of the Company's stockholders.	

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Wholly Owned Properties

The following table sets forth information about our Wholly Owned Properties:

	
												
 	December 31, 2011	 	December 31, 2010	
 	Rentable
Square Feet	 	Percent
Occupied/
Leased/
Pre-Leased	 	Rentable
Square Feet	 	Percent
Occupied/
Leased/
Pre-Leased	
In-Service (Occupied) :	 	 	 	 	 	 	 	
Office	22,612,000		 	89.2	%	 	20,502,000		 	89.9	%	
Industrial	5,827,000		 	91.6		 	5,827,000		 	90.4		
Retail	853,000		 	98.7		 	853,000		 	97.8		
Total or Weighted Average	29,292,000		 	90.0	%	 	27,182,000		 	90.3	%	
 	 	 	 	 	 	 	 	
Development (Leased/pre-leased) :	 	 	 	 	 	 	 	
Completed—Not Stabilized (1)	 	 	 	 	 	 	 	
Office	117,000		 	100.0	%	 	265,000		 	13.4	%	
Total or Weighted Average	117,000		 	100.0	%	 	265,000		 	13.4	%	
In Process (1)	 	 	 	 	 	 	 	
Office	228,000		 	88.9	%	 	—		 	—		
Total or Weighted Average	228,000		 	88.9	%	 	—		 	—		
 	 	 	 	 	 	 	 	
Total:	 	 	 	 	 	 	 	
Office	22,957,000		 	 	 	20,767,000		 	 	
Industrial	5,827,000		 	 	 	5,827,000		 	 	
Retail	853,000		 	 	 	853,000		 	 	
Total	29,637,000		 	 	 	27,447,000		 	 	
__________
		
(1)	We consider a development project to be stabilized upon the earlier of the original projected stabilization date or the date such project is generally more than 90% occupied. None of these properties qualified for development in process as reflected in our Consolidated Balance Sheets since substantial development activity is not underway.	

The following table sets forth the net changes in square footage of our in-service Wholly Owned Properties:

	
									
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
 	(rentable square feet in thousands)	
Office, Industrial and Retail Properties:	 	 	 	 	 	
Dispositions	(136	)	 	(1,309	)	 	(550	)	
Developments Placed In-Service	208		 	413		 	751		
Redevelopment/Other	(53	)	 	(35	)	 	(17	)	
Acquisitions	2,091		 	336		 	220		
Net Change in Square Footage of In-Service Wholly Owned Properties	2,110		 	(595	)	 	404		

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The following table sets forth information about our in-service Wholly Owned Properties by segment and by geographic location at December 31, 2011 :

	
																			
 	 	Rentable
Square Feet	 	Occupancy	 	Percentage of Annualized Cash Rental Revenue (1)	
Market	 					Office	 	Industrial	 	Retail	 	Total	
Raleigh	 	4,245,000		 	90.1	%	 	15.6	%	 	—		 	—		 	15.6	%	
Atlanta	 	6,378,000		 	90.1		 	11.6		 	3.5	%	 	—		 	15.1		
Tampa	 	2,879,000		 	90.2		 	13.4		 	—		 	—		 	13.4		
Nashville	 	3,094,000		 	94.1		 	12.6		 	—		 	—		 	12.6		
Kansas City	 	1,504,000		 	90.5		 	2.9		 	—		 	6.5	%	 	9.4		
Memphis	 	2,072,000		 	85.6		 	8.0		 	—		 	—		 	8.0		
Richmond	 	2,229,000		 	90.0		 	7.2		 	—		 	—		 	7.2		
Pittsburgh	 	1,540,000		 	82.7		 	7.0		 	—		 	—		 	7.0		
Piedmont Triad	 	4,038,000		 	91.1		 	4.3		 	2.5		 	—		 	6.8		
Greenville	 	897,000		 	89.6		 	3.1		 	—		 	—		 	3.1		
Orlando	 	416,000		 	90.6		 	1.8		 	—		 	—		 	1.8		
Total	 	29,292,000		 	90.0	%	 	87.5	%	 	6.0	%	 	6.5	%	 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus additional rent based on the level of operating expenses, excluding straight-line rent) for the month of December 2011 multiplied by 12.	

The following table sets forth operating information about our in-service Wholly Owned Properties:

	
											
 	Average
Occupancy	 	Annualized GAAP Rent
Per Square
Foot (1)	 	Annualized Cash Rent
Per Square
Foot (2)	
2007	90.2	%	 	$	16.72		 	$	16.27		
2008	91.2	%	 	$	17.41		 	$	17.18		
2009	88.2	%	 	$	17.75		 	$	17.53		
2010	88.6	%	 	$	18.03		 	$	17.40		
2011	89.6	%	 	$	18.58		 	$	17.84		
__________
		
(1)	Annualized GAAP Rent Per Square Foot is rental revenue (base rent plus additional rent based on the level of operating expenses, including straight-line rent) for the month of December of the respective year multiplied by 12, divided by total occupied square footage.	
		
(2)	Annualized Cash Rent Per Square Foot is cash rental revenue (base rent plus additional rent based on the level of operating expenses, excluding straight-line rent) for the month of December of the respective year multiplied by 12, divided by total occupied square footage.	

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Customers

The following table sets forth information concerning the 20 largest customers of our Wholly Owned Properties at December 31, 2011 :

	
														
Customer	 	Rental Square
Feet	 	Annualized
Cash Rental
Revenue (1)	 	Percent of
Total
Annualized
Cash Rental
Revenue (1)	 	Weighted
Average
Remaining
Lease Term in
Years	
 	 	 	 	(in thousands)	 	 	 	 	
Federal Government	 	2,069,494		 	$	43,516		 	9.19	%	 	7.2		
AT&T	 	755,667		 	14,637		 	3.09		 	1.8		
PPG Industries	 	340,428		 	8,836		 	1.87		 	9.5		
PricewaterhouseCoopers	 	318,647		 	8,799		 	1.86		 	1.3		
State of Georgia	 	417,535		 	7,479		 	1.58		 	6.2		
Healthways	 	290,689		 	6,702		 	1.42		 	10.4		
Metropolitan Life Insurance	 	296,595		 	5,956		 	1.26		 	6.3		
T-Mobile USA	 	210,971		 	5,649		 	1.19		 	2.5		
HCA Corporation	 	231,176		 	5,345		 	1.13		 	3.2		
Lockton Companies	 	170,743		 	5,003		 	1.06		 	18.2		
Syniverse Technologies	 	198,750		 	4,194		 	0.89		 	4.8		
BB&T	 	256,379		 	4,104		 	0.87		 	3.6		
Vanderbilt University	 	188,254		 	4,038		 	0.85		 	3.8		
RBC Bank	 	164,271		 	3,971		 	0.84		 	14.9		
SCI Services	 	162,784		 	3,785		 	0.80		 	5.6		
Volvo	 	302,509		 	3,682		 	0.78		 	2.8		
Aon	 	149,114		 	3,589		 	0.76		 	8.0		
Jacobs Engineering Group	 	210,126		 	3,532		 	0.75		 	3.3		
Fluor Enterprises	 	195,930		 	3,511		 	0.74		 	1.4		
Deloitte & Touche	 	120,934		 	3,363		 	0.71		 	2.3		
Total	 	7,050,996		 	$	149,691		 	31.64	%	 	6.0		
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus additional rent based on the level of operating expenses, excluding straight-line rent) for the month of December 2011 multiplied by 12.	

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Land Held for Development

We wholly owned 586 acres of development land at December 31, 2011 . We estimate that we can develop approximately 5.7 million and 2.7 million rentable square feet of office and industrial space, respectively, on the 524 acres that we consider core assets for our future development needs. Our development land is zoned and available for office and industrial development, and nearly all of the land has utility infrastructure 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.
 
We consider 62 acres of our wholly owned development land at December 31, 2011 to be non-core assets that are not necessary for our foreseeable future development needs. We intend to dispose of such non-core development land through sales to third parties or contributions to joint ventures.

Other Properties

The following table sets forth information about our stabilized in-service properties in which we own an interest (50.0% or less) by segment and by geographic location at December 31, 2011 :

	
													
 	 	Rentable
Square Feet	 	Weighted
Average
Ownership
Interest	 	Occupancy	 	Percentage of
Annualized
Cash Rental
Revenue (1)	
Market	 							Office	
Orlando, FL	 	1,853,000		 	35.2	%	 	83.0	%	 	40.6	%	
Kansas City, MO (2)	 	719,000		 	43.0		 	83.9		 	18.7		
Raleigh, NC	 	814,000		 	25.0		 	93.5		 	12.8		
Atlanta, GA	 	840,000		 	40.6		 	75.7		 	12.6		
Richmond, VA (3)	 	413,000		 	50.0		 	100.0		 	8.6		
Tampa, FL (4)	 	205,000		 	20.0		 	81.9		 	3.6		
Piedmont Triad, NC	 	258,000		 	43.4		 	42.8		 	1.8		
Charlotte, NC	 	148,000		 	22.8		 	100.0		 	1.3		
Total	 	5,250,000		 	35.2	%	 	83.4	%	 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus additional rent based on the level of operating expenses, excluding straight-line rent) for the month of December 2011 multiplied by 12.	
		
(2)	Includes a 12.5% interest in a 261,000 square foot office property owned directly by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).	
		
(3)	We own a 50.0% interest in this joint venture, which is consolidated.	
		
(4)	We own a 20.0% interest in this joint venture, which is consolidated.	

Lease Expirations

The following tables set forth scheduled lease expirations for existing leases at our in-service and completed – not stabilized Wholly Owned Properties at December 31, 2011 :

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Office Properties:

	
																		
Lease Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	($ in thousands)	 	 	 	
2012 (2)	 	2,155,616		 	10.7	%	 	$	44,142		 	$	20.48		 	10.7	%	
2013	 	2,741,177		 	13.6		 	60,662		 	22.13		 	14.8		
2014	 	2,725,889		 	13.5		 	58,460		 	21.45		 	14.3		
2015	 	2,506,128		 	12.4		 	51,207		 	20.43		 	12.5		
2016	 	2,239,941		 	11.1		 	41,260		 	18.42		 	10.0		
2017	 	2,035,928		 	10.1		 	37,469		 	18.40		 	9.1		
2018	 	1,160,624		 	5.8		 	25,221		 	21.73		 	6.1		
2019	 	914,305		 	4.5		 	18,228		 	19.94		 	4.4		
2020	 	606,354		 	3.0		 	10,398		 	17.15		 	2.5		
2021	 	1,197,566		 	5.9		 	24,663		 	20.59		 	6.0		
Thereafter	 	1,893,834		 	9.4		 	39,657		 	20.94		 	9.6		
 	 	20,177,362		 	100.0	%	 	$	411,367		 	$	20.39		 	100.0	%	

Industrial Properties:

	
																		
Lease Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under
Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	($ in thousands)	 	 	 	
2012 (3)	 	712,246		 	13.4	%	 	$	4,309		 	$	6.05		 	15.3	%	
2013	 	693,523		 	13.0		 	3,971		 	5.73		 	14.1		
2014	 	1,000,904		 	18.7		 	5,522		 	5.52		 	19.4		
2015	 	468,016		 	8.8		 	2,436		 	5.20		 	8.6		
2016	 	655,237		 	12.3		 	3,038		 	4.64		 	10.8		
2017	 	474,637		 	8.9		 	1,629		 	3.43		 	5.8		
2018	 	88,467		 	1.7		 	431		 	4.87		 	1.5		
2019	 	146,324		 	2.7		 	669		 	4.57		 	2.4		
2020	 	90,078		 	1.7		 	376		 	4.17		 	1.3		
2021	 	175,805		 	3.3		 	581		 	3.30		 	2.1		
Thereafter	 	828,952		 	15.5		 	5,287		 	6.38		 	18.7		
 	 	5,334,189		 	100.0	%	 	$	28,249		 	$	5.30		 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus additional rent based on the level of operating expenses, excluding straight-line rent) for the month of December 2011 multiplied by 12.	
		
(2)	Includes 126,000 square feet of leases that are on a month-to-month basis, which represent 0.5% of total annualized cash rental revenue.	
		
(3)	Includes 133,000 square feet of leases that are on a month-to-month basis, which represent 0.1% of total annualized cash rental revenue.	

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Table of Contents

Retail Properties:

	
																		
Lease Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under
Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	($ in thousands)	 	 	 	
2012 (2)	 	67,646		 	8.0	%	 	$	1,803		 	$	26.65		 	5.9	%	
2013	 	81,518		 	9.7		 	2,024		 	24.83		 	6.6		
2014	 	40,120		 	4.8		 	1,993		 	49.68		 	6.5		
2015	 	55,037		 	6.5		 	2,773		 	50.38		 	9.1		
2016	 	63,397		 	7.5		 	3,162		 	49.88		 	10.3		
2017	 	93,570		 	11.1		 	2,281		 	24.38		 	7.5		
2018	 	83,588		 	9.9		 	4,109		 	49.16		 	13.4		
2019	 	96,624		 	11.5		 	2,960		 	30.63		 	9.7		
2020	 	67,675		 	8.0		 	2,083		 	30.78		 	6.8		
2021	 	103,973		 	12.5		 	4,216		 	40.55		 	13.7		
Thereafter	 	88,658		 	10.5		 	3,205		 	36.15		 	10.5		
 	 	841,806		 	100.0	%	 	$	30,609		 	$	36.36		 	100.0	%	

Total:

	
																		
Lease Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under
Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	($ in thousands)	 	 	 	
2012 (3)	 	2,935,508		 	11.1	%	 	$	50,254		 	$	17.12		 	10.7	%	
2013	 	3,516,218		 	13.3		 	66,657		 	18.96		 	14.2		
2014	 	3,766,913		 	14.3		 	65,975		 	17.51		 	14.1		
2015	 	3,029,181		 	11.5		 	56,416		 	18.62		 	12.0		
2016	 	2,958,575		 	11.2		 	47,460		 	16.04		 	10.1		
2017	 	2,604,135		 	9.9		 	41,379		 	15.89		 	8.8		
2018	 	1,332,679		 	5.1		 	29,761		 	22.33		 	6.3		
2019	 	1,157,253		 	4.4		 	21,857		 	18.89		 	4.6		
2020	 	764,107		 	2.9		 	12,857		 	16.83		 	2.7		
2021	 	1,477,344		 	5.6		 	29,460		 	19.94		 	6.3		
Thereafter	 	2,811,444		 	10.7		 	48,149		 	17.13		 	10.2		
 	 	26,353,357		 	100.0	%	 	$	470,225		 	$	17.84		 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus additional rent based on the level of operating expenses, excluding straight-line rent) for the month of December 2011 multiplied by 12.	
		
(2)	Includes 4,000 square feet of leases that are on a month-to-month basis, which represent less than 0.1% of total annualized cash rental revenue.	
		
(3)	Includes 263,000 square feet of leases that are on a month-to-month basis, which represent 0.6% of total annualized cash rental revenue.	

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ITEM 3. LEGAL PROCEEDINGS

We are from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of our business. We regularly assess the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that we have incurred or will incur a loss and the loss or range of loss can be reasonably estimated, the estimated loss is accrued and charged to income in our Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of such matters, none of these proceedings, claims or assessments is expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.

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ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT

The Company is the sole general partner of the Operating Partnership. The following table sets forth information with respect to the Company’s executive officers:

	
					
Name	 	Age	 	Position and Background	
Edward J. Fritsch	 	53	 	Director, President and Chief Executive Officer.
Mr. Fritsch has been a director since January 2001. Mr. Fritsch became our chief executive officer and chair of the investment committee of our board of directors on July 1, 2004 and our president in December 2003. Prior to that, Mr. Fritsch was our chief operating officer from January 1998 to July 2004 and was a vice president and secretary from June 1994 to January 1998. Mr. Fritsch joined our predecessor in 1982 and was a partner of that entity at the time of our initial public offering in June 1994. Mr. Fritsch is a member of the National Association of Real Estate Investment Trusts (“NAREIT”) Board of Governors and member of its executive committee, past chair of the University of North Carolina Board of Visitors, trustee of the North Carolina Symphony, director of the YMCA of the Triangle, director of Capital Associated Industries, Inc. and member of its audit committee and member of Wells Fargo's Central Regional Advisory Board.
 	
Michael E. Harris	 	62	 	Executive Vice President and Chief Operating Officer.
Mr. Harris became chief operating officer in July 2004. Prior to that, Mr. Harris was a senior vice president and was responsible for our operations in Memphis, Nashville, Kansas City and Charlotte. Mr. Harris was executive vice president of Crocker Realty Trust prior to its merger with us in 1996. 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. Mr. Harris is a member of the executive committee of the Urban Land Institute – Triangle Chapter and is past president of the Lambda Alpha International Land Economics Society. Mr. Harris  currently serves on the Advisory Board of the Graduate School of Real Estate at the University of Mississippi.
 	
Terry L. Stevens	 	63	 	Senior Vice President and Chief Financial Officer.
Prior to joining us in December 2003, Mr. Stevens was executive vice president, chief financial officer and trustee for Crown American Realty Trust, a public REIT. Before joining Crown American Realty Trust, Mr. Stevens was director of financial systems development at AlliedSignal, Inc., a large multi-national manufacturer. Mr. Stevens was also an audit partner with Price Waterhouse for seven years. Mr. Stevens currently serves as trustee, chairman of the Audit Committee and member of the Investment and Finance Committee of First Potomac Realty Trust, a public REIT. Mr. Stevens is a member of the American and the Pennsylvania Institutes of Certified Public Accountants.
 	
Jeffrey D. Miller	 	41	 	Vice President, General Counsel and Secretary.
Prior to joining us in March 2007, Mr. Miller was a partner with DLA Piper US, LLP, where he practiced since 2005. Previously, he had been a partner with Alston & Bird LLP. He is admitted to practice in North Carolina. Mr. Miller currently serves as lead independent director of Hatteras Financial Corp., a publicly-traded mortgage REIT.	

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth high and low stock prices per share reported on the NYSE and dividends paid per share:

	
																									
 	 	2011	 	2010	
Quarter Ended	 	High	 	Low	 	Dividend	 	High	 	Low	 	Dividend	
March 31	 	$	35.15		 	$	31.25		 	$	0.425		 	$	33.98		 	$	27.09		 	$	0.425		
June 30	 	$	37.51		 	$	31.71		 	$	0.425		 	$	33.87		 	$	27.57		 	$	0.425		
September 30	 	$	35.15		 	$	26.43		 	$	0.425		 	$	33.25		 	$	26.25		 	$	0.425		
December 31	 	$	32.27		 	$	25.64		 	$	0.425		 	$	35.38		 	$	29.39		 	$	0.425		

On December 31, 2011 , the last reported stock price of the Common Stock on the NYSE was $29.67 per share and the Company had 1,038 common stockholders of record. There is no public trading market for the Common Units. On December 31, 2011 , the Operating Partnership had 112 holders of record of Common Units (other than the Company). At December 31, 2011 , there were 72.6 million shares of Common Stock outstanding and 3.7 million Common Units outstanding, not owned by the Company.

Because the Company is a REIT, the partnership agreement requires the Operating Partnership to distribute at least enough cash for the Company to be able to distribute to its stockholders at least 90.0% of its REIT taxable income, excluding net capital gains. See “Item 1A. Risk Factors – Cash distributions reduce the amount of cash that would otherwise be available for other business purposes, including funding debt maturities or future growth initiatives.”

We generally expect to use cash flows from operating activities to fund distributions. The following factors will affect such cash flows and, accordingly, influence the decisions of the Company’s Board of Directors regarding dividends and distributions:

•	debt service requirements after taking into account debt covenants and the repayment and restructuring of certain indebtedness and the availability of alternative sources of debt and equity capital and their impact on our ability to refinance existing debt and grow our business;	

•	scheduled increases in base rents of existing leases;	

•	changes in rents attributable to the renewal of existing leases or replacement leases;	

•	changes in occupancy rates at existing properties and execution of leases for newly acquired or developed properties;	

•	changes in operating expenses;	

•	anticipated leasing capital expenditures attributable to the renewal of existing leases or replacement leases;	

•	anticipated building improvements; and	

•	expected cash flows from financing and investing activities.	

The following stock price performance graph compares the performance of our Common Stock to the S&P 500, the Russell 2000 and the FTSE NAREIT All Equity REITs Index. The stock price performance graph assumes an investment of $100 in our Common Stock and the three indices on December 31, 2005 and further assumes the reinvestment of all dividends. Equity REITs are defined as those that derive more than 75.0% of their income from equity investments in real estate assets. The FTSE NAREIT All Equity REITs Index includes all equity REITs not designated as Timber REITs listed on the NYSE, the American Stock Exchange or the NASDAQ National Market System. Stock price performance is not necessarily indicative of future results.

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 	 	For the Period from December 31, 2006 to December 31,	
Index	 	2007	 	2008	 	2009	 	2010	 	2011	
Highwoods Properties, Inc.	 	75.33		 	74.25		 	96.83		 	97.82		 	96.08		
S&P 500	 	105.49		 	66.46		 	84.05		 	96.71		 	98.76		
Russell 2000	 	98.43		 	65.18		 	82.89		 	105.14		 	100.75		
FTSE NAREIT All Equity REITs Index	 	84.31		 	52.50		 	67.20		 	85.98		 	93.11		

The performance graph above is being furnished as part of this Annual Report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish the Company’s stockholders with such information and, therefore, is not deemed to be filed, or incorporated by reference in any filing, by the Company or the Operating Partnership under the Securities Act of 1933 or the Securities Exchange Act of 1934.

During 2011 , cash dividends on Common Stock totaled $1.70 per share, $0.55 of which represented return of capital and none of which represented capital gains for income tax purposes. The minimum dividend per share of Common Stock required for the Company to maintain its REIT status was $1.01 per share in 2011 .

During the fourth quarter of 2011 , the Company issued an aggregate of 21,161 shares of Common Stock to holders of Common Units in the Operating Partnership upon the redemption of a like number of Common Units in private offerings exempt from the registration requirements pursuant to Section 4(2) of the Securities Act. Each of the holders of Common Units was an accredited investor under Rule 501 of the Securities Act. The resale of such shares was registered by the Company under the Securities Act.

The Company has a Dividend Reinvestment and Stock Purchase Plan (“DRIP”) under which holders of Common Stock may elect to automatically reinvest their dividends in additional shares of Common Stock and make optional cash payments for additional shares of Common Stock. The Company may elect to satisfy its DRIP obligations by issuing additional shares of Common Stock or causing the DRIP administrator to purchase Common Stock in the open market.

The Company has an Employee Stock Purchase Plan pursuant to which employees generally may contribute up to 25.0% of their cash compensation for the purchase of Common Stock. At the end of each three-month offering period, each participant’s account balance, which includes accrued dividends, is applied to acquire shares of Common Stock at a cost that is calculated at 85.0% of the average closing price on the NYSE on the five consecutive days preceding the last day of the quarter.

Information about the Company’s equity compensation plans and other related stockholder matters is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2012 .

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ITEM 6. SELECTED FINANCIAL DATA

The operating results of the Company for the years ended December 31, 2010 , 2009 , 2008 and 2007 have been revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale which required discontinued operations presentation. The information in the following tables should be read in conjunction with the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein ($ in thousands, except per share data):

	
																				
 	Year Ended December 31,	
 	2011	 	2010	 	2009	 	2008	 	2007	
Rental and other revenues	$	482,852		 	$	461,126		 	$	448,018		 	$	443,018		 	$	410,294		
Income from continuing operations	$	44,501		 	$	70,910		 	$	46,458		 	$	37,518		 	$	48,918		
Income from continuing operations available for common stockholders	$	35,380		 	$	60,467		 	$	37,400		 	$	23,868		 	$	30,130		
Net income	$	47,971		 	$	72,303		 	$	61,694		 	$	35,610		 	$	97,095		
Net income available for common stockholders	$	38,677		 	$	61,790		 	$	51,778		 	$	22,080		 	$	74,983		
Earnings per common share – basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.49		 	$	0.84		 	$	0.55		 	$	0.40		 	$	0.53		
Net income	$	0.54		 	$	0.86		 	$	0.76		 	$	0.37		 	$	1.32		
Earnings per common share – diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.49		 	$	0.84		 	$	0.55		 	$	0.40		 	$	0.53		
Net income	$	0.54		 	$	0.86		 	$	0.76		 	$	0.37		 	$	1.31		
Dividends declared and paid per common share	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		

	
																				
 	December 31,	
 	2011	 	2010	 	2009	 	2008	 	2007	
Total assets	$	3,180,992		 	$	2,871,835		 	$	2,887,101		 	$	2,946,170		 	$	2,926,955		
Mortgages and notes payable	$	1,903,213		 	$	1,522,945		 	$	1,469,155		 	$	1,604,685		 	$	1,641,987		
Financing obligations	$	31,444		 	$	33,114		 	$	37,706		 	$	34,174		 	$	35,071		

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The operating results of the Operating Partnership for the years ended December 31, 2010 , 2009 , 2008 and 2007 have been revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale which required discontinued operations presentation. The information in the following tables should be read in conjunction with the Operating Partnership’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein ($ in thousands, except per unit data):

	
																				
 	Year Ended December 31,	
 	2011	 	2010	 	2009	 	2008	 	2007	
Rental and other revenues	$	482,852		 	$	461,126		 	$	448,018		 	$	443,018		 	$	410,294		
Income from continuing operations	$	44,562		 	$	70,883		 	$	46,404		 	$	37,391		 	$	48,177		
Income from continuing operations available for common unitholders	$	37,359		 	$	63,690		 	$	39,685		 	$	25,438		 	$	31,736		
Net income	$	48,032		 	$	72,276		 	$	61,640		 	$	35,483		 	$	94,895		
Net income available for common unitholders	$	40,829		 	$	65,083		 	$	54,921		 	$	23,530		 	$	78,454		
Earnings per common unit – basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.49		 	$	0.85		 	$	0.56		 	$	0.40		 	$	0.52		
Net income	$	0.54		 	$	0.87		 	$	0.77		 	$	0.37		 	$	1.29		
Earnings per common unit – diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.49		 	$	0.85		 	$	0.56		 	$	0.40		 	$	0.52		
Net income	$	0.54		 	$	0.87		 	$	0.77		 	$	0.37		 	$	1.28		
Distributions declared and paid per common unit	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		

	
																				
 	December 31,	
 	2011	 	2010	 	2009	 	2008	 	2007	
Total assets	$	3,179,884		 	$	2,870,671		 	$	2,885,738		 	$	2,944,856		 	$	2,925,804		
Mortgages and notes payable	$	1,903,213		 	$	1,522,945		 	$	1,469,155		 	$	1,604,685		 	$	1,641,987		
Financing obligations	$	31,444		 	$	33,114		 	$	37,706		 	$	34,174		 	$	35,071		

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company is a fully integrated, self-administered and self-managed equity REIT that provides leasing, management, development, construction and other customer-related services for our properties and for third parties. The Company conducts virtually all of its activities through the Operating Partnership. The Operating Partnership is managed by the Company, its sole general partner. At December 31, 2011 , we owned or had an interest in 338 in-service office, industrial and retail properties, encompassing approximately 34.5 million square feet, 96 rental residential units and 17 for-sale residential condominiums, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership's Consolidated Financial Statements). We are based in Raleigh, NC, and our properties and development land are located in Florida, Georgia, Maryland, Mississippi, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia.

You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained elsewhere herein.

Disclosure Regarding Forward-Looking Statements

Some of the information in this Annual Report may contain forward-looking statements. Such statements include, in particular, statements about our plans, strategies and prospects under this section and under the heading “Item 1. 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:

•	the financial condition of our customers could deteriorate;	

•	we may not be able to lease or release second generation space, defined as previously occupied space that becomes available for lease, quickly or on as favorable terms as old leases;	

•	we may not be able to lease our newly constructed buildings as quickly or on as favorable terms as originally anticipated;	

•	we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated;	

•	development activity by our competitors in our existing markets could result in an excessive supply of office, industrial and retail properties relative to customer demand;	

•	our markets may suffer declines in economic growth;	

•	unanticipated increases in interest rates could increase our debt service costs;	

•	unanticipated increases in operating expenses could negatively impact our operating results;	

•	we may not be able to meet our liquidity requirements or obtain capital on favorable terms to fund our working capital needs and growth initiatives or to repay or refinance outstanding debt upon maturity; and	

•	the Company could lose key executive officers.	

This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in “Item 1A. Business – Risk Factors” set forth in this Annual Report. Given these uncertainties, you should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.

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Executive Summary
 
Our Strategic Plan focuses on:

•	owning high-quality, differentiated real estate assets in the better submarkets in our core markets;	

•	improving the operating results of our existing properties through concentrated leasing, asset management, cost control and customer service efforts;	

•	developing and acquiring office properties in key infill submarkets that improve the overall quality of our portfolio and generate attractive returns over the long-term for our stockholders;	

•	selectively disposing of properties no longer considered to be core assets primarily due to location, age, quality and overall strategic fit; and	

•	maintaining a conservative, flexible balance sheet with ample liquidity to meet our funding needs and growth prospects.	
 
While we own and operate a limited number of industrial, retail and residential properties, our operating results depend heavily on successfully leasing and operating our office properties. Economic growth and employment levels in our core markets are and will continue to be important determinative factors in predicting our future operating results.
 
The key components affecting our rental and other revenues are average occupancy, rental rates, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also must concentrate our leasing efforts on renewing leases on expiring space. For more information regarding our lease expirations, see “Item 2. Properties - Lease Expirations.” We expect average occupancy in 2012 to be similar compared to 2011.
 
Whether or not our rental revenue tracks average occupancy proportionally depends upon whether rents under new leases signed are higher or lower than the rents under the previous leases. Annualized rental revenues from second generation leases signed during any particular year are generally less than 15% of our total annual rental revenues. During the fourth quarter of 2011 , we leased 1.1 million square feet of second generation office space, defined as space previously occupied under our ownership that becomes available for lease or acquired vacant space, with a weighted average term of 6.8 years. On average, tenant improvements for such leases were $11.45 per square foot, lease commissions were $4.58 per square foot and rent concessions were $3.41 per square foot. Annualized GAAP rents under such leases were $21.96 per square foot, or 2.8% higher than under previous leases.

We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company's Board of Directors. Currently, no customer accounts for more than 3% of our revenues other than the Federal Government, which accounts for 9.2% of our revenues, and AT&T, which accounts for 3.1% of our revenues. See “Item 2. Properties - Customers.”
 
Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. From time to time, expenses also include impairments of assets held for use. Rental property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy levels, such as common area maintenance and utilities, and expenses that do not vary based on occupancy, such as property taxes and insurance. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy, place in service or sell assets, since we depreciate our properties and related building and tenant improvement assets on a straight-line basis over a fixed life. General and administrative expenses, net of amounts capitalized, consist primarily of management and employee salaries and other personnel costs, corporate overhead and long-term incentive compensation.

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We anticipate commencing up to $150 million of new development in 2012 . Any such projects would not be placed in service until 2013 or beyond. We also anticipate acquiring up to $300 million of new properties and selling up to $150 million of non-core properties in 2012 .
 
We intend to maintain a conservative and flexible balance sheet that allows us to capitalize on favorable development and acquisition opportunities as they arise. As of December 31, 2011 , our mortgages and notes payable represented 46.6% of the undepreciated book value of our assets. We expect this ratio to remain under 50% during 2012 .

Results of Operations

Comparison of 2011 to 2010
 
Rental and Other Revenues
 
Rental and other revenues from continuing operations were $21.7 million, or 4.7%, higher in 2011 as compared to 2010 primarily due to the acquisitions of office properties in Pittsburgh, PA, Atlanta, GA and Raleigh, NC in 2011 and office properties in Memphis, TN and Tampa, FL in 2010, which accounted for $20.0 million of the increase, and the contribution of development properties placed in service at various times throughout the two-year period, which accounted for $1.8 million of the increase. Same property revenues were virtually unchanged in 2011 compared to 2010 primarily due to an increase in average occupancy from 89.7% in 2010 to 90.2% in 2011, offset by a slight decrease in annualized GAAP rents per square foot from $18.46 in 2010 to $18.38 in 2011. We expect 2012 rental and other revenues, adjusted for any discontinued operations, to increase over 2011 due to the full year contribution of acquisitions closed in 2011 and slightly higher average occupancy as a result of improving economic conditions.

Operating Expenses
 
Rental property and other expenses were 7.6% higher in 2011 as compared to 2010 primarily due to our recent acquisition activity, the contribution of development properties recently placed in service and higher real estate taxes and utilities in our same property portfolio. We expect 2012 rental property and other expenses, adjusted for any discontinued operations, to increase over 2011 due to the full year contribution of acquisitions closed in 2011.
 
Operating margin, defined as rental and other revenues less rental property and other expenses expressed as a percentage of rental and other revenues, was lower at 63.5% in 2011 as compared to 64.5% in 2010. Operating margin is expected to be similar in 2012 as compared to 2011.
 
Depreciation and amortization was 5.6% higher in 2011 as compared to 2010 primarily due to our recent acquisition activity and the contribution of development properties recently placed in service. We expect depreciation expense to be higher in 2012 as compared to 2011 due to the full year contribution of acquisitions closed in 2011.
 
We recorded impairment of assets held for use of $2.4 million in 2011 related to two office properties located in Orlando, FL. Impairments can arise from a number of factors; accordingly, there can be no assurances that we will not be required to record additional impairment charges in the future.
 
General and administrative expenses were 8.4% higher in 2011 as compared to 2010 primarily due to property acquisition costs, offset by lower expenses from management's continuing efforts to control general and administrative expenses. We expect general and administrative expenses in 2012 to decrease over 2011 due to lower property acquisition costs.
 
Other Income
 
Other income was $1.7 million higher in 2011 as compared to 2010 primarily due to interest income on an advance to unconsolidated affiliate in 2011 and loss on debt extinguishment in 2010. We expect other income in 2012 to increase slightly over 2010 due to the full year impact of interest income on this advance to unconsolidated affiliate.

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Interest Expense
 
Interest expense was 2.8% higher in 2011 as compared to 2010 primarily due to higher average debt balances from our net acquisition and investment activity, offset by lower average interest rates and higher financing obligation interest expense in 2010. We anticipate interest expense will increase in 2012 due to the full year impact of higher average debt balances from acquisition activity, partly offset by lower average interest rates on our outstanding borrowings in 2012.

Gains on Disposition of Investment in Unconsolidated Affiliates
 
Gains on disposition of investment in unconsolidated affiliates were $23.0 million lower in 2011 as compared to 2010 due to the disposition of our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA in 2010.
 
Gain on Disposition of Discontinued Operations
 
Gains on disposition of discontinued operations were $2.7 million higher in 2011 as compared to 2010 due to the disposition of an office property in Winston Salem, NC in 2011.

Dividends on Preferred Stock

Dividends on Preferred Stock were $2.2 million lower in 2011 as compared to 2010 due to the redemption of Preferred B shares in 2011. As a result of this redemption we recorded $1.9 million of excess of Preferred Stock redemption cost over carrying value.

Comparison of 2010 to 2009
 
Rental and Other Revenues
 
Rental and other revenues from continuing operations were $13.1 million, or 2.9%, higher in 2010 as compared to 2009. The increase in rental and other revenues was primarily due to the acquisitions of an office property in Memphis, TN in 2010 and an office property in Tampa, FL in 2009, which accounted for $9.2 million of the increase, and the contribution of development properties placed in service at various times throughout the two-year period, which accounted for $7.3 million of the increase. Same property revenues were $4.4 million, or 1.1%, lower in 2010 compared to 2009. The decrease in same property revenues resulted primarily from a decrease in average occupancy from 90.0% in 2009 to 89.6% in 2010 and in annualized GAAP rents per square foot from $18.19 in 2009 to $18.08 in 2010.
 
Operating Expenses

Rental property and other expenses were 1.0% higher in 2010 as compared to 2009 primarily due to our recent acquisition activity and the contribution of development properties recently placed in service, offset by lower expenses resulting from management's continuing efforts to reduce operating expenses in our same property portfolio.
 
Operating margin, defined as rental and other revenues less rental property and other expenses expressed as a percentage of rental and other revenues, was higher at 64.5% in 2010 as compared to 63.8% in 2009.
 
Depreciation and amortization was 4.4% higher in 2010 as compared to 2009 primarily due to our acquisition activity and the contribution of development properties placed in service.
 
We recorded impairment of assets held for use of $2.6 million in 2009 related to four office properties in Winston-Salem, NC.
 
General and administrative expenses were 10.2% lower in 2010 as compared to 2009 primarily due to lower incentive compensation, a decrease in the value of marketable securities held under our non-qualified deferred compensation plan, and lower expenses from management's continuing efforts to reduce general and administrative expenses.
 
Other Income

Other income was $3.9 million lower in 2010 as compared to 2009 primarily due to a decrease in the value of marketable securities held under our non-qualified deferred compensation plan and gains on debt extinguishment and favorable cash settlement of a real estate related legal claim in 2009.

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Interest Expense

Interest expense was 7.6% higher in 2010 as compared to 2009 primarily due to lower capitalized interest from decreased development in process, higher average interest rates partially offset by lower average debt balances.
 
Gains on Disposition of Investment in Unconsolidated Affiliates

Gains on disposition of investment in unconsolidated affiliates were $25.3 million higher in 2010 as compared to 2009 due to the disposition of our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA in 2010.

Discontinued Operations

Discontinued operations were $13.8 million lower in 2009 as compared to 2010 due to the $21.6 million gain on disposition of a retail center in Kansas City, MO, offset by $11.0 million impairment of a sold office park in Winston Salem, NC in 2009.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was $1.6 million lower in 2010 as compared to 2009 due to the disposition of our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA in 2010 and our proportionate share of a gain on disposition of property in one of our joint ventures in 2009.

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Liquidity and Capital Resources

Overview

Our goal is to maintain a conservative and flexible balance sheet with access to multiple sources of debt and equity capital and sufficient availability under our revolving credit facility. We generally use rents received from customers to fund our operating expenses, capital expenditures and distributions. To fund property acquisitions, development activity or building renovations and repay debt upon maturity, we may use current cash balances, sell assets, obtain new debt and/or issue equity. Our debt generally consists of mortgage debt, unsecured debt securities and borrowings under our revolving credit facility.

Statements of Cash Flows

We report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Company’s cash flows ($ in thousands):

	
												
 	Year Ended December 31,	 	 	
 	2011	 	2010	 	Change	
Net Cash Provided By Operating Activities	$	195,396		 	$	190,537		 	$	4,859		
Net Cash Used In Investing Activities	(215,479	)	 	(78,155	)	 	(137,324	)	
Net Cash Provided By/(Used In) Financing Activities	17,065		 	(121,875	)	 	138,940		
Total Cash Flows	$	(3,018	)	 	$	(9,493	)	 	$	6,475		

Net cash related to operating activities, depreciation and amortization, which are non-cash expenses, are added back to net income. As a result, we have historically generated a positive amount of cash from operating activities. From period to period, cash flow from operations depends primarily upon changes in our net income, as discussed more fully above under “Results of Operations,” changes in receivables and payables, and net additions or decreases in our overall portfolio, which affect the amount of depreciation and amortization expense.

Net cash related to investing activities generally relates to capitalized costs incurred for leasing and major building improvements and our acquisition, development, disposition and joint venture capital activity. During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically consists of cash received upon the sale of properties and distributions of capital from our joint ventures.

Net cash related to financing activities generally relates to distributions, incurrence and repayment of debt, and issuances, repurchases or redemptions of Common Stock, Common Units and Preferred Stock. As discussed previously, we use a significant amount of our cash to fund distributions. Whether or not we have increases in the outstanding balances of debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We generally use our revolving credit facility for working capital purposes, which means that during any given period, in order to minimize interest expense, we may record significant repayments and borrowings under our revolving credit facility.

The change in net cash related to operating activities in 2011 as compared to 2010 was primarily due to net operating income from acquisitions, offset by higher utility and real estate tax costs in our same store portfolio.

The change in net cash related to investing activities in 2011 as compared to 2010 was primarily due to higher acquisition activities and a loan to one of our unconsolidated joint ventures and lower proceeds from disposition of unconsolidated affiliates, offset by higher proceeds from dispositions of Wholly Owned Properties.

The change in net cash related to financing activities in 2011 as compared to 2010 was primarily due to higher proceeds from the issuance of Common Stock and higher net borrowings for acquisitions, partly offset by redemptions of Preferred Stock.

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Capitalization

The following table sets forth the Company’s capitalization (in thousands, except per share amounts):

	
								
 	December 31,	
 	2011	 	2010	
Mortgages and notes payable, at recorded book value	$	1,903,213		 	$	1,522,945		
Financing obligations	$	31,444		 	$	33,114		
Preferred Stock, at liquidation value	$	29,077		 	$	81,592		
Common Stock outstanding	72,648		 	71,690		
Common Units outstanding (not owned by the Company)	3,730		 	3,794		
Per share stock price at year end	$	29.67		 	$	31.85		
Market value of Common Stock and Common Units	$	2,266,135		 	$	2,404,165		
Total market capitalization	$	4,229,869		 	$	4,041,816		

At December 31, 2011 , our mortgages and notes payable represented 45.0% of our total market capitalization and consisted of $750.0 million of secured indebtedness with a weighted average interest rate of 5.51% and $1.2 billion of unsecured indebtedness with a weighted average interest rate of 4.28% . The secured indebtedness was collateralized by real estate assets with an aggregate undepreciated book value of $1.2 billion .
 
Current and Future Cash Needs
 
Rental and other revenues are our principal source of funds to meet our short-term liquidity requirements. Other sources of funds for short-term liquidity needs include available working capital and borrowings under our existing revolving credit facility, which had $ 326.8 million of availability at February 1, 2012 . Our short-term liquidity requirements primarily consist of operating expenses, interest and principal amortization on our debt, dividends and distributions and capital expenditures, including building improvement costs, tenant improvement costs and lease commissions. Building improvements are capital costs to maintain existing buildings not typically related to a specific customer. Tenant improvements are the costs required to customize space for the specific needs of customers. We anticipate that our available cash and cash equivalents and cash provided by operating activities, together with cash available from borrowings under our revolving credit facility, will be adequate to meet our short-term liquidity requirements.
 
Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity (including mortgage debt, our revolving and construction credit facilities, term loans and other unsecured debt), funding of existing and new building development or land infrastructure projects and funding acquisitions of buildings and development land. Additionally, we may, from time to time, retire some or all of our remaining outstanding Preferred Stock and/or unsecured debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.
 
We expect to meet our long-term liquidity needs through a combination of:

•	cash flow from operating activities;	

•	borrowings under our revolving credit facility;	

•	the issuance of unsecured debt;	

•	the issuance of secured debt;	

•	the issuance of equity securities by the Company or the Operating Partnership; and	

•	the disposition of non-core assets.	

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Dividends and Distributions
 
To maintain its qualification as a REIT, the Company must pay dividends to stockholders that are at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to distribute at least enough cash for the Company to be able to pay such dividends. The Company's REIT taxable income, as determined by the federal tax laws, does not equal its net income under generally accepted accounting principles in the United States (“GAAP”). In addition, although capital gains are not required to be distributed to maintain REIT status, capital gains, if any, are subject to federal and state income tax unless such gains are distributed to stockholders.
 
Cash dividends and distributions reduce the amount of cash that would otherwise be available for other business purposes, including funding debt maturities or future growth initiatives. The amount of future distributions that will be made is at the discretion of the Company's Board of Directors. For a discussion of the factors that will influence decisions of the Board of Directors regarding distributions, see “Item 5. Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
 
Recent Acquisition and Disposition Activity

In 2011 , we acquired a six-building, 1.54 million square foot office complex in Pittsburgh, PA for a purchase price of $ 188.5 million . The purchase price included the assumption of secured debt recorded at fair value of $ 124.5 million , with an effective interest rate of 4.27% , including amortization of deferred financing costs. This debt matures in November 2017 . We expensed $ 4.0 million of costs related to this acquisition. We expect to incur an additional $25.2 million of planned building improvements and future tenant improvements under existing leases. Additionally, we acquired a 503,000 square foot office building in Atlanta, GA for a purchase price of $ 78.3 million . The purchase price included the assumption of secured debt recorded at fair value of $ 67.9 million , with an effective interest rate of 5.45% , including amortization of deferred financing costs. This debt matures in January 2014 . We expensed $ 0.3 million of costs related to this acquisition. We expect to incur an additional $8.0 million of planned building improvements and future tenant improvements committed under existing leases. Based on the total anticipated investment of $300 million, the weighted average capitalization rate for these acquisitions is 8.9% using projected full year 2012 GAAP net operating income. This forward-looking statement is subject to risks and uncertainties. See “Disclosure Regarding Forward-Looking Statements.”

In 2011 , we also acquired a 48,000 square foot medical office property in Raleigh, NC for approximately $ 8.9 million in cash and incurred $ 0.1 million of acquisition-related costs.

In 2011 , we sold an office property and adjacent land parcel in a single transaction in Winston-Salem, NC for gross proceeds of $ 15.0 million . We recorded gain on disposition of discontinued operations of $ 2.6 million related to the office property and gain on disposition of property of $ 0.3 million related to the land.

Recent Financing Activity
 
During 2011 , we entered into separate ATM Equity Offering SM Sales Agreements (the “Sales Agreements”) with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Mitsubishi UFJ Securities (USA), Inc., Morgan Keegan & Company, Inc. and RBC Capital Markets, LLC (each, an “Agent” and, together, the “Agents”). Under the terms of the Sales Agreements, the Company may offer and sell shares of its Common Stock from time to time through the Agents, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the Agents. Subject to the terms and conditions of each Sales Agreement, each Agent will use its commercially reasonable efforts to sell on the Company's behalf any shares to be offered by the Company under that Sales Agreement. In 2011 , we issued 378,200 shares of Common Stock in at-the-market transactions through Merrill Lynch, Pierce, Fenner & Smith Incorporated at an average price of $35.09 per share raising net proceeds, after sales commissions and expenses, of $13.1 million . We paid $0.2 million in sales commissions to Merrill Lynch, Pierce, Fenner & Smith Incorporated during 2011 .

In 2011, we obtained a $ 475.0 million unsecured revolving credit facility, which is scheduled to mature on June 27, 2015 and includes an accordion feature that allows for an additional $ 75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and

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acquisition activity and, in certain instances, the repayment of other debt. Continuing ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $ 362.0 million and $ 148.0 million outstanding under our revolving credit facility at December 31, 2011 and February 1, 2012 , respectively. At both December 31, 2011 and February 1, 2012 , we had $ 0.2 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at December 31, 2011 and February 1, 2012 was $ 112.8 million and $ 326.8 million , respectively.

In 2011, we repaid the remaining balance of $ 184.2 million of a secured mortgage loan bearing interest of 7.05% that was scheduled to mature in January 2012 and the remaining $ 10.0 million of a three -year unsecured term loan bearing interest of 3.90% that was scheduled to mature in February 2012 . We incurred no penalties related to these early repayments. We also obtained a $ 200.0 million , five -year unsecured bank term loan bearing interest of LIBOR plus 220 basis points . The proceeds were used to pay off at maturity a $ 137.5 million unsecured bank term loan bearing interest of LIBOR plus 110 basis points , pay off amounts then outstanding under our revolving credit facility and for general corporate purposes.

In January 2012 , we obtained a $225.0 million , seven -year unsecured bank term loan bearing interest of LIBOR plus 190 basis points . The proceeds were used to pay off amounts then outstanding under our revolving credit facility. During the fourth quarter of 2011, we entered into forward-starting, floating-to-fixed interest rate swaps for the seven-year period with respect to the full principal amount of the term loan, which effectively fix the underlying LIBOR rate at a weighted average of 1.678% . The counterparties under the swaps are the same financial institutions that participated in the term loan.

We regularly evaluate the financial condition of the lenders that participate in our credit facilities using publicly available information. Based on this review, we currently expect our lenders, which are major financial institutions, to perform their obligations under our existing facilities.
 
For information regarding our interest hedging activities and other market risks associated with our debt financing activities, see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."

Covenant Compliance
 
We are currently in compliance with the covenants and other requirements with respect to our outstanding debt. Although we expect to remain in compliance with these covenants and ratios for at least the next year, depending upon our future operating performance, property and financing transactions and general economic conditions, we cannot assure you that we will continue to be in compliance.

Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on the revolving credit facility, the lenders having at least 66.7% of the total commitments under the revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations.

The Operating Partnership has $391.2 million carrying amount of 2017 bonds outstanding and $200.0 million carrying amount of 2018 bonds outstanding. The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of either series of bonds can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.
 
We may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay distributions. Any such refinancing could also impose tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions.

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Contractual Obligations
 
The following table sets forth a summary regarding our known contractual obligations, including required interest payments for those items that are interest bearing, at December 31, 2011 ($ in thousands):

	
																												
 	 	 	Amounts due during years ending December 31,	 	 	
 	Total	 	2012	 	2013	 	2014	 	2015	 	2016	 	Thereafter	
Mortgages and Notes Payable:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Principal payments  (1)	$	1,899,268		 	$	84,953		 	$	245,246		 	$	104,663		 	$	406,457		 	$	357,638		 	$	700,311		
Interest payments	436,044		 	99,623		 	81,771		 	68,641		 	65,471		 	53,363		 	67,175		
Financing Obligations:	 	 	 	 	 	 	 	 	 	 	 	 	 	
SF-HIW Harborview Plaza, LP financing obligation	6,153		 	—		 	—		 	6,153		 	—		 	—		 	—		
Tax increment financing bond	13,064		 	1,277		 	1,365		 	1,460		 	1,561		 	1,669		 	5,732		
Capitalized ground lease obligation (2)	1,294		 	—		 	—		 	—		 	1,294		 	—		 	—		
Interest on financing obligations (3)	5,664		 	1,003		 	918		 	827		 	1,591		 	513		 	812		
Capitalized Lease Obligations	103		 	64		 	28		 	11		 	—		 	—		 	—		
Purchase Obligations:		 	 	 	 	 	 	 	 	 	 	 	 	
Lease and contractual commitments (4)	59,827		 	56,936		 	1,408		 	712		 	—		 	506		 	265		
Operating Lease Obligations:		 	 	 	 	 	 	 	 	 	 	 	 	
Operating ground leases	38,363		 	1,324		 	1,345		 	1,366		 	1,389		 	1,413		 	31,526		
Other Long Term Obligations:	 	 	 	 	 	 	 	 	 	 	 	 	 	
DLF I obligation	821		 	578		 	243		 	—		 	—		 	—		 	—		
Total	$	2,460,601		 	$	245,758		 	$	332,324		 	$	183,833		 	$	477,763		 	$	415,102		 	$	805,821		
__________
		
(1)	Excludes amortization of premiums, discounts and/or purchase accounting adjustments.	
		
(2)	Assumes that we will exercise our purchase option in 2015. The ground lease contractually extends through 2022.	
		
(3)	Does not include interest on the SF-HIW Harborview Plaza, LP financing obligation, which cannot be reasonably estimated for future periods. The interest expense on this financing obligation was $0.8 million , $1.1 million and $0.8 million in 2011 , 2010 and 2009 , respectively.	
		
(4)	Amount represents commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements, and contracts for development/redevelopment projects. The timing of these expenditures may fluctuate.	

The interest payments due on mortgages and notes payable are based on the stated rates for the fixed rate debt and on the rates in effect at December 31, 2011 for the variable rate debt. The weighted average interest rate on our fixed and variable rate debt was 6.17% and 1.96% , respectively, at December 31, 2011 . For additional information about our mortgages and notes payable, see Note 6 to our Consolidated Financial Statements. For additional information about our financing obligations, see Note 8 to our Consolidated Financial Statements. For additional information about purchase obligations, operating lease obligations and other long term obligations, see Note 9 to our Consolidated Financial Statements.

Off Balance Sheet Arrangements

We generally account for our investments in less than majority owned joint ventures, partnerships and limited liability companies using the equity method. As a result, these joint ventures are not included in our Consolidated Financial Statements, other than as investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates.

At December 31, 2011 , our unconsolidated joint ventures had $633.0 million of total assets and $428.7 million of total liabilities. Our weighted average equity interest based on the total assets of these unconsolidated joint ventures was 35.2% . During 2011 , these unconsolidated joint ventures earned $6.2 million of aggregate net income, of which our share was $2.4 million . Additionally, we recorded $2.5 million of purchase accounting and management, leasing and other adjustments related primarily to management and leasing fees in equity in earnings of unconsolidated affiliates. For additional information about our unconsolidated joint venture activity, see Note 4 to our Consolidated Financial Statements.

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At December 31, 2011 , our unconsolidated joint ventures had $406.9 million of outstanding mortgage debt. The following table sets forth the scheduled maturities of the Company’s proportionate share of the outstanding debt of its unconsolidated joint ventures at December 31, 2011 ($ in thousands):

	
				
2012 (1)	$	31,101		
2013	23,250		
2014	56,737		
2015	983		
2016	1,052		
Thereafter (2)	33,803		
 	$	146,926		
__________
		
(1)	Includes our 22.81% portion of a $38.3 million interest-only secured loan provided by us to the DLF I joint venture.	
		
(2)	Includes our 12.5% portion of a $10.6 million mortgage payable related to an equity method investee owned directly by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).	

All of this joint venture debt is non-recourse to us except in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and material misrepresentations.

In 2011, we and Ravin Partners, LLC (“Ravin”) formed Lofts at Weston, LLC, in which we have a 50.00% ownership interest. We contributed 15.0 acres of land at an agreed upon value of $ 2.4 million to this joint venture, and Ravin contributed $ 1.2 million in cash and agreed to guarantee the joint venture's development loan. The joint venture then distributed $ 1.2 million to us and we recorded a gain of $ 0.3 million on this transaction. Ravin manages and operates this joint venture, which is constructing 215 rental residential units at a total cost of approximately $ 25.9 million . Ravin is the developer, manager and leasing agent and will receive customary fees from the joint venture.

In 2011, we provided a $ 38.3 million interest-only secured loan to DLF I that is scheduled to mature in March 2012 , which was used to repay a secured loan before maturity to a third party lender. The loan bears interest at LIBOR plus 500 basis points , which may be reduced by up to 50 basis points upon the use of proceeds from the sale of certain assets by the joint venture to repay the loan. We recorded $1.3 million of interest income from this loan in interest and other income during the year ended December 31, 2011.

As of the closing date of the 2010 disposition of our interests in the Des Moines, IA joint ventures, the joint ventures had approximately $ 170.0 million of secured debt, which was non-recourse to us except in the case of customary exceptions pertaining to matters such as misuse of funds, borrower bankruptcy, unpermitted transfers, environmental conditions and material misrepresentations. We have no ongoing lender liability relating to such customary exceptions to non-recourse liability with respect to most, but not all, of the debt. The buyer has agreed to indemnify and hold us harmless from any and all future losses that we suffer as a result of our prior investment in the joint ventures, except for losses directly resulting from our acts or omissions. In the event we are exposed to any such future loss, our financial condition and operating results would not be adversely affected unless the buyer defaults on its indemnification obligation.
 
In connection with the disposition of six industrial properties in Piedmont Triad, NC in the second quarter of 2010, we entered into a limited rent guarantee agreement with the buyer relating to an existing 237,500 square foot lease with one customer, who has leased space in the properties for 14 years. This agreement guarantees the payment of rent for an approximate two-year period from March 2011 through June 2013 in the event the customer exercises its limited termination right. As of December 31, 2011 , our maximum exposure under this rent guarantee agreement was approximately $0.3 million . No accrual was recorded for this guarantee because we have concluded that a loss was not probable.
 
Financing Arrangements
 
- SF-HIW Harborview Plaza, LP (“Harborview”)
 
Our joint venture partner in Harborview has the right to put its 80.0% equity interest in the joint venture to us in exchange for cash at any time during the one-year period commencing September 11, 2014 . The value of the 80.0% equity interest will be

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determined at the time that our partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LP's assets and liabilities, less 3.0% , which amount was intended to cover the normal costs of a sale transaction. Because of the put option, this transaction is accounted for as a financing transaction. Accordingly, the assets, liabilities and operations related to Harborview Plaza, the office property owned by Harborview LP, remain in our Consolidated Financial Statements.
 
As a result, we initially established a gross financing obligation equal to the $12.7 million equity contributed by the other partner. During each period, we increase the gross financing obligation for 80.0% of the net income before depreciation of Harborview Plaza, which is recorded as interest expense on financing obligation, and decrease the gross financing obligation for distributions made to our joint venture partner. At the end of each reporting period, the balance of the gross financing obligation is adjusted to equal the greater of the initial financing obligation or the current fair value of the put option, which is recorded as a valuation allowance. The valuation allowance is amortized on a straight-line basis prospectively through September 2014 as interest expense on financing obligation. The fair value of the put option was $6.2 million and $10.2 million at December 31, 2011 and 2010 , respectively. We continue to depreciate Harborview Plaza and record all of the depreciation on our books. At such time as the put option expires or is otherwise terminated, we will record the transaction as a partial sale and recognize gain accordingly.

- Tax Increment Financing Bond

In connection with tax increment financing for construction of a parking garage, we are obligated to pay fixed special assessments over a 20-year period ending in 2019 . The net present value of these assessments, discounted at the 6.93% interest rate on the underlying bond financing, is recorded as a financing obligation. We receive special tax revenues and property tax rebates recorded in interest and other income, which are intended, but not guaranteed, to provide funds to pay the special assessments. We acquired the underlying bond, which is recorded in prepaid and other assets, in a privately negotiated transaction in 2007 . For additional information about this tax increment financing bond, see Note 11.
 
- Capitalized Ground Lease Obligation

The capitalized ground lease obligation represents an obligation to the lessor of land on which we constructed a wholly owned office property. We are obligated to make fixed payments to the lessor through October 2022 . The lease provides for fixed price purchase options in the ninth and tenth years of the lease. We initially recorded the land and associated financing obligation at the net present value of the fixed rental payments and purchase option through the ninth year at the inception of the lease using a discount rate of 7.10% . The liability accretes as interest expense until it equals the amount of the purchase option.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from our estimates.
 
The policies used in the preparation of our Consolidated Financial Statements are described in Note 1 to our Consolidated Financial Statements. However, certain of our significant accounting policies contain an increased level of assumptions used or estimates made in determining their impact in our Consolidated Financial Statements. Management has reviewed and determined the appropriateness of our critical accounting policies and estimates with the audit committee of the Company's Board of Directors.
 
We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

•	Real estate and related assets;	

•	Impairment of long-lived assets and investments in unconsolidated affiliates;	

•	Sales of real estate;	

•	Rental and other revenues; and	

•	Allowance for doubtful accounts.	

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Real Estate and Related Assets
 
Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over initial fixed terms of the respective leases, which generally are from three to 10 years.
 
Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at depreciated cost. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs on qualifying assets, real estate taxes, development personnel salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use, but not later than one year from cessation of major construction activity. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction.
 
Expenditures directly related to the leasing of properties are included in deferred financing and leasing costs and are stated at amortized cost. Such expenditures are part of the investment necessary to execute leases and, therefore, are classified as investment activities in the statement of cash flows. All leasing commissions paid to third parties for new leases or lease renewals are capitalized. Internal leasing costs include primarily compensation, benefits and other costs, such as legal fees related to leasing activities, that are incurred in connection with successfully securing leases of properties. Capitalized leasing costs are amortized on a straight-line basis over the initial fixed terms of the respective leases, which generally are from three to 10 years. Estimated costs related to unsuccessful activities are expensed as incurred.
 
We record liabilities for the performance of asset retirement activities when the obligation to perform such activities is probable even when uncertainty exists about the timing and/or method of settlement.
 
Upon the acquisition of real estate assets, we assess the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets and liabilities such as above and below market leases, acquired in-place leases, customer relationships and other identifiable intangible assets and assumed liabilities. We assess fair value based on estimated cash flow projections that utilize discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
 
The above and below market rate portions of leases acquired in connection with property acquisitions are recorded in deferred financing and leasing costs and in accounts payable, accrued expenses and other liabilities, respectively, at fair value and amortized into rental revenue over the remaining term of the respective leases as described below. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any renewal option that the customer would be economically compelled to exercise for below-market leases.
 
In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the Company's Board of Directors, or its Investment Committee, has approved the sale of the asset, a legally enforceable contract has been executed and the buyer's due diligence period has expired.

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Impairment of Long-Lived Assets and Investments in Unconsolidated Affiliates
 
With respect to assets classified as held for use, we perform an impairment analysis if events or changes in circumstances indicate that the carrying value may be impaired, such as a significant decline in occupancy, identification of materially adverse legal or environmental factors, change in our designation of an asset from core to non-core which impacts the anticipated holding period or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset's carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
 
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for use.
 
We record assets held for sale, including for-sale residential condominiums, at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.
 
We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investee, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.
 
Sales of Real Estate
 
For sales transactions meeting the requirements for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have or receive an interest are accounted for using partial sale accounting.
 
For transactions that do not meet the criteria for a sale, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other alternate method of accounting, rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.
 
Rental and Other Revenues
 
Minimum contractual rents from leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the customer assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Contingent rental revenue, such as percentage rent, is accrued when the contingency is removed. Termination fee income is recognized at the later of when the customer has vacated the space or the lease has expired and a fully executed lease termination agreement has been delivered, the amount of the fee is determinable and collectability of the fee is reasonably assured. Rental revenue reductions related to co-tenancy lease provisions, if any, are accrued when events have occurred that trigger such provisions.

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Property operating cost recovery revenues from customers (“cost reimbursements”) are determined on a calendar year and a lease-by-lease basis. The most common types of cost reimbursements in our leases are common area maintenance (“CAM”) and real estate taxes, for which the customer pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of a base year amount. The computation of cost reimbursements is complex and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are many variations in the computation. Many customers make monthly fixed payments of CAM, real estate taxes and other cost reimbursement items. We accrue income related to these payments each month. We make quarterly accrual adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to our best estimate of the final annual amounts to be billed and collected with respect to the cost reimbursements. After the end of the calendar year, we compute each customer's final cost reimbursements and, after considering amounts paid by the customer during the year, issue a bill or credit for the appropriate amount to the customer. The differences between the amounts billed less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when the final bills are prepared, which occurs during the first half of the subsequent year.
 
Allowance for Doubtful Accounts
 
Accounts receivable, accrued straight-line rents receivable and mortgages and notes receivable are reduced by an allowance for amounts that may become uncollectible in the future. We regularly evaluate the adequacy of our allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of our customer, historical trends of the customer and changes in customer payment terms. Additionally, with respect to customers in bankruptcy, we estimate the probable recovery through bankruptcy claims and adjust the allowance for amounts deemed uncollectible. If our assumptions regarding the collectability of receivables prove incorrect, we could experience losses in excess of our allowance for doubtful accounts. The allowance and its related receivable are written-off when we have concluded there is a low probability of collection and we have discontinued collection efforts.

Non-GAAP Measures - FFO and NOI

The Company believes that Funds from Operations (“FFO”) and FFO per share are beneficial to management and investors and are important indicators of the performance of any equity REIT. Because FFO and FFO per share calculations exclude such factors as depreciation, amortization and impairment of real estate assets and gains or losses from sales of operating real estate assets, which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful life estimates, they facilitate comparisons of operating performance between periods and between other REITs. Management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient on a standalone basis. As a result, management believes that the use of FFO and FFO per share, together with the required GAAP presentations, provide a more complete understanding of the Company's performance relative to its competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities.
 
FFO and FFO per share are non-GAAP financial measures and therefore do not represent net income or net income per share as defined by GAAP. Net income and net income per share as defined by GAAP are the most relevant measures in determining the Company's operating performance because FFO and FFO per share include adjustments that investors may deem subjective, such as adding back expenses such as depreciation, amortization and impairment. Furthermore, FFO per share does not depict the amount that accrues directly to the stockholders' benefit. Accordingly, FFO and FFO per share should never be considered as alternatives to net income or net income per share as indicators of the Company's operating performance.
 
The Company's presentation of FFO is consistent with FFO as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), which is calculated as follows:

•	Net income/(loss) computed in accordance with GAAP;	

•	Less dividends to holders of Preferred Stock and less excess of Preferred Stock redemption cost over carrying value;	

•	Less net income attributable to noncontrolling interests in consolidated affiliates;	

•	Plus depreciation and amortization of depreciable operating properties;	

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•	Less gains, or plus losses, from sales of depreciable operating properties, plus impairments on depreciable operating properties and excluding items that are classified as extraordinary items under GAAP;	

•	Plus or minus adjustments for unconsolidated partnerships and joint ventures (to reflect funds from operations on the same basis); and	

•	Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales of depreciable operating properties, plus impairments on depreciable operating properties, and noncontrolling interests in consolidated affiliates related to discontinued operations.	
 
In calculating FFO, the Company adds back net income attributable to noncontrolling interests in the Operating Partnership, which the Company believes is consistent with standard industry practice for REITs that operate through an UPREIT structure. The Company believes that it is important to present FFO on an as-converted basis since all of the Common Units not owned by the Company are redeemable on a one-for-one basis for shares of its Common Stock.
 
The Company's FFO and FFO per share are summarized in the following table ($ in thousands, except per share amounts). FFO for the years ended December 31, 2010 and 2009 were revised from previously reported amounts to exclude impairment of depreciable real estate assets in accordance with NAREIT SFO Alert dated October 31, 2011.

	
																								
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
 	Amount	 	Per Share	 	Amount	 	Per Share	 	Amount	 	Per Share	
Funds from operations:	 	 	 	 	 	 	 	 	 	 	 	
Net income	$	47,971		 	 	 	$	72,303		 	 	 	$	61,694		 	 	
Net (income) attributable to noncontrolling interests in the Operating Partnership	(2,091	)	 	 	 	(3,320	)	 	 	 	(3,197	)	 	 	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(755	)	 	 	 	(485	)	 	 	 	(11	)	 	 	
Dividends on Preferred Stock	(4,553	)	 	 	 	(6,708	)	 	 	 	(6,708	)	 	 	
Excess of Preferred Stock redemption/repurchase cost over carrying value	(1,895	)	 	 	 	—		 	 	 	—		 	 	
Net income available for common stockholders	38,677		 	$	0.54		 	61,790		 	$	0.86		 	51,778		 	$	0.76		
Add/(Deduct):	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization of real estate assets	141,054		 	1.85		 	133,679		 	1.77		 	127,754		 	1.77		
Impairment of real estate assets	2,429		 	0.03		 	—		 	—		 	2,554		 	0.04		
(Gains) on disposition of depreciable properties	—		 	—		 	(74	)	 	—		 	(127	)	 	—		
(Gains) on disposition of investment in unconsolidated affiliates	—		 	—		 	(25,330	)	 	(0.34	)	 	—		 	—		
Net income attributable to noncontrolling interests in the Operating Partnership	2,091		 	—		 	3,320		 	—		 	3,197		 	—		
Unconsolidated affiliates:	 	 	 	 	 	 	 	 	 	 	—		
Depreciation and amortization of real estate assets	8,388		 	0.11		 	10,471		 	0.14		 	12,839		 	0.18		
Impairment of real estate assets	—		 	—		 	—		 	—		 	199		 	—		
(Gains) on disposition of depreciable properties	—		 	—		 	—		 	—		 	(781	)	 	(0.01	)	
Discontinued operations:	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization of real estate assets	127		 	—		 	744		 	0.01		 	2,231		 	0.03		
Impairment of real estate assets	—		 	—		 	260		 	—		 	11,341		 	0.15		
(Gains) on disposition of depreciable properties	(2,573	)	 	(0.03	)	 	(174	)	 	—		 	(21,843	)	 	(0.3	)	
Funds from operations	$	190,193		 	$	2.50		 	$	184,686		 	$	2.44		 	$	189,142		 	$	2.62		
Weighted average shares outstanding (1)	76,189		 	 	 	75,578		 	 	 	72,079		 	 	
__________
		
(1)	Includes assumed conversion of all potentially dilutive Common Stock equivalents.	

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In addition, the Company believes net operating income from continuing operations (“NOI”) and same property NOI are useful supplemental measures of the Company’s property operating performance because such metrics provide a performance measure of the revenues and expenses directly involved in owning real estate assets and provides a perspective not immediately apparent from net income or FFO. The Company defines NOI as rental and other revenues from continuing operations, less rental property and other expenses from continuing operations. The Company defines cash NOI as NOI less straight line rent and lease termination fees. Other REITs may use different methodologies to calculate NOI and same property NOI.

The following table sets forth the Company’s NOI and same property NOI:

	
								
 	Year Ended December 31,	
 	2011	 	2010	
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	$	36,893		 	$	41,409		
Other (income)	(7,363	)	 	(5,655	)	
Interest expense	95,999		 	93,372		
General and administrative expense	35,727		 	32,948		
Impairment of assets held for use	2,429		 	—		
Depreciation and amortization expense	143,019		 	135,414		
Net operating income from continuing operations	306,704		 	297,488		
Less – non same property and other net operating income	24,489		 	12,801		
Total same property net operating income from continuing operations	$	282,215		 	$	284,687		
 	 	 	 	
Rental and other revenues	$	482,852		 	$	461,126		
Rental property and other expenses	176,148		 	163,638		
Total net operating income from continuing operations	306,704		 	297,488		
Less – non same property and other net operating income	24,489		 	12,801		
Total same property net operating income from continuing operations	$	282,215		 	$	284,687		
 	 	 	 	
Total same property net operating income from continuing operations	$	282,215		 	$	284,687		
Less – straight line rent and lease termination fees	11,322		 	12,189		
Same property cash net operating income from continuing operations	$	270,893		 	$	272,498		

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. Actual future results may differ materially from those presented. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.
 
We borrow funds at a combination of fixed and variable rates. Our debt consists of secured and unsecured long-term financings, unsecured debt securities, loans and credit facilities, which typically bear interest at fixed rates although some loans bear interest at variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes.
 
At December 31, 2011 , we had $1,289.1 million principal amount of fixed rate debt outstanding. The estimated aggregate fair market value of this debt was $1,375.7 million . If interest rates had been 100 basis points higher, the aggregate fair market value of our fixed rate debt would have been approximately $20.1 million lower. If interest rates had been 100 basis points lower, the aggregate fair market value of our fixed rate debt would have been approximately $20.9 million higher.
 
At December 31, 2011 , we had $614.1 million of variable rate debt outstanding not protected by interest rate hedge contracts. The estimated aggregate fair market value of this debt was $617.3 million . If the weighted average interest rate on this variable rate debt had been 100 basis points higher, the aggregate fair market value of our variable rate debt would have decreased by approximately $22.0 million and annual interest expense would increase $6.1 million . If the weighted average interest rate on this variable rate debt had been 100 basis points lower, the aggregate fair market value of our variable rate debt would have increased by approximately $22.9 million and annual interest expense would decrease $6.1 million .
 
At December 31, 2011 , we had forward-starting, floating-to-fixed interest rate swaps with respect to an aggregate of future $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at 1.678% . If LIBOR interest rates increase or decrease by 100 basis points, the aggregate fair market value of the future starting swaps at December 31, 2011 would increase by $12.3 million or decrease by $17.8 million , respectively. We are exposed to certain losses in the event of nonperformance by the counterparties, which are major financial institutions, under the swaps. We regularly evaluate the financial condition of our counterparties using publicly available information. Based on this review, we currently expect the counterparties to perform fully under the swaps. However, if a counterparty defaults on its obligations under a swap, we could be required to pay the full rates on the applicable debt, even if such rates were in excess of the rate in the contract.

ITEM 8. FINANCIAL STATEMENTS

See page 49 for Index to Consolidated Financial Statements of Highwoods Properties, Inc. and Highwoods Realty Limited Partnership.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A. CONTROLS AND PROCEDURES

General

The purpose of this section is to discuss our controls and procedures. The statements in this section represent the conclusions of Edward J. Fritsch, the Company's President and Chief Executive Officer (“CEO”), and Terry L. Stevens, the Company's Senior Vice President and Chief Financial Officer (“CFO”).
 
The CEO and CFO evaluations of our controls and procedures include a review of the controls' objectives and design, the controls' implementation by us and the effect of the controls on the information generated for use in this Annual Report. We seek to identify data errors, control problems or acts of fraud and confirm that appropriate corrective action, including process improvements, is undertaken. Our controls and procedures are also evaluated on an ongoing basis by or through the following:

•	activities undertaken and reports issued by employees and third parties responsible for testing our internal control over financial reporting;	

•	quarterly sub-certifications by representatives from appropriate business and accounting functions to support the CEO's and CFO's evaluations of our controls and procedures;	

•	other personnel in our finance and accounting organization;	

•	members of our internal disclosure committee; and	

•	members of the audit committee of the Company's Board of Directors.	
 
We do not expect that our controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of controls and procedures must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Management's Annual Report on the Company's Internal Control Over Financial Reporting
 
The Company is required to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:

•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets;	

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and	

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.	
 
Under the supervision of the Company's CEO and CFO, we conducted an evaluation of the effectiveness of the Company's internal control over financial reporting at December 31, 2011 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have concluded that, at December 31, 2011 , the Company's internal control over financial reporting was effective. Deloitte & Touche LLP, our independent registered public accounting firm, has issued their attestation report, which is included below, on the effectiveness of the Company's internal control over financial reporting at December 31, 2011 .

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Management's Annual Report on the Operating Partnership's Internal Control Over Financial Reporting
 
The Operating Partnership is also required to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
 
Under the supervision of the Company's CEO and CFO, we conducted an evaluation of the effectiveness of the Operating Partnership's internal control over financial reporting at December 31, 2011 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have concluded that, at December 31, 2011 , the Operating Partnership's internal control over financial reporting was effective. SEC rules do not require us to obtain an attestation report of Deloitte & Touche LLP on the effectiveness of the Operating Partnership's internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm
  
To the Board of Directors and Stockholders of
Highwoods Properties, Inc.
Raleigh, North Carolina
 
We have audited the internal control over financial reporting of Highwoods Properties, Inc. and subsidiaries (the "Company") as of December 31, 2011 , based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on the Company's Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011 , based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2011 of the Company and our report dated February 7, 2012 expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 7, 2012

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Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2011 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There were also no changes in the Operating Partnership’s internal control over financial reporting during the fourth quarter of 2011 that materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Disclosure Controls and Procedures

SEC rules also require us to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As defined in Rule 13a-15(e) under the Exchange Act, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management, including the Company’s CEO and CFO, to allow timely decisions regarding required disclosure. The Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the end of the period covered by this Annual Report. The Company’s CEO and CFO also concluded that the Operating Partnership’s disclosure controls and procedures were effective at the end of the period covered by this Annual Report.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about the Company’s executive officers and directors and the code of ethics that applies to the Company’s chief executive officer and senior financial officers, which is posted on our website, is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2012 . See Item X in Part I of this Annual Report for biographical information regarding the Company’s executive officers. The Company is the sole general partner of the Operating Partnership.

ITEM 11. EXECUTIVE COMPENSATION

Information about the compensation of the Company’s directors and executive officers is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2012 .

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information about the beneficial ownership of Common Stock and the Company’s equity compensation plans is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2012 .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information about certain relationships and related transactions and the independence of the Company’s directors is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2012 .

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information about fees paid to and services provided by our independent registered public accounting firm is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2012 .

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PART IV

ITEM 15. EXHIBITS

Financial Statements

Reference is made to the Index of Financial Statements on page 49 for a list of the consolidated financial statements of Highwoods Properties, Inc. and Highwoods Realty Limited Partnership included in this report.

Exhibits

	
		
Exhibit
Number	Description	
3.1	Amended and Restated Charter of the Company (filed as part of the Company’s Current Report on Form 8-K dated May 15, 2008)	
3.2	Amended and Restated Bylaws of the Company (filed as part of the Company’s Current Report on Form 8-K dated May 15, 2008)	
4	Indenture among the Operating Partnership, the Company and First Union National Bank of North Carolina dated as of December 1, 1996 (filed as part of the Operating Partnership’s Current Report on Form 8-K dated December 2, 1996)	
10.1	Second Restated Agreement of Limited Partnership, dated as of January 1, 2000, of the Operating Partnership (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)	
10.2	Amendment No. 1, dated as of July 22, 2004, to the Second Restated Agreement of Limited Partnership, dated as of January 1, 2000, of the Operating Partnership (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)	
10.3	2009 Long-Term Equity Incentive Plan (filed as part of the Company’s Current Report on Form 8-K dated May 13, 2009)	
10.4	Form of warrants to purchase Common Stock of the Company (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 1997)	
10.5	Third Amended and Restated Credit Agreement, dated as of July 27, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)	
10.6	Credit Agreement, dated as of February 2, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 2010)	
10.7	Amendment No. 1, dated as of July 27, 2011, to Credit Agreement, dated as of February 2, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)	
10.8	Highwoods Properties, Inc. Retirement Plan, effective as of March 1, 2006 (filed as part of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007)	
10.9	Amended and Restated Executive Supplemental Employment Agreement, dated as of April 13, 2007, between the Company and Edward J. Fritsch (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)	
10.10	Amended and Restated Executive Supplemental Employment Agreement, dated as of April 13, 2007, between the Company and Michael E. Harris (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)	
10.11	Amended and Restated Executive Supplemental Employment Agreement, dated as of April 13, 2007, between the Company and Terry L. Stevens (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)	
10.12	Amended and Restated Executive Supplemental Employment Agreement, dated as of April 13, 2007, between the Company and Jeffrey D. Miller (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)	
10.13	Highwoods Properties, Inc. Amended and Restated Employee Stock Purchase Plan (filed as part of the Company’s Current Report on Form 8-K dated May 12, 2010)	
10.14	Amendment No. 1 to the Amended and Restated Employee Stock Purchase Plan of the Company (filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 2010)	

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Exhibit
Number	Description	
10.15	Credit Agreement, dated as of January 11, 2012, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Current Report on Form 8-K dated January 11, 2012)	
12.1	Statement re: Computation of Ratios of the Company	
12.2	Statement re: Computation of Ratios of the Operating Partnership	
21	Schedule of Subsidiaries	
23.1	Consent of Deloitte & Touche LLP for the Company	
23.2	Consent of Deloitte & Touche LLP for the Operating Partnership	
31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Company	
31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Company	
31.3	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Operating Partnership	
31.4	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Operating Partnership	
32.1	Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Company	
32.2	Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Company	
32.3	Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Operating Partnership	
32.4	Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Operating Partnership	
101.INS	XBRL Instance Document	
101.SCH	XBRL Taxonomy Extension Schema Document	
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	
101.LAB	XBRL Extension Labels Linkbase	
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	
		
 	Page	
 	 	
Highwoods Properties, Inc.	 	
Report of Independent Registered Public Accounting Firm	51	
Consolidated Financial Statements:	 	
Consolidated Balance Sheets at December 31, 2011 and 2010	52	
Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009	53	
Consolidated Statements of Equity for the Years Ended December 31, 2011, 2010 and 2009	54	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009	56	
Notes to Consolidated Financial Statements	58	
 	 	
Highwoods Realty Limited Partnership:	 	
Report of Independent Registered Public Accounting Firm	100	
Consolidated Financial Statements:	 	
Consolidated Balance Sheets at December 31, 2011 and 2010	101	
Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009	102	
Consolidated Statements of Capital for the Years Ended December 31, 2011, 2010 and 2009	103	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009	104	
Notes to Consolidated Financial Statements	106	
 	 	
Schedule II	147	
 	 	
Schedule III	149	
__________

All other schedules are omitted because they are not applicable or because the required information is included in our Consolidated Financial Statements or notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Highwoods Properties, Inc.
Raleigh, North Carolina

We have audited the accompanying consolidated balance sheets of Highwoods Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010 , and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2011 . Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Highwoods Properties, Inc. and subsidiaries as of December 31, 2011 and 2010 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2011 , based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2012 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 7, 2012

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HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)

								
	December 31,	
 	2011	 	2010	
Assets:	 	 	 	
Real estate assets, at cost:	 	 	 	
Land	$	369,771		 	$	345,088		
Buildings and tenant improvements	3,144,168		 	2,883,092		
Development in process	—		 	4,524		
Land held for development	105,206		 	105,332		
 	3,619,145		 	3,338,036		
Less-accumulated depreciation	(901,300	)	 	(830,153	)	
Net real estate assets	2,717,845		 	2,507,883		
For-sale residential condominiums	4,751		 	8,225		
Real estate and other assets, net, held for sale	—		 	15,376		
Cash and cash equivalents	11,188		 	14,206		
Restricted cash	26,666		 	4,399		
Accounts receivable, net of allowance of $3,548 and $3,595, respectively	30,093		 	20,716		
Mortgages and notes receivable, net of allowance of $61 and $868, respectively	18,600		 	19,044		
Accrued straight-line rents receivable, net of allowance of $1,294 and $2,209, respectively	106,010		 	93,178		
Investment in and advances to unconsolidated affiliates	100,367		 	63,607		
Deferred financing and leasing costs, net of accumulated amortization of $63,156 and $59,360, respectively	128,585		 	85,001		
Prepaid expenses and other assets	36,887		 	40,200		
Total Assets	$	3,180,992		 	$	2,871,835		
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:	 	 	 	
Mortgages and notes payable	$	1,903,213		 	$	1,522,945		
Accounts payable, accrued expenses and other liabilities	148,821		 	106,716		
Financing obligations	31,444		 	33,114		
Total Liabilities	2,083,478		 	1,662,775		
Commitments and contingencies		 		
Noncontrolling interests in the Operating Partnership	110,655		 	120,838		
Equity:	 	 	 	
Preferred Stock, $.01 par value, 50,000,000 authorized shares;	 	 	 	
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 29,077 and 29,092 shares issued and outstanding, respectively	29,077		 	29,092		
8.000% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 0 and 2,100,000 shares issued and outstanding, respectively	—		 	52,500		
Common Stock, $.01 par value, 200,000,000 authorized shares;	 	 	 	
72,647,697 and 71,690,487 shares issued and outstanding, respectively	726		 	717		
Additional paid-in capital	1,803,997		 	1,766,886		
Distributions in excess of net income available for common stockholders	(845,853	)	 	(761,785	)	
Accumulated other comprehensive loss	(5,734	)	 	(3,648	)	
Total Stockholders’ Equity	982,213		 	1,083,762		
Noncontrolling interests in consolidated affiliates	4,646		 	4,460		
Total Equity	986,859		 	1,088,222		
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity	$	3,180,992		 	$	2,871,835		
See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(in thousands, except per share amounts)

												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Rental and other revenues	$	482,852		 	$	461,126		 	$	448,018		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	176,148		 	163,638		 	162,025		
Depreciation and amortization	143,019		 	135,414		 	129,652		
Impairment of assets held for use	2,429		 	—		 	2,554		
General and administrative	35,727		 	32,948		 	36,682		
Total operating expenses	357,323		 	332,000		 	330,913		
Interest expense:	 	 	 	 	 	
Contractual	91,838		 	87,726		 	81,982		
Amortization of deferred financing costs	3,312		 	3,385		 	2,760		
Financing obligations	849		 	2,261		 	2,063		
 	95,999		 	93,372		 	86,805		
Other income:	 	 	 	 	 	
Interest and other income	7,387		 	6,360		 	8,262		
Gain/(loss) on debt extinguishment	(24	)	 	(705	)	 	1,287		
 	7,363		 	5,655		 	9,549		
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	36,893		 	41,409		 	39,849		
Gains on disposition of property	764		 	74		 	266		
Gains/(losses) on for-sale residential condominiums	(316	)	 	276		 	922		
Gains on disposition of investment in unconsolidated affiliates	2,282		 	25,330		 	—		
Equity in earnings of unconsolidated affiliates	4,878		 	3,821		 	5,421		
Income from continuing operations	44,501		 	70,910		 	46,458		
Discontinued operations:	 	 	 	 	 	
Income/(loss) from discontinued operations	897		 	1,479		 	(6,230	)	
Net gains/(losses) on disposition of discontinued operations	2,573		 	(86	)	 	21,466		
 	3,470		 	1,393		 	15,236		
Net income	47,971		 	72,303		 	61,694		
Net (income) attributable to noncontrolling interests in the Operating Partnership	(2,091	)	 	(3,320	)	 	(3,197	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(755	)	 	(485	)	 	(11	)	
Dividends on Preferred Stock	(4,553	)	 	(6,708	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	(1,895	)	 	—		 	—		
Net income available for common stockholders	$	38,677		 	$	61,790		 	$	51,778		
Earnings per Common Share – basic:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.49		 	$	0.84		 	$	0.55		
Income from discontinued operations available for common stockholders	0.05		 	0.02		 	0.21		
Net income available for common stockholders	$	0.54		 	$	0.86		 	$	0.76		
Weighted average Common Shares outstanding – basic	72,281		 	71,578		 	67,971		
Earnings per Common Share – diluted:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.49		 	$	0.84		 	$	0.55		
Income from discontinued operations available for common stockholders	0.05		 	0.02		 	0.21		
Net income available for common stockholders	$	0.54		 	$	0.86		 	$	0.76		
Weighted average Common Shares outstanding – diluted	76,189		 	75,578		 	72,079		
Net income available for common stockholders:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	35,380		 	$	60,467		 	$	37,400		
Income from discontinued operations available for common stockholders	3,297		 	1,323		 	14,378		
Net income available for common stockholders	$	38,677		 	$	61,790		 	$	51,778		
See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity
(in thousands, except share amounts)

	
																																			
 	Number of Common Shares	 	Common Stock	 	Series A Cumulative Redeemable Preferred Shares	 	Series B Cumulative Redeemable Preferred Shares	 	Additional Paid-In Capital	 	Accumulated Other Compre-hensive Loss	 	Non-Controlling Interests in Consolidated Affiliates	 	Distributions in Excess of Net Income Available for Common Stockholders	 	Total	
Balance at December 31, 2008	63,571,705		 	$	636		 	$	29,092		 	$	52,500		 	$	1,616,093		 	$	(4,792	)	 	$	6,176		 	$	(639,281	)	 	$	1,060,424		
Issuances of Common Stock, net	7,296,816		 	73		 	—		 	—		 	150,868		 	—		 	—		 	—		 	150,941		
Conversions of Common Units to Common Stock	176,042		 	2		 	—		 	—		 	5,589		 	—		 	—		 	—		 	5,591		
Dividends on Common Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(114,429	)	 	(114,429	)	
Dividends on Preferred Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(6,708	)	 	(6,708	)	
Adjustment of noncontrolling interests in the Operating Partnership to fair value	—		 	—		 	—		 	—		 	(27,717	)	 	—		 	—		 	—		 	(27,717	)	
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	(1,004	)	 	—		 	(1,004	)	
Issuances of restricted stock, net	240,740		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Share-based compensation expense	—		 	2		 	—		 	—		 	6,565		 	—		 	—		 	—		 	6,567		
Net (income) attributable to noncontrolling interests in the Operating Partnership	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(3,197	)	 	(3,197	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	11		 	(11	)	 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	—		 	—		 	—		 	—		 	—		 	—		 	—		 	61,694		 	61,694		
Other comprehensive income	—		 	—		 	—		 	—		 	—		 	981		 	—		 	—		 	981		
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	62,675		
Balance at December 31, 2009	71,285,303		 	713		 	29,092		 	52,500		 	1,751,398		 	(3,811	)	 	5,183		 	(701,932	)	 	1,133,143		
Issuances of Common Stock, net	143,907		 	1		 	—		 	—		 	2,997		 	—		 	—		 	—		 	2,998		
Conversions of Common Units to Common Stock	97,134		 	1		 	—		 	—		 	3,060		 	—		 	—		 	—		 	3,061		
Dividends on Common Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(121,643	)	 	(121,643	)	
Dividends on Preferred Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(6,708	)	 	(6,708	)	
Adjustment of noncontrolling interests in the Operating Partnership to fair value	—		 	—		 	—		 	—		 	2,721		 	—		 	—		 	—		 	2,721		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	(568	)	 	—		 	(568	)	
Acquisition of noncontrolling interest in consolidated affiliate	—		 	—		 	—		 	—		 	140		 	—		 	(640	)	 	—		 	(500	)	
Issuances of restricted stock, net	164,143		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Share-based compensation expense	—		 	2		 	—		 	—		 	6,570		 	—		 	—		 	—		 	6,572		
Net (income) attributable to noncontrolling interests in the Operating Partnership	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(3,320	)	 	(3,320	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	485		 	(485	)	 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	—		 	—		 	—		 	—		 	—		 	—		 	—		 	72,303		 	72,303		
Other comprehensive income	—		 	—		 	—		 	—		 	—		 	163		 	—		 	—		 	163		
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	72,466		
Balance at December 31, 2010	71,690,487		 	$	717		 	$	29,092		 	$	52,500		 	$	1,766,886		 	$	(3,648	)	 	$	4,460		 	$	(761,785	)	 	$	1,088,222		

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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity - Continued
(in thousands, except share amounts)

 	Number of Common Shares	 	Common Stock	 	Series A Cumulative Redeemable Preferred Shares	 	Series B Cumulative Redeemable Preferred Shares	 	Additional Paid-In Capital	 	Accumulated Other Compre-hensive Loss	 	Non-Controlling Interests in Consolidated Affiliates	 	Distributions in Excess of Net Income Available for Common Stockholders	 	Total	
Balance at December 31, 2010	71,690,487		 	$	717		 	$	29,092		 	$	52,500		 	$	1,766,886		 	$	(3,648	)	 	$	4,460		 	$	(761,785	)	 	$	1,088,222		
Issuances of Common Stock, net	758,389		 	8		 	—		 	—		 	23,262		 	—		 	—		 	—		 	23,270		
Conversions of Common Units to Common Stock	64,469		 	—		 	—		 	—		 	1,906		 	—		 	—		 	—		 	1,906		
Dividends on Common Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(122,745	)	 	(122,745	)	
Dividends on Preferred Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(4,553	)	 	(4,553	)	
Adjustment of noncontrolling interests in the Operating Partnership to fair value	—		 	—		 	—		 	—		 	3,955		 	—		 	—		 	—		 	3,955		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	(569	)	 	—		 	(569	)	
Issuances of restricted stock, net	134,352		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Redemptions/repurchases of Preferred Stock	—		 	—		 	(15	)	 	(52,500	)	 	1,895		 	—		 	—		 	(1,895	)	 	(52,515	)	
Share-based compensation expense	—		 	1		 	—		 	—		 	6,093		 	—		 	—		 	—		 	6,094		
Net (income) attributable to noncontrolling interests in the Operating Partnership	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(2,091	)	 	(2,091	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	755		 	(755	)	 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 	
Net income	—		 	—		 	—		 	—		 	—		 	—		 	—		 	47,971		 	47,971		
Other comprehensive loss	—		 	—		 	—		 	—		 	—		 	(2,086	)	 	—		 	—		 	(2,086	)	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	45,885		
Balance at December 31, 2011	72,647,697		 	$	726		 	$	29,077		 	$	—		 	$	1,803,997		 	$	(5,734	)	 	$	4,646		 	$	(845,853	)	 	$	986,859		
See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(in thousands)

												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Operating activities:	 	 	 	 	 	
Net income	$	47,971		 	$	72,303		 	$	61,694		
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	
Depreciation and amortization	143,146		 	136,158		 	131,883		
Amortization of lease incentives and acquisition-related intangible assets and liabilities	1,446		 	1,239		 	1,110		
Share-based compensation expense	6,094		 	6,572		 	6,567		
Allowance for losses on accounts and accrued straight-line rents receivable	2,521		 	4,009		 	5,639		
Amortization of deferred financing costs	3,312		 	3,385		 	2,760		
Amortization of settled cash flow hedges	(118	)	 	237		 	(249	)	
Impairment of assets held for use	2,429		 	—		 	13,518		
(Gain)/loss on debt extinguishment	24		 	705		 	(1,287	)	
Net (gains)/losses on disposition of property	(3,337	)	 	12		 	(21,732	)	
(Gains)/losses on for-sale residential condominiums	316		 	(276	)	 	(922	)	
Gains on disposition of investment in unconsolidated affiliates	(2,282	)	 	(25,330	)	 	—		
Equity in earnings of unconsolidated affiliates	(4,878	)	 	(3,821	)	 	(5,421	)	
Changes in financing obligations	(476	)	 	708		 	392		
Distributions of earnings from unconsolidated affiliates	5,029		 	4,433		 	4,180		
Changes in operating assets and liabilities:	 	 	 	 	 	
Accounts receivable	(8,498	)	 	(3,290	)	 	(2,819	)	
Prepaid expenses and other assets	(400	)	 	370		 	(2,629	)	
Accrued straight-line rents receivable	(13,604	)	 	(11,889	)	 	(6,521	)	
Accounts payable, accrued expenses and other liabilities	16,701		 	5,012		 	2,957		
Net cash provided by operating activities	195,396		 	190,537		 	189,120		
Investing activities:	 	 	 	 	 	
Additions to real estate assets and deferred leasing costs	(184,566	)	 	(102,717	)	 	(151,482	)	
Net proceeds from disposition of real estate assets	17,717		 	6,801		 	77,288		
Net proceeds from disposition of for-sale residential condominiums	3,020		 	4,952		 	12,196		
Proceeds from disposition of investment in unconsolidated affiliates	4,756		 	15,000		 	—		
Distributions of capital from unconsolidated affiliates	1,577		 	1,933		 	3,955		
Repayments of mortgages and notes receivable	444		 	329		 	459		
Investments in and advances to unconsolidated affiliates	(39,901	)	 	(2,875	)	 	(952	)	
Changes in restricted cash and other investing activities	(18,526	)	 	(1,578	)	 	(3,288	)	
Net cash used in investing activities	(215,479	)	 	(78,155	)	 	(61,824	)	
Financing activities:	 	 	 	 	 	
Dividends on Common Stock	(122,745	)	 	(121,643	)	 	(114,429	)	
Redemptions/repurchases of Preferred Stock	(52,515	)	 	—		 	—		
Dividends on Preferred Stock	(4,553	)	 	(6,708	)	 	(6,708	)	
Distributions to noncontrolling interests in the Operating Partnership	(6,413	)	 	(6,469	)	 	(6,832	)	
Distributions to noncontrolling interests in consolidated affiliates	(569	)	 	(568	)	 	(1,004	)	
Acquisition of noncontrolling interest in consolidated affiliate	—		 	(500	)	 	—		
Net proceeds from the issuance of Common Stock	23,270		 	2,998		 	150,941		
Borrowings on revolving credit facility	525,800		 	37,500		 	128,000		
Repayments of revolving credit facility	(193,800	)	 	(7,500	)	 	(291,000	)	
Borrowings on mortgages and notes payable	200,000		 	10,368		 	217,215		
Repayments of mortgages and notes payable	(344,203	)	 	(27,004	)	 	(188,501	)	
Borrowings on financing obligations	—		 	—		 	4,184		
Payments on financing obligations	(1,194	)	 	(1,116	)	 	(1,044	)	
Payments on debt extinguishment	—		 	(577	)	 	—		
Additions to deferred financing costs and other financing activities	(6,013	)	 	(656	)	 	(8,176	)	
Net cash provided by/(used in) financing activities	17,065		 	(121,875	)	 	(117,354	)	
Net increase/(decrease) in cash and cash equivalents	(3,018	)	 	(9,493	)	 	9,942		
Cash and cash equivalents at beginning of the period	14,206		 	23,699		 	13,757		
Cash and cash equivalents at end of the period	$	11,188		 	$	14,206		 	$	23,699		
See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows – Continued
(in thousands)

Supplemental disclosure of cash flow information:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Cash paid for interest, net of amounts capitalized	$	90,838		 	$	86,395		 	$	85,422		

Supplemental disclosure of non-cash investing and financing activities:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Unrealized gains/(losses) on cash flow hedges	$	(2,202	)	 	$	—		 	$	937		
Conversion of Common Units to Common Stock	1,906		 	3,061		 	5,591		
Changes in accrued capital expenditures	11,048		 	(1,946	)	 	(19,098	)	
Write-off of fully depreciated real estate assets	48,565		 	43,955		 	33,006		
Write-off of fully amortized deferred financing and leasing costs	19,987		 	15,719		 	19,194		
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan	(119	)	 	382		 	1,497		
Settlement of financing obligation	—		 	4,184		 	—		
Adjustment of noncontrolling interests in the Operating Partnership to fair value	(3,955	)	 	(2,721	)	 	27,717		
Unrealized gain/(loss) on tax increment financing bond	234		 	(177	)	 	293		
Mortgages receivable from seller financing	—		 	17,030		 	—		
Assumption of mortgages and notes payable related to acquisition activities	192,367		 	40,306		 	—		

See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At December 31, 2011 , the Company and/or the Operating Partnership wholly owned: 303 in-service office, industrial and retail properties, comprising 29.3 million square feet; 96 rental residential units; 17 for-sale residential condominiums; 586 acres of undeveloped land suitable for future development, of which 524 acres are considered core assets; one office property under development; and one office property that is considered completed but not yet stabilized. In addition, we owned interests ( 50.0% or less) in 35 in-service office properties, one rental residential property under development and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At December 31, 2011 , the Company owned all of the Preferred Units and 72.2 million , or 95.1% , of the Common Units in the Operating Partnership. Limited partners, including one officer and two directors of the Company, own the remaining 3.7 million Common Units. In the event the Company issues shares of Common Stock, the proceeds of the issuance are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $ 0.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During 2011 , the Company redeemed 64,469 Common Units for a like number of shares of Common Stock. The redemptions, in conjunction with the proceeds from issuances of Common Stock contributed to the Operating Partnership in exchange for additional Common Units, increased the percentage of Common Units owned by the Company from 95.0% at December 31, 2010 to 95.1% at December 31, 2011 .

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2010 was revised from previously reported amounts to reflect in real estate and other assets, net, held for sale those properties which qualified as held for sale during 2011 . Our Consolidated Statements of Income for the years ended December 31, 2010 and 2009 were revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale subsequent to those respective years.

The Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those subsidiaries in which we own a majority voting interest with the ability to control operations of the subsidiaries and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. We consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of the entity through majority ownership or in our capacity as general partner or managing member. Five of the 50.0% or less owned in-service office properties are consolidated. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At December 31, 2011 , we had involvement with no entities that we concluded to be variable interest entities. All significant intercompany transactions and accounts have been eliminated.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies – Continued

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Real Estate and Related Assets

Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over initial fixed terms of the respective leases, which generally are from three to 10 years. Depreciation expense for real estate assets was $ 120.8 million , $ 117.6 million and $ 115.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at depreciated cost. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs on qualifying assets, real estate taxes, development personnel salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use, but not later than one year from cessation of major construction activity. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction.

Expenditures directly related to the leasing of properties are included in deferred financing and leasing costs and are stated at amortized cost. Such expenditures are part of the investment necessary to execute leases and, therefore, are classified as investment activities in the statement of cash flows. All leasing commissions paid to third parties for new leases or lease renewals are capitalized. Internal leasing costs include primarily compensation, benefits and other costs, such as legal fees related to leasing activities, that are incurred in connection with successfully securing leases of properties. Capitalized leasing costs are amortized on a straight-line basis over the initial fixed terms of the respective leases, which generally are from three to 10 years. Estimated costs related to unsuccessful activities are expensed as incurred.

We record liabilities for the performance of asset retirement activities when the obligation to perform such activities is probable even when uncertainty exists about the timing and/or method of settlement.

Upon the acquisition of real estate assets, we assess the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets and liabilities such as above and below market leases, acquired in-place leases, customer relationships and other identifiable intangible assets and assumed liabilities. We assess fair value based on estimated cash flow projections that utilize discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. 

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies – Continued

The above and below market rate portions of leases acquired in connection with property acquisitions are recorded in deferred financing and leasing costs and in accounts payable, accrued expenses and other liabilities, respectively, at fair value and amortized into rental revenue over the remaining term of the respective leases as described below. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any renewal option that the customer would be economically compelled to exercise for below-market leases.

In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the Company's Board of Directors, or its Investment Committee, has approved the sale of the asset, a legally enforceable contract has been executed and the buyer's due diligence period has expired.

Impairment of Long-Lived Assets and Investments in Unconsolidated Affiliates

With respect to assets classified as held for use, we perform an impairment analysis if events or changes in circumstances indicate that the carrying value may be impaired, such as a significant decline in occupancy, identification of materially adverse legal or environmental factors, change in our designation of an asset from core to non-core which impacts the anticipated holding period or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset's carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
 
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for use.
 
We record assets held for sale, including for-sale residential condominiums, at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.
 
We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investee, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies – Continued

Sales of Real Estate
 
For sales transactions meeting the requirements for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have or receive an interest are accounted for using partial sale accounting.
 
For transactions that do not meet the criteria for a sale, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other alternate method of accounting, rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.

Rental and Other Revenues
 
Minimum contractual rents from leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the customer assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Contingent rental revenue, such as percentage rent, is accrued when the contingency is removed. Termination fee income is recognized at the later of when the customer has vacated the space or the lease has expired and a fully executed lease termination agreement has been delivered, the amount of the fee is determinable and collectability of the fee is reasonably assured. Rental revenue reductions related to co-tenancy lease provisions, if any, are accrued when events have occurred that trigger such provisions.

Property operating cost recovery revenues from customers (“cost reimbursements”) are determined on a calendar year and a lease-by-lease basis. The most common types of cost reimbursements in our leases are common area maintenance (“CAM”) and real estate taxes, for which the customer pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of a base year amount. The computation of cost reimbursements is complex and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are many variations in the computation. Many customers make monthly fixed payments of CAM, real estate taxes and other cost reimbursement items. We accrue income related to these payments each month. We make quarterly accrual adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to our best estimate of the final annual amounts to be billed and collected with respect to the cost reimbursements. After the end of the calendar year, we compute each customer's final cost reimbursements and, after considering amounts paid by the customer during the year, issue a bill or credit for the appropriate amount to the customer. The differences between the amounts billed less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when the final bills are prepared, which occurs during the first half of the subsequent year.
 
Allowance for Doubtful Accounts
 
Accounts receivable, accrued straight-line rents receivable and mortgages and notes receivable are reduced by an allowance for amounts that may become uncollectible in the future. We regularly evaluate the adequacy of our allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of our customer, historical trends of the customer and changes in customer payment terms. Additionally, with respect to customers in bankruptcy, we estimate the probable recovery through bankruptcy claims and adjust the allowance for amounts deemed uncollectible. If our assumptions regarding the collectability of receivables prove incorrect, we could experience losses in excess of our allowance for doubtful accounts. The allowance and its related receivable are written-off when we have concluded there is a low probability of collection and we have discontinued collection efforts.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies – Continued

Discontinued Operations

Properties that are sold or classified as held for sale are classified as discontinued operations provided that (1) the operations and cash flows of the property will be eliminated from our ongoing operations and (2) we will not have any significant continuing involvement in the operations of the property after it is sold. Interest expense is included in discontinued operations if the related loan securing the sold property is to be paid off or assumed by the buyer in connection with the sale. If the property is sold to a joint venture in which we retain an interest, the property will not be accounted for as a discontinued operation due to our significant ongoing interest in the operations through our joint venture interest. If we are retained to provide property management, leasing and/or other services for the property owner after the sale, the property generally will be accounted for as a discontinued operation because the expected cash flows related to our management and leasing activities generally will not be significant in comparison to the cash flows from the property prior to sale.
 
Lease Incentives
 
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign the lease, are capitalized in deferred financing and leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
 
For-Sale Residential Condominiums
 
For-sale residential condominiums include completed, but unsold, condominium inventory. We initially record receipts of earnest money deposits in accounts payable, accrued expenses and other liabilities in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received.

Investments in Unconsolidated Affiliates
 
We account for our investments in less than majority owned joint ventures, partnerships and limited liability companies using the equity method of accounting when our interests represent a general partnership interest but substantive participating rights or substantive kick out rights have been granted to the limited partners or when our interests do not represent a general partnership interest and we do not control the major operating and financial policies of the entity. These investments are initially recorded at cost in investments in unconsolidated affiliates and are subsequently adjusted for our share of earnings and cash contributions and distributions. To the extent our cost basis at formation of the joint venture is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in our share of equity in earnings of unconsolidated affiliates.
 
Cash Equivalents
 
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
 
Restricted Cash
 
Restricted cash represents cash deposits that are legally restricted or held by third parties on our behalf, such as security deposits from sales contracts on for-sale residential condominiums, construction-related escrows, property disposition proceeds set aside and designated or intended to fund future tax-deferred exchanges of qualifying real estate investments, escrows and reserves for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements and any deposits given to lenders to unencumber secured properties.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies – Continued

Income Taxes
 
We have elected and expect to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). A corporate REIT is a legal entity that holds real estate assets and, through the payment of dividends to stockholders, is generally permitted to reduce or avoid the payment of federal and state income taxes at the corporate level. To maintain qualification as a REIT, we are required to pay dividends to our stockholders equal to at least 90.0% of our annual REIT taxable income, excluding net capital gains.
 
We conduct certain business activities through a taxable REIT subsidiary, as permitted under the Code. The taxable REIT subsidiary is subject to federal, state and local income taxes on its taxable income. We record provisions for income taxes based on its income recognized for financial statement purposes, including the effects of temporary differences between such income and the amount recognized for tax purposes.
 
Concentration of Credit Risk
 
At December 31, 2011 , our Wholly Owned Properties were leased to 1,722 customers. The geographic locations that comprise greater than 10.0% of our annualized cash rental revenue are Raleigh, NC, Tampa, FL, Atlanta, GA and Nashville, TN. Our customers engage in a wide variety of businesses. No single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues during 2011 .

We maintain our cash and cash equivalents and our restricted cash at financial or other intermediary institutions. The combined account balances at each institution may exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Additionally, from time to time in connection with tax-deferred 1031 transactions, our restricted cash balances may be commingled with other funds being held by any such intermediary institution which subjects our balance to the credit risk of the institution.

Derivative Financial Instruments
 
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility, construction facility and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings and the issuance of unsecured debt securities, typically bears interest at fixed rates although some loans bear interest at variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. The interest rate on all of our variable rate debt is generally adjusted at one or three month intervals, subject to settlements under these interest rate hedge contracts. We also enter into treasury lock and similar agreements from time to time in order to limit our exposure to an increase in interest rates with respect to future debt offerings.
 
Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into interest expense in the period that the hedged forecasted transaction affects earnings. Interest rate hedge contracts typically contain a provision whereby if we default on any of our indebtedness, we could also be declared in default on our hedge contracts.

We account for terminated derivative instruments by recognizing the related accumulated comprehensive income/loss balance in current earnings, unless the hedged forecasted transaction continues as originally planned, in which case we continue to amortize the accumulated comprehensive income/loss into earnings over the originally designated hedge period.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies – Continued

Earnings Per Share
 
Basic earnings per share is computed by dividing net income available for common stockholders by the weighted Common Shares outstanding - basic. Diluted earnings per share is computed by dividing net income available to common stockholders plus noncontrolling interests in the Operating Partnership by the weighted Common Shares outstanding - basic plus the dilutive effect of options, warrants and convertible securities outstanding, including Common Units, using the treasury stock method. Weighted Common Shares outstanding - basic includes all unvested restricted stock since dividends received on such restricted stock are non-forfeitable.
 
Recently Issued Accounting Standards
 
Beginning with our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, we will be required to enhance our disclosure of assets and liabilities measured at fair value. This includes disclosing any significant transfers between Levels 1 and 2 of the fair value hierarchy, additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy and the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but is disclosed in our Notes to Consolidated Financial Statements. Additionally, we will be required to present comprehensive income on the face of our Consolidated Statements of Income, which is currently disclosed in our Notes to Consolidated Financial Statements.

2.    Real Estate Assets

Acquisitions

In 2011 , we acquired a six-building, 1.54 million square foot office complex in Pittsburgh, PA for a purchase price of $ 188.5 million . The purchase price included the assumption of secured debt recorded at fair value of $ 124.5 million , with an effective interest rate of 4.27% , including amortization of deferred financing costs. This debt matures in November 2017 . We expensed $ 4.0 million of costs related to this acquisition, which are included in general and administrative expense. Additionally, we acquired a 503,000 square foot office building in Atlanta, GA for a purchase price of $ 78.3 million . The purchase price included the assumption of secured debt recorded at fair value of $ 67.9 million , with an effective interest rate of 5.45% , including amortization of deferred financing costs. This debt matures in January 2014 . We expensed $ 0.3 million of costs related to this acquisition.

The following table sets forth a summary of the acquisition purchase price consideration for each major class of assets acquired and liabilities assumed in the acquisitions discussed above:

	
				
 	Total Purchase Price Consideration	
Real estate assets	$	241,602		
Acquisition-related intangible assets (in deferred financing and leasing costs)	39,721		
Furniture, fixtures and equipment (in prepaid expenses and other assets)	1,101		
Acquisition-related intangible liabilities (in accounts payable, accrued expenses and other liabilities)	(15,627	)	
Total consideration	$	266,797		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

2.      Real Estate Assets - Continued

The following tables set forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocation, assuming the acquisitions discussed above both occurred as of the beginning of each annual reporting period:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Proforma rental and other revenues	$	524,480		 	$	511,861		 	$	505,840		
Proforma net income	$	45,674		 	$	65,409		 	$	57,471		
Proforma earnings per share - basic	$	0.50		 	$	0.77		 	$	0.70		
Proforma earnings per share - diluted	$	0.50		 	$	0.77		 	$	0.70		

In 2011 , we also acquired a 48,000 square foot medical office property in Raleigh, NC for approximately $ 8.9 million in cash and incurred $ 0.1 million of acquisition-related costs, which are included in general and administrative expense.

In 2010 , we acquired a 336,000 square foot office property in Memphis, TN for a purchase price of $ 52.6 million . The purchase price included the assumption of secured debt recorded at fair value of $ 40.3 million , with an effective interest rate of 6.43% . This debt matures in November 2015 . We incurred $ 0.4 million of acquisition-related costs. We also acquired a 117,000 square foot office property and 32.6 acres of development land in Tampa, FL for a purchase price of $ 12.0 million . We incurred $ 0.2 million of acquisition-related costs. Lastly, we acquired our partner’s interest in a joint venture that owned for-sale residential condominiums for a purchase price of $ 0.5 million .

In 2009 , we acquired a 220,000 square foot office building in Tampa, FL for a purchase price of $ 22.3 million . We expensed $ 0.1 million of costs related to this acquisition.

Dispositions

In 2011 , we sold an office property and adjacent land parcel in a single transaction in Winston-Salem, NC for gross proceeds of $ 15.0 million . We recorded gain on disposition of discontinued operations of $ 2.6 million related to the office property and gain on disposition of property of $ 0.3 million related to the land.

In 2010 , we sold seven office properties in Winston Salem, NC and six industrial properties in Greensboro, NC in two separate transactions for gross proceeds of $ 24.9 million . In the aggregate, we received cash of $ 7.9 million . provided seller financing of $ 17.0 million and committed to lend up to an additional $ 1.7 million for tenant improvements and lease commissions, of which $ 0.2 million was funded as of December 31, 2011 . We have accounted for these dispositions using the installment method, whereby the $ 0.4 million gain on disposition of property related to the office properties has been deferred and will be recognized when the seller financing is repaid, and recorded impairment of $ 0.3 million related to the industrial properties. In  2010 , we also recorded a completed sale in connection with the disposition of an office property in Raleigh, NC in the fourth quarter of 2009 where the buyer's limited right to compel us to repurchase the property expired and recorded a gain of $ 0.2 million .

In 2009 , we sold 517,000 square feet of non-core retail and office properties for gross proceeds of $ 78.2 million and recorded gains of $ 21.7 million .

Impairments

In 2011 , we recorded impairment of assets held for use of $ 2.4 million on two office properties located in Orlando, FL due to a change in the assumed timing of future disposition, which reduced the future expected cash flows from the properties.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

2.      Real Estate Assets - Continued

In 2009 , we recorded impairment of assets held for use of $ 2.6 million on four office properties located in Winston-Salem, NC and recorded impairment of $ 11.0 million on the office, industrial and retail properties in Winston-Salem and Greensboro, NC that were sold in 2010 and required discontinued operations presentation. These impairments were also due to a change in the assumed timing of future disposition, which reduced the future expected cash flows from the properties.

3.    Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

	
								
 	December 31,	
 	2011	 	2010	
Seller financing (first mortgages)	$	17,180		 	$	17,180		
Less allowance	—		 	—		
 	17,180		 	17,180		
Promissory notes	1,481		 	2,732		
Less allowance	(61	)	 	(868	)	
 	1,420		 	1,864		
Mortgages and notes receivable, net	$	18,600		 	$	19,044		

The following table sets forth our notes receivable allowance, which relates only to promissory notes:

	
								
 	December 31,	
 	2011	 	2010	
Beginning notes receivable allowance	$	868		 	$	698		
Bad debt expense	196		 	413		
Recoveries/write-offs/other	(1,003	)	 	(243	)	
Total notes receivable allowance	$	61		 	$	868		

Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010 (see Note 2). This seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We conclude on the credit quality of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of December 31, 2011 , the payments on both mortgages receivable were current and there were no other indications of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

4.    Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.00% in various joint ventures with unrelated investors that are accounted for using the equity method of accounting. As a result, the assets and liabilities of these joint ventures are not included in our Consolidated Financial Statements.

The following table sets forth our ownership in unconsolidated affiliates at December 31, 2011 :

	
					
Joint Venture	 	Location of Properties	 	Ownership
Interest	
Concourse Center Associates, LLC	 	Greensboro, NC	 	50.00%	
Plaza Colonnade, LLC	 	Kansas City, MO	 	50.00%	
Lofts at Weston, LLC	 	Raleigh, NC	 	50.00%	
Board of Trade Investment Company	 	Kansas City, MO	 	49.00%	
Highwoods DLF 97/26 DLF 99/32, LP	 	Atlanta, GA; Greensboro, NC; Orlando, FL	 	42.93%	
Highwoods KC Glenridge Office, LLC	 	Atlanta, GA	 	40.00%	
Highwoods KC Glenridge Land, LLC	 	Atlanta, GA	 	40.00%	
HIW-KC Orlando, LLC	 	Orlando, FL	 	40.00%	
Kessinger/Hunter, LLC	 	Kansas City, MO	 	26.50%	
Highwoods DLF Forum, LLC	 	Raleigh, NC	 	25.00%	
Highwoods DLF 98/29, LLC	 	Atlanta, GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando, FL	 	22.81%	
4600 Madison Associates, LLC	 	Kansas City, MO	 	12.50%	

The following table sets forth combined summarized financial information for our unconsolidated affiliates:

	
								
 	December 31,	
 	2011	 	2010	
Balance Sheets:	 	 	 	
Assets:	 	 	 	
Real estate assets, net	$	536,088		 	$	580,257		
All other assets, net	96,944		 	92,423		
Total Assets	$	633,032		 	$	672,680		
Liabilities and Partners’ or Shareholders’ Equity:	 	 	 	
Mortgages and notes payable (1)	$	406,875		 	$	424,818		
All other liabilities	21,808		 	26,267		
Partners’ or shareholders’ equity	204,349		 	221,595		
Total Liabilities and Partners’ or Shareholders’ Equity	$	633,032		 	$	672,680		
Our share of historical partners’ or shareholders’ equity	$	59,584		 	$	61,022		
Advances to unconsolidated affiliate	38,323		 	—		
Net excess of cost of investments over the net book value of underlying net assets (2)	2,460		 	2,585		
Carrying value of investments in unconsolidated affiliates	$	100,367		 	$	63,607		
Our share of unconsolidated non-recourse mortgage debt (1)	$	146,926		 	$	150,698		
__________

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

4.    Investments in and Advances to Affiliates – Continued

(1)	Our share of scheduled future principal payments, including amortization, due on mortgages and notes payable at December 31, 2011 is as follows:	

				
2012 (a)	$	31,101		
2013	23,250		
2014	56,737		
2015	983		
2016	1,052		
Thereafter	33,803		
 	$	146,926		

(a) Includes our 22.81% portion of a $38.3 million interest-only secured loan provided by us to the DLF I joint venture.

All of this joint venture debt is non-recourse to us except in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and material misrepresentations.
		
(2)	This amount represents the aggregate difference between our historical cost basis and the basis reflected at the joint venture level, which is typically depreciated over the life of the related asset.	

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Income Statements:	 	 	 	 	 	
Rental and other revenues	$	100,958		 	$	119,868		 	$	149,856		
Expenses:	 	 	 	 	 	
Rental property and other expenses	44,584		 	56,868		 	72,344		
Depreciation and amortization	26,430		 	31,401		 	35,537		
Interest expense	23,762		 	27,956		 	35,245		
Total expenses	94,776		 	116,225		 	143,126		
Income before disposition of properties	6,182		 	3,643		 	6,730		
Gains on disposition of properties	—		 	—		 	2,963		
Net income	$	6,182		 	$	3,643		 	$	9,693		
Our share of:	 	 	 	 	 	
Depreciation and amortization of real estate assets	$	8,388		 	$	10,471		 	$	12,839		
Interest expense	$	8,163		 	$	10,545		 	$	14,074		
Net gain on disposition of depreciable properties	$	—		 	$	—		 	$	582		
Net income	$	2,429		 	$	1,466		 	$	2,889		
 	 	 	 	 	 	
Our share of net income	$	2,429		 	$	1,466		 	$	2,889		
Purchase accounting and management, leasing and other fees adjustments	2,449		 	2,355		 	2,532		
Equity in earnings of unconsolidated affiliates	$	4,878		 	$	3,821		 	$	5,421		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

4.    Investments in and Advances to Affiliates – Continued

The following summarizes additional information related to certain of our unconsolidated affiliates:

- Lofts at Weston, LLC

In 2011, we and Ravin Partners, LLC (“Ravin”) formed Lofts at Weston, LLC, in which we have a 50.00% ownership interest. We contributed 15.0 acres of land at an agreed upon value of $ 2.4 million to this joint venture, and Ravin contributed $ 1.2 million in cash and agreed to guarantee the joint venture's development loan. The joint venture then distributed $ 1.2 million to us and we recorded a gain of $ 0.3 million on this transaction. Ravin manages and operates this joint venture, which is constructing 215 rental residential units at a total cost of approximately $ 25.9 million . Ravin is the developer, manager and leasing agent and will receive customary fees from the joint venture.

- Highwoods DLF 97/26 DLF 99/32, L.P. (“DLF II”)
 
In 2009, DLF II sold an office property for gross proceeds of $ 7.1 million and recorded an impairment charge of $ 0.5 million . We recorded $ 0.2 million as our proportionate share of this impairment charge through equity in earnings of unconsolidated affiliates.
 
- Kessinger/Hunter, LLC
 
Kessinger/Hunter, LLC, which is managed by our joint venture partner, provides leasing services to certain of our Wholly Owned Properties in Kansas City, MO in exchange for customary fees from us. These services were reduced by us to only leasing-related services in 2009. Kessinger/Hunter, LLC received $ 2.1 million , $ 0.8 million and $ 0.5 million from us for these services in 2011 , 2010 and 2009 , respectively.
 
- Highwoods DLF 98/29, LLC (“DLF I”)
 
At the formation of this joint venture in 1999, our partner contributed excess cash to the venture that was distributed to us under the joint venture agreements. We are required to repay this excess cash to our partner over time, as discussed in Note 9.
 
In 2011, we provided a $ 38.3 million interest-only secured loan to DLF I that is scheduled to mature in March 2012 , which was used to repay a secured loan before maturity to a third party lender. The loan bears interest at LIBOR plus 500 basis points , which may be reduced by up to 50 basis points upon the use of proceeds from the sale of certain assets by the joint venture to repay the loan. We recorded $1.3 million of interest income from this loan in interest and other income during the year ended December 31, 2011.

In 2009, DLF I sold an office property for gross proceeds of $ 14.8 million and recorded a gain of $ 3.4 million . We recorded $ 0.8 million as our proportionate share of this gain through equity in earnings of unconsolidated affiliates.
 
- Des Moines, IA Joint Ventures
 
In 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. The assets in the joint ventures included 1.7 million square feet of office, 788,000 square feet of industrial and 45,000 square feet of retail properties, as well as 418 apartment units. In connection with the closing, we received $ 15.0 million in cash. We had a negative book basis in certain of the joint ventures, primarily as a result of prior cash distributions to the partners. As a result, we recorded gain on disposition of investment in unconsolidated affiliates of $25.3 million .
 
- HIW Development B, LLC
 
In 2011, our joint venture partner exercised its option to acquire our 10.0% equity interest in the HIW Development B, LLC joint venture, which recently completed construction of a build-to-suit office property in Charlotte, NC. As a result, we received gross proceeds of $ 4.8 million and recorded a gain on disposition of investment in unconsolidated affiliate related to this merchant build project of $2.3 million .

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

4.    Investments in and Advances to Affiliates – Continued

- Other Activities
 
We receive development, management and leasing fees for services provided to certain of our joint ventures. These fees are recognized in income to the extent of our respective joint venture partner's interest. In the years ended December 31, 2011 , 2010 and 2009 , we recognized $ 3.1 million , $ 2.7 million and $ 2.1 million , respectively, of development, management and leasing fees from our unconsolidated joint ventures. At December 31, 2011 and 2010 , we had receivables of $1.0 million and $0.6 million , respectively, related to these fees in accounts receivable.
 
Consolidated Affiliates
 
The following summarizes our consolidated affiliates:

- Highwoods-Markel Associates, LLC (“Markel”)
 
We have a 50.0% ownership interest in Markel. We are the manager and leasing agent for Markel's properties located in Richmond, VA and receive customary management and leasing fees. We consolidate Markel since we are the general partner and control the major operating and financial policies of the joint venture. The organizational documents of Markel require the entity to be liquidated through the sale of its assets upon reaching December 31, 2100 . As controlling partner, we have an obligation to cause this property-owning entity to distribute proceeds of liquidation to the noncontrolling interest partner in these partially owned properties only if the net proceeds received by the entity from the sale of our assets warrant a distribution as determined by the agreement. We estimate the value of noncontrolling interest distributions would have been approximately $ 14.8 million had the entity been liquidated at December 31, 2011 . This estimated settlement value is based on the fair value of the underlying properties which is based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates and costs to operate each property. If the entity's underlying assets are worth less than the underlying liabilities on the date of such liquidation, we would have no obligation to remit any consideration to the noncontrolling interest holder.

- SF-HIW Harborview Plaza, LP (“Harborview”)
 
We have a 20.0% interest in Harborview. We are the manager and leasing agent for Harborview's property located in Tampa, FL and receive customary management and leasing fees. As further described in Note 8, we account for this joint venture as a financing obligation since our partner has the right to put its interest back to us in the future.
 
- Plaza Residential, LLC (“Plaza Residential”)
 
In 2009, our taxable REIT subsidiary formed the Plaza Residential joint venture with an unrelated party to develop and sell 139 for-sale residential condominiums constructed above a wholly owned office property in Raleigh, NC. We initially had a 93.0% interest in Plaza Residential. In 2010, we acquired our partner's 7.0% ownership interest for $ 0.5 million . During the years ended December 31, 2011 , 2010 and 2009 , we received $ 3.2 million , $ 5.3 million and $ 13.0 million , respectively, in gross proceeds and recorded $ 3.5 million , $ 5.0 million and $ 12.1 million , respectively, of cost of assets sold from condominium sales, including impairment charges, if any.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

5.    Intangible Assets and Liabilities

The following table sets forth total intangible assets and liabilities, net of accumulated amortization:

	
								
 	December 31,	
 	2011	 	2010	
Assets:	 	 	 	
Deferred financing costs	$	18,044		 	$	16,331		
Less accumulated amortization	(5,797	)	 	(7,031	)	
 	12,247		 	9,300		
Deferred leasing costs (including lease incentives and acquisition-related intangible assets)	173,697		 	128,030		
Less accumulated amortization	(57,359	)	 	(52,329	)	
 	116,338		 	75,701		
Deferred financing and leasing costs, net	$	128,585		 	$	85,001		
 	 	 	 	
Liabilities (in accounts payable, accrued expenses and other liabilities):	 	 	 	
Acquisition-related intangible liabilities	$	16,441		 	$	733		
Less accumulated amortization	(971	)	 	(200	)	
 	$	15,470		 	$	533		

The following table sets forth amortization of intangible assets and liabilities:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Amortization of deferred financing costs	$	3,312		 	$	3,385		 	$	2,760		
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)	$	20,980		 	$	17,383		 	$	15,064		
Amortization of lease incentives (in rental and other revenues)	$	1,371		 	$	1,239		 	$	1,110		
Amortization of acquisition-related intangible assets (in rental and other revenues)	$	915		 	$	531		 	$	102		
Amortization of acquisition-related intangible liabilities (in rental and other revenues)	$	(840	)	 	$	(96	)	 	$	(94	)	

The following table sets forth scheduled future amortization of intangible assets and liabilities:

	
																					
Years Ending December 31,	 	Amortization
of Deferred Financing
Costs	 	Amortization
of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization)	 	Amortization
of Lease Incentives (in Rental and Other Revenues)	 	Amortization
of Acquisition-Related Intangible Assets (in Rental and Other Revenues)	 	Amortization
of Acquisition-Related Intangible Liabilities (in Rental and Other Revenues)	
2012	 	$	3,386		 	$	25,082		 	$	1,291		 	$	1,054		 	$	(2,123	)	
2013	 	2,982		 	20,503		 	1,136		 	822		 	(2,094	)	
2014	 	2,682		 	16,336		 	973		 	527		 	(2,019	)	
2015	 	2,073		 	12,411		 	752		 	342		 	(1,808	)	
2016	 	704		 	9,226		 	579		 	281		 	(1,511	)	
Thereafter	 	420		 	22,095		 	2,186		 	742		 	(5,915	)	
 	 	$	12,247		 	$	105,653		 	$	6,917		 	$	3,768		 	$	(15,470	)	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

5.    Intangible Assets and Liabilities - Continued

The weighted average remaining amortization periods for deferred financing costs, deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization), lease incentives (in rental and other revenues), acquisition-related intangible assets (in rental and other revenues) and acquisition-related intangible liabilities (in rental and other revenues) were 3.7 years, 6.4 years, 8.0 years, 5.8 years and 8.6 years, respectively, as of December 31, 2011 .

6.    Mortgages and Notes Payable

Our mortgages and notes payable consist of the following:

	
								
 	December 31,	
 	2011	 	2010	
Secured indebtedness: (1)	 	 	 	
7.05% mortgage loan due 2012 (2)	$	—		 	$	186,038		
5.45% mortgage loan due 2014 (3)	67,809		 	—		
5.18% mortgage loan due 2017 (4)	123,613		 	—		
6.03% mortgage loan due 2013	125,264		 	128,084		
5.68% mortgage loan due 2013	110,343		 	113,230		
5.17% (6.43% effective rate) mortgage loan due 2015 (5)	40,015		 	40,199		
6.88% mortgage loans due 2016	112,075		 	113,386		
7.50% mortgage loan due 2016	46,181		 	46,662		
5.74% to 9.00% mortgage loans due between 2012 and 2016 (6) (7) (8)	72,640		 	74,691		
Variable rate construction loan due 2012 (9)	52,109		 	52,109		
 	750,049		 	754,399		
Unsecured indebtedness:	 	 	 	
5.85% (5.88% effective rate) notes due 2017 (10)	391,164		 	391,046		
7.50% notes due 2018	200,000		 	200,000		
Variable rate term loan due 2016 (11)	200,000		 	—		
Variable rate term loans due 2011	—		 	147,500		
Revolving credit facility due 2015 (12)	362,000		 	30,000		
 	1,153,164		 	768,546		
Total	$	1,903,213		 	$	1,522,945		
__________
		
(1)	The secured mortgage loans payable are collateralized by real estate assets with an aggregate undepreciated book value of approximately $ 1.2 billion at December 31, 2011 . Our fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term or are prepayable subject to certain conditions including prepayment penalties.	
		
(2)	We have repaid the remaining balance of this loan as of December 31, 2011 .	
		
(3)	Includes unamortized fair market premium of $0.4 million as of December 31, 2011 .	
		
(4)	Includes unamortized fair market premium of $5.5 million as of December 31, 2011 .	
		
(5)	Net of unamortized fair market value discount of $ 1.7 million as of December 31, 2011 .	
		
(6)	Includes mortgage debt related to Harborview, a consolidated 20.0% owned joint venture, of $ 21.0 million and $ 21.5 million at December 31, 2011 and 2010 , respectively. See Note 8.	
		
(7)	Includes mortgage debt related to Markel, a consolidated 50.0% owned joint venture, of $ 34.0 million and $ 35.0 million at December 31, 2011 and 2010 , respectively. See Note 10.	
		
(8)	Net of unamortized fair market value premium of $ 0.3 million and $ 0.4 million at both December 31, 2011 and 2010 .	
		
(9)	The interest rate is 1.14% at December 31, 2011 .	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

6.    Mortgages and Notes Payable - Continued

(10)	Net of unamortized original issuance discount of $ 0.6 million and $ 0.7 million at December 31, 2011 and 2010 , respectively.	
		
(11)	The interest rate is 2.49% at December 31, 2011 .	
		
(12)	The interest rate is 1.78% on our revolving credit facility at December 31, 2011 .	

The following table sets forth scheduled future principal payments, including amortization, due on our mortgages and notes payable at December 31, 2011 :

	
					
Years Ending December 31,	 	Principal Amount	
2012	 	$	85,624		
2013	 	245,917		
2014	 	105,129		
2015	 	406,995		
2016	 	358,480		
Thereafter	 	701,068		
 	 	$	1,903,213		

In 2011, we obtained a $ 475.0 million unsecured revolving credit facility, which is scheduled to mature on June 27, 2015 and includes an accordion feature that allows for an additional $ 75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. Continuing ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $ 362.0 million and $ 148.0 million outstanding under our revolving credit facility at December 31, 2011 and February 1, 2012 , respectively. At both December 31, 2011 and February 1, 2012 , we had $ 0.2 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at December 31, 2011 and February 1, 2012 was $ 112.8 million and $ 326.8 million , respectively.

In 2011, we repaid the remaining balance of $ 184.2 million of a secured mortgage loan bearing interest of 7.05% that was scheduled to mature in January 2012 and the remaining $ 10.0 million of a three -year unsecured term loan bearing interest of 3.90% that was scheduled to mature in February 2012 . We incurred no penalties related to these early repayments. We also obtained a $ 200.0 million , five -year unsecured bank term loan bearing interest of LIBOR plus 220 basis points . The proceeds were used to pay off at maturity a $ 137.5 million unsecured bank term loan bearing interest of LIBOR plus 110 basis points , pay off amounts then outstanding under our revolving credit facility and for general corporate purposes.

In 2010, we repaid $ 10.0 million of our $ 20.0 million , three -year unsecured term loan. Additionally, we repaid the $ 5.8 million remaining balance outstanding on the mortgage payable secured by our 96 rental residential units to unencumber these assets for a planned development project. We incurred a penalty of $ 0.6 million related to this early repayment, which is included in loss on debt extinguishment.

In 2009, we paid off at maturity $ 50.0 million of unsecured notes bearing interest of 8.125% and retired the remaining $ 107.2 million principal amount of a two-tranched secured loan bearing interest of 7.80% . We also obtained a $ 20.0 million , three -year unsecured term loan bearing interest of 3.90% , a $ 115.0 million , six and a half-year secured loan bearing interest of 6.88% and a $ 47.3 million , seven -year secured loan bearing interest of 7.50% . Lastly, we repurchased $ 8.2 million principal amount of unsecured notes due March 2017 bearing interest of 5.85% .

We are currently in compliance with the debt covenants and other requirements with respect to our outstanding debt.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

6.    Mortgages and Notes Payable - Continued

Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on the revolving credit facility, the lenders having at least 66.7% of the total commitments under the revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations.

The Operating Partnership has $391.2 million carrying amount of 2017 bonds outstanding and $200.0 million carrying amount of 2018 bonds outstanding. The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of either series of bonds can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.

Capitalized Interest

Total interest capitalized to development projects was $ 0.6 million , $ 1.4 million and $ 4.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

		
7.	Derivative Financial Instruments	

In 2011, we entered into six forward-starting, floating-to-fixed interest rate swaps for seven -year periods each with respect to an aggregate of $225.0 million LIBOR-based borrowings associated with forecasted issuance of debt . These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678% . The counterparties under the swaps are major financial institutions. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting p eriod. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the year ended December 31, 2011 .

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next year, we estimate that $2.4 million will be reclassified as an increase to interest expense.

The following table sets forth the fair value of our derivative instruments:

	
								
 	Fair Value as of December 31,	
 	2011	 	2010	
Liability Derivatives:	 	 	 	
Derivatives designated as cash flow hedges in other liabilities:	 	 	 	
Interest rate swaps	$	2,202		 	$	—		

The following table sets forth the effect of our cash flow hedges on AOCL and interest expense:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Derivatives Designated as Cash Flow Hedges:	 	 	 	 	 	
Amount of unrealized gain/(loss) recognized in AOCL on derivatives (effective portion):	 	 	 	 	 	
Interest rate swaps	$	(2,202	)	 	$	—		 	$	937		
Amount of loss/(gain) reclassified out of AOCL into contractual interest expense (effective portion):	 	 	 	 	 	
Interest rate swaps	$	(118	)	 	$	237		 	$	(249	)	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
8.	Financing Arrangements	

Our financing obligations consist of the following:

	
								
 	December 31,	
 	2011	 	2010	
Harborview financing obligation	$	17,086		 	$	17,616		
Tax increment financing bond	13,064		 	14,258		
Capitalized ground lease obligation	1,294		 	1,240		
Total	$	31,444		 	$	33,114		

Harborview
 
Our joint venture partner in Harborview has the right to put its 80.0% equity interest in the joint venture to us in exchange for cash at any time during the one-year period commencing September 11, 2014 . The value of the 80.0% equity interest will be determined at the time that our partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LP's assets and liabilities, less 3.0% , which amount was intended to cover the normal costs of a sale transaction. Because of the put option, this transaction is accounted for as a financing transaction. Accordingly, the assets, liabilities and operations related to Harborview Plaza, the office property owned by Harborview LP remain in our Consolidated Financial Statements.
 
As a result, we initially established a gross financing obligation equal to the $12.7 million equity contributed by the other partner. During each period, we increase the gross financing obligation for 80.0% of the net income before depreciation of Harborview Plaza, which is recorded as interest expense on financing obligation, and decrease the gross financing obligation for distributions made to our joint venture partner. At the end of each reporting period, the balance of the gross financing obligation is adjusted to equal the greater of the initial financing obligation or the current fair value of the put option, which is recorded as a valuation allowance. The valuation allowance is amortized on a straight-line basis prospectively through September 2014 as interest expense on financing obligation. The fair value of the put option was $6.2 million and $10.2 million at December 31, 2011 and 2010 , respectively. We continue to depreciate Harborview Plaza and record all of the depreciation on our books. At such time as the put option expires or is otherwise terminated, we will record the transaction as a partial sale and recognize gain accordingly.

Tax Increment Financing Bond
 
In connection with tax increment financing for construction of a parking garage, we are obligated to pay fixed special assessments over a 20-year period ending in 2019 . The net present value of these assessments, discounted at the 6.93% interest rate on the underlying bond financing, is recorded as a financing obligation. We receive special tax revenues and property tax rebates recorded in interest and other income, which are intended, but not guaranteed, to provide funds to pay the special assessments. We acquired the underlying bond, which is recorded in prepaid and other assets, in a privately negotiated transaction in 2007 . For additional information about this tax increment financing bond, see Note 11.
 
Capitalized Ground Lease Obligation
 
The capitalized ground lease obligation represents an obligation to the lessor of land on which we constructed a wholly owned office property. We are obligated to make fixed payments to the lessor through October 2022 . The lease provides for fixed price purchase options in the ninth and tenth years of the lease. We initially recorded the land and associated financing obligation at the net present value of the fixed rental payments and purchase option through the ninth year at the inception of the lease using a discount rate of 7.10% . The liability accretes as interest expense until it equals the amount of the purchase option.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
9.	Commitments and Contingencies	

Operating Ground Leases
 
Certain Wholly Owned Properties are subject to operating ground leases. Rental payments on these leases are adjusted periodically based on either the consumer price index or on a pre-determined schedule. Total rental property expense recorded on the straight-line basis for operating ground leases was $1.4 million , $1.5 million and $1.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

The following table sets forth our scheduled obligations for future minimum payments on operating ground leases at December 31, 2011 :

	
					
Years Ending December 31,	 	Minimum Payments	
2012	 	$	1,324		
2013	 	1,345		
2014	 	1,366		
2015	 	1,389		
2016	 	1,413		
Thereafter	 	31,526		
 	 	$	38,363		

Lease and Contractual Commitments
 
We have approximately   $59.8 million of lease and contractual commitments at December 31, 2011 . Lease and contractual commitments represent commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements) and contracts for development/redevelopment projects, of which $10.3 million was recorded on the Consolidated Balance Sheet at December 31, 2011 .
 
Des Moines Joint Ventures

As of the closing date of the 2010 disposition of our interests in the Des Moines, IA joint ventures, the joint ventures had approximately $170.0 million of secured debt, which was non-recourse to us except in the case of customary exceptions pertaining to matters such as misuse of funds, borrower bankruptcy, unpermitted transfers, environmental conditions and material misrepresentations. We have no ongoing lender liability relating to such customary exceptions to non-recourse liability with respect to most, but not all, of the debt. The buyer has agreed to indemnify and hold us harmless from any and all future losses that we suffer as a result of our prior investment in the joint ventures, except for losses directly resulting from our acts or omissions. In the event we are exposed to any such future loss, our financial condition and operating results would not be adversely affected unless the buyer defaults on its indemnification obligation.

Rent Guarantees

In connection with the disposition of six industrial properties in Piedmont Triad, NC in the second quarter of 2010, we entered into a limited rent guarantee agreement with the buyer relating to an existing 237,500 square foot lease with one customer, who has leased space in the properties for 14 years. This agreement guarantees the payment of rent for an approximate two-year period from March 2011 through June 2013 in the event the customer exercises its limited termination right. As of December 31, 2011 , our maximum exposure under this rent guarantee agreement was approximately $0.3 million . No accrual was recorded for this guarantee because we have concluded that a loss was not probable.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
9.	Commitments and Contingencies - Continued	

DLF I Obligation
 
At the formation of DLF I, the amount our partner contributed in cash to the venture and subsequently distributed to us was determined to be $7.2 million in excess of the amount required based on its ownership interest and the agreed-upon value of the real estate assets. We are required to repay this amount over 14 years, beginning in the first quarter of 1999 . The $7.2 million was discounted to net present value of $3.8 million using a discount rate of 9.62% specified in the agreement. Payments of $0.6 million were made in each of the years ended December 31, 2011 , 2010 and 2009 . The balance at December 31, 2011 and 2010 was $0.8 million and $1.2 million , respectively, which is included in accounts payable, accrued expenses and other liabilities.
 
Environmental Matters
 
Substantially all of our in-service and development properties have been subjected to Phase I environmental assessments and, in certain instances, Phase II environmental assessments. Such assessments and/or updates have not revealed, nor are we aware of, any environmental liability that we believe would have a material adverse effect on our Consolidated Financial Statements.

Litigation, Claims and Assessments
 
We are from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of our business. We regularly assess the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that we have incurred or will incur a loss and the loss or range of loss can be reasonably estimated, the estimated loss is accrued and charged to income in our Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of such matters, none of these proceedings, claims or assessments is expected to have a material effect on our business, financial condition, results of operations or cash flows.

10.	Noncontrolling Interests	

Noncontrolling Interests in the Operating Partnership

Noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company. Net income attributable to noncontrolling interests in the Operating Partnership is computed by applying the weighted average percentage of Common Units not owned by the Company during the period, as a percent of the total number of outstanding Common Units, to the Operating Partnership’s net income for the period after deducting distributions on Preferred Units. When a noncontrolling unitholder redeems a Common Unit for a share of Common Stock or cash, the noncontrolling interests in the Operating Partnership are reduced and the Company’s share in the Operating Partnership is increased by the fair value of each security at the time of redemption.

The following table sets forth noncontrolling interests in the Operating Partnership:

	
								
 	Year Ended December 31,	
 	2011	 	2010	
Beginning noncontrolling interests in the Operating Partnership	$	120,838		 	$	129,769		
Adjustments of noncontrolling interests in the Operating Partnership to fair value	(3,955	)	 	(2,721	)	
Conversion of Common Units to Common Stock	(1,906	)	 	(3,061	)	
Net income attributable to noncontrolling interests in the Operating Partnership	2,091		 	3,320		
Distributions to noncontrolling interests in the Operating Partnership	(6,413	)	 	(6,469	)	
Total noncontrolling interests in the Operating Partnership	$	110,655		 	$	120,838		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
10.	Noncontrolling Interests - Continued	

The following table sets forth net income available for common stockholders and transfers from noncontrolling interests in the Operating Partnership:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Net income available for common stockholders	$	38,677		 	$	61,790		 	$	51,778		
Increase in additional paid in capital from conversion of Common Units to Common Stock	1,906		 	3,060		 	5,589		
Change from net income available for common stockholders and transfers from noncontrolling interests	$	40,583		 	$	64,850		 	$	57,367		

Noncontrolling Interests in Consolidated Affiliates

At December 31, 2011 , noncontrolling interests in consolidated affiliates relates to our joint venture partner's 50.0% interest in office properties located in Richmond, VA. Our joint venture partner is an unrelated third party.

11.	Disclosure About Fair Value of Financial Instruments	

The following summarizes the three levels of inputs that we use to measure fair value, as well as the assets, noncontrolling interests in the Operating Partnership and liabilities that we recognize at fair value using those levels of inputs.

Level 1.   Quoted prices in active markets for identical assets or liabilities.

Our Level 1 assets are investments in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company. Our Level 1 liability is our non-qualified deferred compensation obligation.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Our Level 2 liabilities are interest rate swaps that were outstanding at December 31, 2011 whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk.

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our Level 3 assets are our tax increment financing bond, which is not routinely traded but whose fair value is determined using the income approach to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bond and real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analyses, which were valued using broker opinion of value and substantiated by internal cash flow projections.

The following tables set forth the assets, noncontrolling interests in the Operating Partnership and liabilities that we measure at fair value by level within the fair value hierarchy. We determine the level based on the lowest level of substantive input used to determine fair value.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

	
																
 	 	 	Level 1	 	Level 2	 	Level 3	
 	December 31, 2011	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Observable Inputs	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	 	 	
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	$	3,149		 	$	3,149		 	$	—		 	$	—		
Tax increment financing bond (in prepaid expenses and other assets)	14,788		 	—		 	—		 	14,788		
Impaired real estate assets and for-sale residential condominiums	12,767		 	—		 	—		 	12,767		
Total Assets	$	30,704		 	$	3,149		 	$	—		 	$	27,555		
Noncontrolling Interests in the Operating Partnership	$	110,655		 	$	110,655		 	$	—		 	$	—		
Liability:	 	 	 	 	 	 	 	
Interest rate swaps	$	2,202		 	$	—		 	$	2,202		 	$	—		
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	3,149		 	3,149		 	—		 	—		
Total Liabilities	$	5,351		 	$	3,149		 	$	2,202		 	$	—		

	
												
 	 	 	Level 1	 	Level 3	
 	December 31, 2010	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	$	3,479		 	$	3,479		 	$	—		
Tax increment financing bond (in prepaid expenses and other assets)	15,699		 	—		 	15,699		
Total Assets	$	19,178		 	$	3,479		 	$	15,699		
Noncontrolling Interests in the Operating Partnership	$	120,838		 	$	120,838		 	$	—		
Liability:	 	 	 	 	 	
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	$	4,091		 	$	4,091		 	$	—		

The following table sets forth the changes in our Level 3 asset:

	
								
 	December 31,	
 	2011	 	2010	
Asset:	 	 	 	
Tax Increment Financing Bond:	 	 	 	
Beginning balance	$	15,699		 	$	16,871		
Principal repayment	(1,145	)	 	(995	)	
Unrealized gain/(loss) (in AOCL)	234		 	(177	)	
Ending balance	$	14,788		 	$	15,699		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

In 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020 . The estimated fair value at December 31, 2011 was $2.3 million below the outstanding principal due on the bond. If the yield-to-maturity used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.6 million lower or $0.6 million higher, respectively, as of December 31, 2011 . Currently, we intend to hold this bond and have concluded that we will not be required to sell this bond before recovery of the bond principal. Payment of the principal and interest for the bond is guaranteed by us and, therefore, we have recorded no credit losses related to the bond in the years ended December 31, 2011 and 2010 . There is no legal right of offset with the liability, which we report as a financing obligation, related to this tax increment financing bond.

The following table sets forth the carrying amounts and fair values of our financial instruments not disclosed elsewhere:

	
								
 	Carrying Amount	 	Fair Value	
December 31, 2011	 	 	 	
Mortgages and notes receivable	$	18,600		 	$	18,990		
Mortgages and notes payable	$	1,903,213		 	$	1,992,937		
Financing obligations (including Harborview financing obligation)	$	31,444		 	$	18,866		
 	 	 	 	
December 31, 2010	 	 	 	
Mortgages and notes receivable	$	19,044		 	$	19,093		
Mortgages and notes payable	$	1,522,945		 	$	1,581,518		
Financing obligations (including Harborview financing obligation)	$	33,114		 	$	23,880		

The carrying values of our cash and cash equivalents, restricted cash, accounts receivable, marketable securities of non-qualified deferred compensation plan, tax increment financing bond, non-qualified deferred compensation obligation and noncontrolling interests in the Operating Partnership are equal to or approximate fair value. The fair values of our mortgages and notes receivable, mortgages and notes payable and financing obligations were estimated using the income or market approaches to approximate the price that would be paid in an orderly transaction between market participants on the respective measurement dates.

12.	Equity	
 
Common Stock Offerings
 
In 2011, the Company entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of our Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During 2011 , the Company issued 378,200 shares of Common Stock under these agreements at an average price of $35.09 per share raising net proceeds, after sales commissions and expenses, of $13.1 million .

In 2009, the Company sold 7.0 million shares of Common Stock for net proceeds of $144.1 million .

Common Stock Dividends
 
Dividends declared and paid per share of Common Stock aggregated $1.70 for each of the years ended December 31, 2011 , 2010 and 2009 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
12.	Equity - Continued	

The following table sets forth the estimated taxability to the common stockholders of dividends per share for federal income tax purposes:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Ordinary income	$	1.15		 	$	0.41		 	$	1.09		
Capital gains	—		 	0.44		 	0.60		
Return of capital	0.55		 	0.85		 	0.01		
Total	$	1.70		 	$	1.70		 	$	1.70		

Our tax returns have not been examined by the Internal Revenue Service (“IRS”) and, therefore, the taxability of dividends is subject to change.
 
Preferred Stock
 
In 2011, we redeemed the remaining 2.1 million outstanding 8.0% Series B Cumulative Redeemable Preferred Shares for an aggregate redemption price of $52.5 million , excluding accrued dividends. In connection with this redemption, the $1.9 million excess of the redemption cost over the net carrying amount of the redeemed shares was recorded as a reduction to net income available for common stockholders.

The following table sets forth our Preferred Stock:

	
																				
Preferred Stock Issuances	 	Issue Date	 	Number of Shares Outstanding	 	Carrying Value	 	Liquidation Preference Per Share	 	Optional Redemption Date	 	Annual Dividends Payable Per Share	
 	 	 	 	(in thousands)	 	 	 	 	 	 	 	 	
December 31, 2011	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,077		 	$	1,000		 	2/12/2027	 	$	86.25		
December 31, 2010	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,092		 	$	1,000		 	2/12/2027	 	$	86.25		
8.000% Series B Cumulative Redeemable	 	9/25/1997	 	2,100		 	$	52,500		 	$	25		 	9/25/2002	 	$	2.00		

The following table sets forth the estimated taxability to the preferred stockholders of dividends per share for federal income tax purposes:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
8.625% Series A Cumulative Redeemable:	 	 	 	 	 	
Ordinary income	$	86.25		 	$	41.80		 	$	55.86		
Capital gains	—		 	44.45		 	30.39		
Total	$	86.25		 	$	86.25		 	$	86.25		
8.000% Series B Cumulative Redeemable:	 	 	 	 	 	
Ordinary income	$	1.05		 	$	0.97		 	$	1.30		
Capital gains	—		 	1.03		 	0.70		
Total	$	1.05		 	$	2.00		 	$	2.00		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
12.	Equity - Continued	

Our tax returns have not been examined by the Internal Revenue Service (“IRS”) and, therefore, the taxability of dividends is subject to change.

Warrants
 
Warrants to acquire Common Stock were issued in 1997 and 1999 in connection with property acquisitions. In 2011 , 2010 and 2009 , there were no warrants exercised. At December 31, 2011 and 2010 , there were 15,000 warrants outstanding with an exercise price of $32.50 . These warrants have no expiration date.
 
Dividend Reinvestment Plan
 
We have a Dividend Reinvestment and Stock Purchase Plan (“DRIP”) under which holders of Common Stock may elect to automatically reinvest their dividends in additional shares of Common Stock and make optional cash payments for additional shares of Common Stock. We may elect to satisfy DRIP obligations by issuing additional shares of Common Stock or instructing the DRIP administrator to purchase Common Stock in the open market.

13.	Employee Benefit Plans	

Officer, Management and Director Compensation Programs

Our officers participate in an annual non-equity incentive program whereby they are eligible for incentive cash payments based on a percentage of their annual base salary. Each officer has a target annual non-equity incentive payment percentage that ranges from 30% to 130% of base salary depending on the officer’s position. The officer’s actual incentive payment for the year is the product of the target annual incentive payment percentage times a “performance factor,” which can range from zero to 200% . This performance factor depends upon the relationship between how various performance criteria compare with predetermined goals. For an officer who has division responsibilities, goals for certain performance criteria are based partly on the division’s actual performance relative to that division’s established goals and partly on actual total performance. Incentive payments are accrued and expensed in the year earned and are generally paid in the first quarter of the following year.

Certain other employees participate in an annual non-equity incentive program whereby a target annual cash incentive payment is established based upon the job responsibilities of their position. Incentive payment eligibility ranges from 10% to 30% of annual base salary. The actual incentive payment is determined by our overall performance and the individual’s performance during each year. These incentive payments are also accrued and expensed in the year earned and are generally paid in the first quarter of the following year.

Our officers generally receive annual grants of stock options and restricted stock on or about March 1 of each year. Restricted stock grants are also made annually to directors and certain other employees. Dividends received on restricted stock are non-forfeitable and are paid at the same rate and on the same date as on shares of Common Stock. Dividends paid on subsequently forfeited shares are expensed. Additional total return-based restricted stock may be issued at the end of the three-year periods if actual performance exceeds certain levels of performance. Such additional shares, if any, would be fully vested when issued. No expense is recorded for additional shares of total return-based restricted stock that may be issued at the end of the three-year period since that possibility is already reflected in the grant date fair value. The following table sets forth the number of shares of Common Stock reserved for future issuance:

	
						
 	December 31,	
 	2011	 	2010	
Outstanding stock options and warrants	1,224,455		 	1,495,196		
Possible future issuance under equity incentive plans	2,363,695		 	2,642,620		
 	3,588,150		 	4,137,816		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
13.	Employee Benefit Plans - Continued	

Of the possible future issuance under equity incentive plans at December 31, 2011 , no more than 0.7 million can be in the form of restricted stock. At December 31, 2011 , we had 127.4 million remaining shares of Common Stock authorized to be issued under our charter.

During the years ended December 31, 2011 , 2010 and 2009 , we recognized $6.1 million , $6.6 million and $6.6 million , respectively, of share-based compensation expense. Because REITs generally do not pay income taxes, we do not realize tax benefits on share-based payments. At December 31, 2011 , there was $5.6 million of total unrecognized share-based compensation costs, which will be recognized over vesting periods that have a weighted average remaining term of 2.1 years.

- Stock Options

Stock options issued prior to 2005 vest ratably over four years and remain outstanding for 10 years. Stock options issued beginning in 2005 vest ratably over a four -year period and remain outstanding for seven years. The value of all options as of the date of grant is calculated using the Black-Scholes option-pricing model and is amortized over the respective vesting or service period. The fair values of options granted during 2011 , 2010 and 2009 were $6.47 , $4.96 and $1.82 , respectively, per option. The fair values of the options granted were determined at the grant dates using the following assumptions:

	
									
 	2011	 	2010	 	2009	
Risk free interest rate (1)  	2.4	%	 	2.6	%	 	2.3	%	
Common stock dividend yield (2)  	5.0	%	 	5.9	%	 	9.0	%	
Expected volatility (3)  	32.5	%	 	32.2	%	 	29.9	%	
Average expected option life (years) (4)	5.75		 	5.75		 	5.75		
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the option grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one -year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related stock option grant.	
		
(4)	The average expected option life is based on an analysis of our historical data.	

The following table sets forth stock option activity:

	
							
 	Options Outstanding	
 	Number of Shares	 	Weighted Average Exercise Price	
Balance at December 31, 2008	1,489,250		 	$	28.74		
Options granted	394,044		 	19.00		
Options cancelled	(111,590	)	 	27.65		
Options exercised	(303,931	)	 	24.18		
Balances at December 31, 2009	1,467,773		 	27.15		
Options granted 	190,826		 	29.05		
Options exercised 	(178,403	)	 	22.54		
Balances at December 31, 2010  (1) (2)	1,480,196		 	27.95		
Options granted	146,581		 	33.93		
Options exercised	(417,322	)	 	26.79		
Balances at December 31, 2011	1,209,455		 	$	29.08		
__________

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
13.	Employee Benefit Plans - Continued	

(1)	The outstanding options at December 31, 2011 had a weighted average remaining life of  3.5 years.	
		
(2)	We have 646,029 options exercisable at December 31, 2011 with weighted average exercise price of $31.01 , weighted average remaining life of 2.4 years and intrinsic value of $1.1 million . Of these exercisable options, 252,277 had exercise prices higher than the market price of our Common Stock at December 31, 2011 .	

Cash received or receivable from options exercised was $11.9 million , $4.4 million and $7.4 million for the years ended December 31, 2011 , 2010 and 2009 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2011 , 2010 and 2009 was $3.0 million , $1.7 million and $2.0 million , respectively. The total intrinsic value of options outstanding at December 31, 2011 , 2010 and 2009 was $3.3 million , $7.2 million and $10.3 million , respectively. We generally do not permit the net cash settlement of exercised stock options, but do permit net share settlement so long as the shares received are held for at least one year. We have a policy of issuing new shares to satisfy stock option exercises.

- Time-Based Restricted Stock

Shares of time-based restricted stock issued to officers and employees generally vest 25% on the first, second, third and fourth anniversary dates, respectively. Shares of time-based restricted stock issued to directors generally vest 25% on January 1 of each successive year after the grant date. The value of grants of time-based restricted stock is based on the market value of Common Stock as of the date of grant and is amortized to expense over the respective vesting or service periods.

The following table sets forth time-based restricted stock activity:

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2008	329,795		 	$	34.21		
Awarded and issued (1)	128,384		 	19.33		
Vested (2)  	(132,779	)	 	33.38		
Forfeited 	(9,326	)	 	31.26		
Restricted shares outstanding at December 31, 2009	316,074		 	28.60		
Awarded and issued (1)	88,930		 	29.05		
Vested (2) 	(138,745	)	 	31.81		
Forfeited 	(1,933	)	 	25.86		
Restricted shares outstanding at December 31, 2010 	264,326		 	27.08		
Awarded and issued (1)	76,966		 	33.70		
Vested (2) 	(116,631	)	 	30.64		
Restricted shares outstanding at December 31, 2011	224,661		 	$	28.02		
__________
		
(1)	The fair value at grant date of time-based restricted stock issued during the years ended December 31, 2011 , 2010 and 2009 was $2.6 million , $2.6 million and $2.5 million , respectively.	
		
(2)	The vesting date fair value of time-based restricted stock that vested during the years ended December 31, 2011 , 2010 and 2009 was $3.9 million , $4.3 million and $2.9 million , respectively.	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
13.	Employee Benefit Plans - Continued	

- Total Return-Based Restricted Stock

During 2011 , 2010 and 2009 , we issued shares of total return-based restricted stock to officers that will vest from zero to 250% based on (1) our absolute total returns for the three -year periods ended December 31, 2012 , 2013 and 2014 , respectively, relative to defined target returns and (2) whether our total return exceeds the average total returns of a selected group of peer companies. The grant date fair value of such shares of total return-based restricted stock was determined to be $41.02 , $29.05 and $15.01 , respectively, of the market value of a share of Common Stock as of the grant date and is amortized over the respective three-year period. The fair values of the total return-based restricted stock granted were determined at the grant dates using the following assumptions:

	
									
 	2011	 	2010	 	2009	
Risk free interest rate (1)  	1.0	%	 	1.3	%	 	1.3	%	
Common stock dividend yield (2)  	5.4	%	 	5.6	%	 	7.6	%	
Expected volatility (3)  	42.8	%	 	42.5	%	 	37.8	%	
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the total return-based restricted stock grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one -year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related total return-based restricted stock grant.	

The following table sets forth total return-based and other types of performance-based restricted stock activity:

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2008	151,342		 	$	33.39		
Awarded and issued (1)	127,594		 	15.01		
Vested (2)	(68,929	)	 	32.66		
Forfeited	(7,232	)	 	34.14		
Restricted shares outstanding at December 31, 2009	202,775		 	22.05		
Awarded and issued (1)	77,624		 	29.05		
Vested (2)	(47,257	)	 	38.50		
Forfeited	(1,307	)	 	22.99		
Restricted shares outstanding at December 31, 2010	231,835		 	21.03		
Awarded and issued (1)	57,386		 	41.02		
Vested (2)	(66,417	)	 	13.79		
Forfeited/cancelled	(99,975	)	 	13.79		
Restricted shares outstanding at December 31, 2011	122,829		 	$	34.86		
__________
		
(1)	The fair value at grant date of total return-based restricted stock issued during the years ended December 31, 2011 , 2010 and 2009 was $2.4 million , $2.3 million and $1.9 million , respectively. There were no performance-based restricted stock issued subsequent to 2008.	
		
(2)	The vesting date fair value of total return-based and other types performance-based restricted stock that vested during the years ended December 31, 2011 , 2010 and 2009 was $2.0 million , $1.6 million and $2.6 million , respectively.	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
13.	Employee Benefit Plans - Continued	

Retirement Plan

We have adopted a retirement plan applicable to all employees, including officers, who, at the time of retirement, have at least 30 years of continuous qualified service or are at least 55 years old and have at least 10 years of continuous qualified service. Subject to advance retirement notice and execution of a non-compete agreement with us, eligible retirees are entitled to receive a pro rata amount of the annual incentive payment earned during the year of retirement. Stock options and restricted stock granted by us to such eligible retiree during his or her employment would be non-forfeitable and vest according to the terms of their original grants. For employees who meet the age and service eligibility requirements, 100% of their annual grants are deemed fully vested at the grant date.

Deferred Compensation

We have a non-qualified deferred compensation plan pursuant to which each officer and director could elect to defer a portion of their base salary and/or annual non-equity incentive payment (or director fees) which are invested in unrelated mutual funds. These investments are recorded at fair value which aggregated $3.1 million and $3.5 million at December 31, 2011 and 2010 , respectively, and are included in prepaid expenses and other assets, with an offsetting deferred compensation liability recorded in accounts payable, accrued expenses and other liabilities. Such deferred compensation is expensed in the period earned by the officers and directors. Deferred amounts ultimately payable to the officers and directors are based on the value of the related mutual fund investments. Accordingly, changes in the value of the marketable mutual fund investments are recorded in interest and other income and the corresponding offsetting changes in the deferred compensation liability are recorded in general and administration expense. As a result, there is no effect on our net income subsequent to the time the compensation is deferred and fully funded. Prior to 2006, as part of the non-qualified deferred compensation plan, officers and directors could elect to defer cash compensation for investment in units of phantom stock. At the end of each calendar quarter, any person who deferred compensation into phantom stock was credited with units of phantom stock at a 15% discount. Dividends on the phantom units were assumed to be issued in additional units of phantom stock at a 15% discount. By the terms of the plan, the cash value of all phantom stock outstanding under the plan was reinvested in unrelated mutual funds as of December 31, 2011.

The following table sets forth our deferred compensation liability:

	
												
 	Years Ended December 31,	
 	2011	 	2010	 	2009	
Beginning deferred compensation liability	$	4,091		 	$	6,898		 	$	6,522		
Contributions to deferred compensation plans	545		 	229		 	—		
Mark-to-market adjustment to deferred compensation (general and administrative expense)	(119	)	 	246		 	1,497		
Distributions from deferred compensation plans	(1,368	)	 	(3,282	)	 	(1,121	)	
Total deferred compensation liability	$	3,149		 	$	4,091		 	$	6,898		

401(k) Savings Plan

We have a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. We contribute amounts for each participant at a rate of 75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary and cash incentives subject to statutory limits). During the years ended December 31, 2011 , 2010 and 2009 , we contributed $1.1 million , $1.0 million and $1.0 million , respectively, to the 401(k) savings plan. The assets of this qualified plan are not included in our Consolidated Financial Statements since the assets are not owned by us. Administrative expenses of the plan are paid by us.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
13.	Employee Benefit Plans - Continued	

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan pursuant to which employees generally may contribute up to 25% of their base and annual non-equity incentive compensation for the purchase of Common Stock. At the end of each three-month offering period, the contributions in each participant's account balance, which includes accrued dividends, is applied to acquire shares of Common Stock at a cost that was calculated during 2011 at 85% of the average closing price on the New York Stock Exchange on the five days preceding the last day of the quarter and during 2010 and 2009 at 85% of the lower of the average closing price on the New York Stock Exchange on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. In the years ended December 31, 2011 , 2010 and 2009 , the Company issued 30,826 , 27,378 and 37,287 shares, respectively, of Common Stock under the Employee Stock Purchase Plan. The discount on newly issued shares is expensed by us as additional compensation and aggregated $0.2 million , $0.1 million and $0.3 million in the years ended December 31, 2011 , 2010 and 2009 , respectively.

		
14.	Comprehensive Income and Accumulated Other Comprehensive Loss	

Comprehensive income represents net income plus the changes in certain amounts deferred in accumulated other comprehensive loss related to hedging activities and changes in fair market value of an available for-sale security. The following table sets forth the components of comprehensive income:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Net income	$	47,971		 	$	72,303		 	$	61,694		
Other comprehensive income:	 	 	 	 	 	
Unrealized gain/(loss) on tax increment financing bond	234		 	(177	)	 	293		
Unrealized gains/(losses) on cash flow hedges	(2,202	)	 	—		 	937		
Amortization of settled cash flow hedges	(118	)	 	237		 	(249	)	
Sale of cash flow hedge related to disposition of investment in unconsolidated affiliate	—		 	103		 	—		
Total other comprehensive income/(loss)	(2,086	)	 	163		 	981		
Total comprehensive income	$	45,885		 	$	72,466		 	$	62,675		

Accumulated other comprehensive loss represents certain amounts deferred related to hedging activities and an available for-sale security. The following table sets forth the components of accumulated other comprehensive loss:

	
								
 	December 31,	
 	2011	 	2010	
Tax increment financing bond	$	(2,308	)	 	$	(2,543	)	
Settled and outstanding cash flow hedges	(3,426	)	 	(1,105	)	
 	$	(5,734	)	 	$	(3,648	)	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
15.	Rental and Other Revenues; Rental Property and Other Expenses	

Our real estate assets are leased to customers under operating leases. The minimum rental amounts under the leases are generally subject to scheduled fixed increases. Generally, the leases also require that the customers reimburse us for increases in certain costs above the base-year costs. The following table sets forth rental and other revenues from continuing operations:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Contractual rents, net	$	420,285		 	$	398,224		 	$	392,360		
Straight-line rental income, net	12,828		 	11,349		 	3,644		
Amortization of lease incentives	(1,371	)	 	(1,239	)	 	(1,100	)	
Property operating expense recoveries, net	36,105		 	41,736		 	44,462		
Lease termination fees	2,443		 	2,992		 	1,813		
Fee income	5,571		 	5,466		 	5,155		
Other miscellaneous operating revenues	6,991		 	2,598		 	1,684		
 	$	482,852		 	$	461,126		 	$	448,018		

The following table sets forth scheduled future minimum base rents to be received from customers for leases in effect at December 31, 2011 for the Wholly Owned Properties:

	
				
2012	$	448,420		
2013	409,453		
2014	352,743		
2015	297,859		
2016	247,283		
Thereafter	809,042		
 	$	2,564,800		

The following table sets forth rental property and other expenses from continuing operations:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Utilities, insurance and real estate taxes	$	97,156		 	$	90,838		 	$	91,173		
Maintenance, cleaning and general building	61,700		 	56,877		 	55,840		
Property management and administrative expenses	11,624		 	11,203		 	11,702		
Other miscellaneous operating expenses	5,668		 	4,720		 	3,310		
 	$	176,148		 	$	163,638		 	$	162,025		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
16.	Discontinued Operations	

The following table sets forth our operations which required classification as discontinued operations:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Rental and other revenues	$	1,593		 	$	3,627		 	$	11,292		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	570		 	1,406		 	4,263		
Depreciation and amortization	127		 	744		 	2,231		
Impairment of assets held for use	—		 	—		 	10,964		
Total operating expenses	697		 	2,150		 	17,458		
Interest expense	—		 	—		 	67		
Other income	1		 	2		 	3		
Income/(loss) from discontinued operations	897		 	1,479		 	(6,230	)	
Net gains/(losses) on disposition of discontinued operations	2,573		 	(86	)	 	21,466		
Total discontinued operations	$	3,470		 	$	1,393		 	$	15,236		
Carrying value of assets held for sale and assets sold that qualified for discontinued operations during the year	$	15,261		 	$	42,133		 	$	97,457		

The following table sets forth the major classes of assets and liabilities of the properties held for sale:

	
								
 	December 31,	
 	2011	 	2010	
Assets:	 	 	 	
Land	$	—		 	$	2,788		
Buildings and tenant improvements	—		 	12,707		
Land held for development	—		 	4,536		
Accumulated depreciation	—		 	(5,012	)	
Net real estate assets	—		 	15,019		
Accrued straight line rents receivable	—		 	57		
Deferred leasing costs, net	—		 	257		
Prepaid expenses and other assets	—		 	43		
Real estate and other assets, net, held for sale	$	—		 	$	15,376		
Tenant security deposits, deferred rents and accrued costs (1)	$	—		 	$	11		
__________
		
(1)	Included in accounts payable, accrued expenses and other liabilities.	

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
17.	Earnings Per Share	

The following table sets forth the computation of basic and diluted earnings per share:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Earnings per common share - basic:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	44,501		 	$	70,910		 	$	46,458		
Net (income) attributable to noncontrolling  interests in the Operating Partnership from continuing operations	(1,918	)	 	(3,250	)	 	(2,339	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(755	)	 	(485	)	 	(11	)	
Dividends on Preferred Stock	(4,553	)	 	(6,708	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	(1,895	)	 	—		 	—		
Income from continuing operations available for common stockholders	35,380		 	60,467		 	37,400		
Income from discontinued operations	3,470		 	1,393		 	15,236		
Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations	(173	)	 	(70	)	 	(858	)	
Income from discontinued operations available for common stockholders	3,297		 	1,323		 	14,378		
Net income available for common stockholders	$	38,677		 	$	61,790		 	$	51,778		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Share – weighted average shares (1) (2)	72,281		 	71,578		 	67,971		
Earnings per common share - basic:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.49		 	$	0.84		 	$	0.55		
Income from discontinued operations available for common stockholders	0.05		 	0.02		 	0.21		
Net income available for common stockholders	$	0.54		 	$	0.86		 	$	0.76		
Earnings per common share - diluted:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	44,501		 	$	70,910		 	$	46,458		
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(755	)	 	(485	)	 	(11	)	
Dividends on Preferred Stock	(4,553	)	 	(6,708	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	(1,895	)	 	—		 	—		
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership	37,298		 	63,717		 	39,739		
Income from discontinued operations available for common stockholders	3,470		 	1,393		 	15,236		
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership	$	40,768		 	$	65,110		 	$	54,975		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Share –weighted average shares (1) (2)	72,281		 	71,578		 	67,971		
Add:	 	 	 	 	 	
Stock options using the treasury method	136		 	198		 	79		
Noncontrolling interests partnership units	3,772		 	3,802		 	4,029		
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions ( 1)	76,189		 	75,578		 	72,079		
Earnings per common share - diluted:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.49		 	$	0.84		 	$	0.55		
Income from discontinued operations available for common stockholders	0.05		 	0.02		 	0.21		
Net income available for common stockholders	$	0.54		 	$	0.86		 	$	0.76		
__________

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
17.	Earnings Per Share - Continued	

(1)	There were 0.4 million , 0.7 million and 1.0 million options outstanding during the years ended December 31, 2011 , 2010 and 2009 , respectively, that were not included in the computation of diluted earnings per share because the impact of including such options would be anti-dilutive .	
		
(2)	Includes all unvested restricted stock since dividends on such restricted stock are non-forfeitable.	

18.	Income Taxes	

Our Consolidated Financial Statements include the operations of our taxable REIT subsidiary, which is subject to federal, state and local income taxes on its taxable income. As a REIT, we may also be subject to federal excise taxes if we engage in certain types of transactions.

The minimum dividend per share of Common Stock required for us to maintain our REIT status was $1.01 , $0.32 and $0.89 per share in 2011 , 2010 and 2009 , respectively. Continued qualification as a REIT depends on our ability to satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests prescribed in the Code. The tax basis of our assets (net of accumulated tax depreciation and amortization) and liabilities was approximately $2.7 billion and $2.0 billion , respectively, at December 31, 2011 and $2.4 billion and $1.6 billion , respectively, at  December 31, 2010 .

No provision has been made for federal income taxes during the years ended December 31, 2011 , 2010 and 2009 because the Company qualified as a REIT, distributed the necessary amount of taxable income and, therefore, incurred no federal income tax expense during the periods. We recorded state income tax expense in rental property and other expenses of $0.1 million , $0.1 million and $0.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively. The taxable REIT subsidiary has operated at a cumulative taxable loss through December 31, 2011 of approximately $5.3 million . In addition to the $2.0 million deferred tax asset for these cumulative tax loss carryforwards, the taxable REIT subsidiary also had net deferred tax liabilities of approximately $1.6 million comprised primarily of tax versus book basis differences in certain investments and depreciable assets held by the taxable REIT subsidiary. Because the future tax benefit of the cumulative losses is not assured, the approximate $0.4 million net deferred tax asset position of the taxable REIT subsidiary has been fully reserved as management does not believe that it is more likely than not that the net deferred tax asset will be realized. The tax benefit of the cumulative losses could be recognized for financial reporting purposes in future periods to the extent the taxable REIT subsidiary generates sufficient taxable income.

We are subject to federal, state and local income tax examinations by tax authorities for 2008 through 2011 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
19.	Segment Information	

Our principal business is the operation, acquisition and development of rental real estate properties. We evaluate our business by product type and by geographic location. Each product type has different customers and economic characteristics as to rental rates and terms, cost per square foot of buildings, the purposes for which customers use the space, the degree of maintenance and customer support required and customer dependency on different economic drivers, among others. The operating results by geographic grouping are also regularly reviewed by our chief operating decision maker for assessing performance and other purposes. There are no material inter-segment transactions.

Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States and, at December 31, 2011 , no single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues on an annualized basis.

The following table summarizes the rental and other revenues and net operating income, the primary industry property-level performance metric which is defined as rental and other revenues less rental property and other expenses, for each reportable segment:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Rental and Other Revenues: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	52,999		 	$	48,051		 	$	48,704		
Greenville, SC	14,079		 	13,616		 	14,010		
Kansas City, MO	14,391		 	14,822		 	14,839		
Memphis, TN	40,324		 	34,982		 	30,642		
Nashville, TN	60,857		 	59,151		 	60,551		
Orlando, FL	10,235		 	11,615		 	11,809		
Piedmont Triad, NC	20,650		 	21,155		 	21,255		
Pittsburgh, PA	10,971		 	—		 	—		
Raleigh, NC	78,513		 	75,604		 	72,521		
Richmond, VA	47,536		 	47,191		 	46,617		
Tampa, FL	69,865		 	72,522		 	67,294		
Total Office Segment	420,420		 	398,709		 	388,242		
Industrial:	 	 	 	 	 	
Atlanta, GA	15,911		 	15,159		 	15,611		
Piedmont Triad, NC	11,829		 	12,376		 	12,778		
Total Industrial Segment	27,740		 	27,535		 	28,389		
Retail:	 	 	 	 	 	
Kansas City, MO	34,277		 	33,527		 	29,997		
Piedmont Triad, NC	—		 	—		 	185		
Raleigh, NC	146		 	135		 	120		
Total Retail Segment	34,423		 	33,662		 	30,302		
Residential:	 	 	 	 	 	
Kansas City, MO	269		 	1,220		 	1,085		
Total Residential Segment	269		 	1,220		 	1,085		
Total Rental and Other Revenues	$	482,852		 	$	461,126		 	$	448,018		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
19.	Segment Information - Continued	

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Net Operating Income: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	33,744		 	$	30,370		 	$	30,759		
Greenville, SC	8,335		 	8,145		 	8,707		
Kansas City, MO	8,403		 	8,882		 	9,072		
Memphis, TN	23,075		 	20,828		 	17,700		
Nashville, TN	40,341		 	39,281		 	39,072		
Orlando, FL	5,188		 	6,259		 	6,268		
Piedmont Triad, NC	13,045		 	13,894		 	13,935		
Pittsburgh, PA	5,456		 	—		 	—		
Raleigh, NC	54,590		 	52,254		 	48,784		
Richmond, VA	31,290		 	32,049		 	32,027		
Tampa, FL	43,369		 	45,480		 	40,089		
Total Office Segment	266,836		 	257,442		 	246,413		
Industrial:	 	 	 	 	 	
Atlanta, GA	11,199		 	10,671		 	11,608		
Piedmont Triad, NC	8,655		 	9,042		 	9,742		
Total Industrial Segment	19,854		 	19,713		 	21,350		
Retail:	 	 	 	 	 	
Atlanta, GA (2)	(22	)	 	(21	)	 	(22	)	
Kansas City, MO	20,163		 	19,937		 	18,177		
Piedmont Triad, NC	—		 	—		 	12		
Raleigh, NC	49		 	37		 	9		
Total Retail Segment	20,190		 	19,953		 	18,176		
Residential:	 	 	 	 	 	
Kansas City, MO	19		 	742		 	581		
Raleigh, NC (2)	(195	)	 	(362	)	 	(527	)	
Total Residential Segment	(176	)	 	380		 	54		
Total Net Operating Income	306,704		 	297,488		 	285,993		
Reconciliation to income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates:	 	 	 	 	 	
Depreciation and amortization	(143,019	)	 	(135,414	)	 	(129,652	)	
Impairment of assets held for use	(2,429	)	 	—		 	(2,554	)	
General and administrative expense	(35,727	)	 	(32,948	)	 	(36,682	)	
Interest expense	(95,999	)	 	(93,372	)	 	(86,805	)	
Other income	7,363		 	5,655		 	9,549		
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	$	36,893		 	$	41,409		 	$	39,849		
__________

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
19.	Segment Information - Continued	

(1)	Net of discontinued operations.	
		
(2)	Negative NOI with no corresponding revenues represents expensed real estate taxes and other carrying costs associated with land held for development that is currently zoned for the respective product type.	

	
												
 	December 31,	
 	2011	 	2010	 	2009	
Total Assets:	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	359,225		 	$	268,772		 	$	275,464		
Baltimore, MD	1,789		 	1,787		 	1,787		
Greenville, SC	69,669		 	73,931		 	78,567		
Kansas City, MO	86,028		 	84,197		 	85,681		
Memphis, TN	265,259		 	270,091		 	220,722		
Nashville, TN	325,272		 	326,855		 	338,124		
Orlando, FL	46,547		 	47,042		 	48,821		
Piedmont Triad, NC	115,096		 	126,680		 	141,971		
Pittsburgh, PA	227,965		 	—		 	—		
Raleigh, NC	465,813		 	457,945		 	464,729		
Richmond, VA	254,364		 	249,036		 	249,881		
Tampa, FL	394,569		 	395,931		 	393,812		
Total Office Segment	2,611,596		 	2,302,267		 	2,299,559		
Industrial:	 	 	 	 	 	
Atlanta, GA	133,640		 	135,858		 	136,570		
Piedmont Triad, NC	78,081		 	79,321		 	92,300		
Total Industrial Segment	211,721		 	215,179		 	228,870		
Retail:	 	 	 	 	 	
Atlanta, GA	504		 	306		 	1,044		
Kansas City, MO	170,717		 	172,116		 	175,757		
Piedmont Triad, NC	—		 	—		 	1,082		
Raleigh, NC	6,667		 	5,170		 	6,048		
Total Retail Segment	177,888		 	177,592		 	183,931		
Residential:	 	 	 	 	 	
Kansas City, MO	5,707		 	5,925		 	6,129		
Orlando, FL	2,098		 	2,098		 	2,147		
Raleigh, NC	4,768		 	9,574		 	16,291		
Total Residential Segment	12,573		 	17,597		 	24,567		
Corporate	167,214		 	159,200		 	150,174		
Total Assets	$	3,180,992		 	$	2,871,835		 	$	2,887,101		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
20.	Quarterly Financial Data (Unaudited)	

The following tables set forth quarterly financial information and have been adjusted to reflect discontinued operations:

	
																				
 	Year Ended December 31, 2011	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	114,979		 	$	117,057		 	$	122,086		 	$	128,730		 	$	482,852		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	12,106		 	14,143		 	5,402		 	12,850		 	44,501		
Income from discontinued operations (1)	337		 	291		 	2,842		 	—		 	3,470		
Net income	12,443		 	14,434		 	8,244		 	12,850		 	47,971		
Net (income) attributable to noncontrolling interests in the Operating Partnership	(507	)	 	(623	)	 	(366	)	 	(595	)	 	(2,091	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(123	)	 	(182	)	 	(249	)	 	(201	)	 	(755	)	
Dividends on preferred stock	(1,677	)	 	(1,622	)	 	(627	)	 	(627	)	 	(4,553	)	
Excess of preferred stock redemption/repurchase over carrying value	—		 	(1,895	)	 	—		 	—		 	(1,895	)	
Net income available for common stockholders	$	10,136		 	$	10,112		 	$	7,002		 	$	11,427		 	$	38,677		
Earnings per share-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.14		 	$	0.14		 	$	0.06		 	$	0.16		 	$	0.49		
Income from discontinued operations available for common stockholders	—		 	—		 	0.04		 	—		 	0.05		
Net income available for common stockholders	$	0.14		 	$	0.14		 	$	0.10		 	$	0.16		 	$	0.54		
Earnings per share-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.14		 	$	0.14		 	$	0.06		 	$	0.16		 	$	0.49		
Income from discontinued operations available for common stockholders	—		 	—		 	0.04		 	—		 	0.05		
Net income available for common stockholders	$	0.14		 	$	0.14		 	$	0.10		 	$	0.16		 	$	0.54		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
20.	Quarterly Financial Data (Unaudited)	

	
																				
 	Year Ended December 31, 2010	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	114,503		 	$	113,765		 	$	115,528		 	$	117,330		 	$	461,126		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	11,445		 	39,811		 	8,501		 	11,153		 	70,910		
Income from discontinued operations (1)	637		 	238		 	272		 	246		 	1,393		
Net income	12,082		 	40,049		 	8,773		 	11,399		 	72,303		
Net (income) attributable to noncontrolling interests in the Operating Partnership	(520	)	 	(1,933	)	 	(366	)	 	(501	)	 	(3,320	)	
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates	(214	)	 	(215	)	 	148		 	(204	)	 	(485	)	
Dividends on preferred stock	(1,677	)	 	(1,677	)	 	(1,677	)	 	(1,677	)	 	(6,708	)	
Net income available for common stockholders	$	9,671		 	$	36,224		 	$	6,878		 	$	9,017		 	$	61,790		
Earnings per share-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.13		 	$	0.51		 	$	0.10		 	$	0.13		 	$	0.84		
Income from discontinued operations available for common stockholders	0.01		 	—		 	—		 	—		 	0.02		
Net income available for common stockholders	$	0.14		 	$	0.51		 	$	0.10		 	$	0.13		 	$	0.86		
Earnings per share-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.13		 	$	0.50		 	$	0.10		 	$	0.13		 	$	0.84		
Income from discontinued operations available for common stockholders	0.01		 	—		 	—		 	—		 	0.02		
Net income available for common stockholders	$	0.14		 	$	0.50		 	$	0.10		 	$	0.13		 	$	0.86		
__________

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
20.	Quarterly Financial Data (Unaudited) – Continued	

(1)	The amounts presented may not equal to the amounts previously reported in the most recent Form 10-Qs or prior 10-K for each period as a result of discontinued operations. Below is the reconciliation to the amounts previously reported:	

	
												
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	
 	2011	 	2011	 	2011	
Rental and other revenues, as reported	$	115,592		 	$	117,057		 	$	122,086		
Discontinued operations	(613	)	 	—		 	—		
Rental and other revenues, as adjusted	$	114,979		 	$	117,057		 	$	122,086		
Income from continuing operations, as reported	$	12,443		 	$	14,143		 	$	5,402		
Discontinued operations	(337	)	 	—		 	—		
Income from continuing operations, as adjusted	$	12,106		 	$	14,143		 	$	5,402		
Income from discontinued operations, as reported	$	—		 	$	291		 	$	2,842		
Additional discontinued operations from properties sold subsequent to the respective reporting period	337		 	—		 	—		
Income from discontinued operations, as adjusted	$	337		 	$	291		 	$	2,842		

	
																
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	 	December 31,	
 	2010	 	2010	 	2010	 	2010	
Rental and other revenues, as reported	$	115,054		 	$	113,765		 	$	115,528		 	$	117,865		
Discontinued operations	(551	)	 	—		 	—		 	(535	)	
Rental and other revenues, as adjusted	$	114,503		 	$	113,765		 	$	115,528		 	$	117,330		
Income from continuing operations, as reported	$	11,694		 	$	39,811		 	$	8,501		 	$	11,399		
Discontinued operations	(249	)	 	—		 	—		 	(246	)	
Income from continuing operations, as adjusted	$	11,445		 	$	39,811		 	$	8,501		 	$	11,153		
Income from discontinued operations, as reported	$	388		 	$	238		 	$	272		 	$	—		
Additional discontinued operations from properties sold subsequent to the respective reporting period	249		 	—		 	—		 	246		
Income from discontinued operations, as adjusted	$	637		 	$	238		 	$	272		 	$	246		

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share data)

		
21.	Subsequent Events	

In January 2012 , we obtained a $225.0 million , seven -year unsecured bank term loan bearing interest of LIBOR plus 190 basis points . The proceeds were used to pay off amounts then outstanding under our revolving credit facility.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors of the General Partner of
Highwoods Realty Limited Partnership
Raleigh, North Carolina

We have audited the accompanying consolidated balance sheets of Highwoods Realty Limited Partnership and subsidiaries (the “Operating Partnership”) as of December 31, 2011 and 2010 , and the related consolidated statements of income, capital, and cash flows for each of the three years in the period ended December 31, 2011 . Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Highwoods Realty Limited Partnership and subsidiaries as of December 31, 2011 and 2010 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 7, 2012

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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit and per unit data)

								
 	December 31,	
 	2011	 	2010	
Assets:	 	 	 	
Real estate assets, at cost:	 	 	 	
Land	$	369,771		 	$	345,088		
Buildings and tenant improvements	3,144,168		 	2,883,092		
Development in process	—		 	4,524		
Land held for development	105,206		 	105,332		
 	3,619,145		 	3,338,036		
Less-accumulated depreciation	(901,300	)	 	(830,153	)	
Net real estate assets	2,717,845		 	2,507,883		
For-sale residential condominiums	4,751		 	8,225		
Real estate and other assets, net, held for sale	—		 	15,376		
Cash and cash equivalents	11,151		 	14,198		
Restricted cash	26,666		 	4,399		
Accounts receivable, net of allowance of $3,548 and $3,595, respectively	30,093		 	20,716		
Mortgages and notes receivable, net of allowance of $61 and $868, respectively	18,600		 	19,044		
Accrued straight-line rents receivable, net of allowance of $1,294 and $2,209, respectively	106,010		 	93,178		
Investment in and advances to unconsolidated affiliates	99,296		 	62,451		
Deferred financing and leasing costs, net of accumulated amortization of $63,156 and $59,360, respectively	128,585		 	85,001		
Prepaid expenses and other assets	36,887		 	40,200		
Total Assets	$	3,179,884		 	$	2,870,671		
Liabilities, Redeemable Operating Partnership Units and Equity:	 	 	 	
Mortgages and notes payable	$	1,903,213		 	$	1,522,945		
Accounts payable, accrued expenses and other liabilities	148,821		 	106,716		
Financing obligations	31,444		 	33,114		
Total Liabilities	2,083,478		 	1,662,775		
Commitments and Contingencies		 		
Redeemable Operating Partnership Units:	 	 	 	
Common Units, 3,729,518 and 3,793,987 outstanding, respectively	110,655		 	120,838		
Series A Preferred Units (liquidation preference $1,000 per unit), 29,077 and 29,092 units issued and outstanding, respectively	29,077		 	29,092		
Series B Preferred Units (liquidation preference $25 per unit), 0 and 2,100,000 units issued and outstanding, respectively	—		 	52,500		
Total Redeemable Operating Partnership Units	139,732		 	202,430		
Equity:	 	 	 	
Common Units:	 	 	 	
General partner Common Units, 759,684 and 750,757 outstanding, respectively	9,575		 	10,044		
Limited partner Common Units, 71,479,204 and 70,530,921 outstanding, respectively	948,187		 	994,610		
Accumulated other comprehensive loss	(5,734	)	 	(3,648	)	
Noncontrolling interests in consolidated affiliates	4,646		 	4,460		
Total Equity	956,674		 	1,005,466		
Total Liabilities, Redeemable Operating Partnership Units and Equity	$	3,179,884		 	$	2,870,671		
See accompanying notes to consolidated financial statements.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(in thousands, except per unit amounts)

												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Rental and other revenues	$	482,852		 	$	461,126		 	$	448,018		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	176,122		 	163,278		 	161,499		
Depreciation and amortization	143,019		 	135,414		 	129,652		
Impairment of assets held for use	2,429		 	—		 	2,554		
General and administrative	35,753		 	33,308		 	37,208		
Total operating expenses	357,323		 	332,000		 	330,913		
Interest expense:	 	 	 	 	 	
Contractual	91,838		 	87,726		 	81,982		
Amortization of deferred financing costs	3,312		 	3,385		 	2,760		
Financing obligations	849		 	2,261		 	2,063		
 	95,999		 	93,372		 	86,805		
Other income:	 	 	 	 	 	
Interest and other income	7,387		 	6,360		 	8,262		
Gain/(loss) on debt extinguishment	(24	)	 	(705	)	 	1,287		
 	7,363		 	5,655		 	9,549		
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	36,893		 	41,409		 	39,849		
Gains on disposition of property	764		 	74		 	266		
Gains/(losses) on for-sale residential condominiums	(316	)	 	276		 	922		
Gains on disposition of investment in unconsolidated affiliates	2,282		 	25,330		 	—		
Equity in earnings of unconsolidated affiliates	4,939		 	3,794		 	5,367		
Income from continuing operations	44,562		 	70,883		 	46,404		
Discontinued operations:	 	 	 	 	 	
Income/(loss) from discontinued operations	897		 	1,479		 	(6,230	)	
Net gains/(losses) on disposition of discontinued operations	2,573		 	(86	)	 	21,466		
 	3,470		 	1,393		 	15,236		
Net income	48,032		 	72,276		 	61,640		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(755	)	 	(485	)	 	(11	)	
Distributions on Preferred Units	(4,553	)	 	(6,708	)	 	(6,708	)	
Excess of Preferred Unit redemption/repurchase cost over carrying value	(1,895	)	 	—		 	—		
Net income available for common unitholders	$	40,829		 	$	65,083		 	$	54,921		
Earnings per Common Unit – basic:	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.49		 	0.85		 	0.56		
Income from discontinued operations available for common unitholders	0.05		 	0.02		 	0.21		
Net income available for common unitholders	0.54		 	0.87		 	0.77		
Weighted average Common Units outstanding – basic	75,644		 	74,971		 	71,591		
Earnings per Common Unit – diluted:	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.49		 	0.85		 	0.56		
Income from discontinued operations available for common unitholders	0.05		 	0.02		 	0.21		
Net income available for common unitholders	0.54		 	0.87		 	0.77		
Weighted average Common Units outstanding – diluted	75,780		 	75,169		 	71,670		
Net income available for common unitholders:	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	37,359		 	$	63,690		 	$	39,685		
Income from discontinued operations available for common unitholders	3,470		 	1,393		 	15,236		
Net income available for common unitholders	$	40,829		 	$	65,083		 	$	54,921		
See accompanying notes to consolidated financial statements.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Capital
(in thousands, except unit amounts)

	
																				
 	Common Units	 	Accumulated
Other
Comprehensive Loss	 	Noncontrolling
Interests in
Consolidated
Affiliates	 	Total Partners’
Capital	
 	General
Partners’
Capital	 	Limited
Partners’
Capital	 						
Balance at December 31, 2008	$	9,759		 	$	966,378		 	$	(4,792	)	 	$	6,176		 	$	977,521		
Issuances of Common Units, net	1,509		 	149,432		 	—		 	—		 	150,941		
Distributions paid on Common Units	(1,206	)	 	(119,360	)	 	—		 	—		 	(120,566	)	
Distributions paid on Preferred Units	(67	)	 	(6,641	)	 	—		 	—		 	(6,708	)	
Share-based compensation expense	66		 	6,501		 	—		 	—		 	6,567		
Distribution to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	(1,004	)	 	(1,004	)	
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner	(192	)	 	(18,995	)	 	—		 	—		 	(19,187	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	(11	)	 	—		 	11		 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	
Net income	616		 	61,024		 	—		 	—		 	61,640		
Other comprehensive income	—		 	—		 	981		 	—		 	981		
Total comprehensive income	 	 	 	 	 	 	 	 	62,621		
Balance at December 31, 2009	10,485		 	1,038,328		 	(3,811	)	 	5,183		 	1,050,185		
Issuances of Common Units, net	30		 	2,968		 	—		 	—		 	2,998		
Distributions paid on Common Units	(1,274	)	 	(126,143	)	 	—		 	—		 	(127,417	)	
Distributions paid on Preferred Units	(67	)	 	(6,641	)	 	—		 	—		 	(6,708	)	
Share-based compensation expense	66		 	6,506		 	—		 	—		 	6,572		
Distribution to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	(568	)	 	(568	)	
Acquisition of noncontrolling interest in consolidated affiliate	1		 	139		 	—		 	(640	)	 	(500	)	
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner	85		 	8,380		 	—		 	—		 	8,465		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(5	)	 	(480	)	 	—		 	485		 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	
Net income	723		 	71,553		 	—		 	—		 	72,276		
Other comprehensive income	—		 	—		 	163		 	—		 	163		
Total comprehensive income	 	 	 	 	 	 	 	 	72,439		
Balance at December 31, 2010	10,044		 	994,610		 	(3,648	)	 	4,460		 	1,005,466		
Issuances of Common Units, net	233		 	23,037		 	—		 	—		 	23,270		
Distributions paid on Common Units	(1,285	)	 	(127,178	)	 	—		 	—		 	(128,463	)	
Distributions paid on Preferred Units	(46	)	 	(4,507	)	 	—		 	—		 	(4,553	)	
Share-based compensation expense	61		 	6,033		 	—		 	—		 	6,094		
Distribution to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	(569	)	 	(569	)	
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner	96		 	9,387		 	—		 	—		 	9,483		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(8	)	 	(747	)	 	—		 	755		 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	
Net income	480		 	47,552		 	—		 	—		 	48,032		
Other comprehensive income	—		 	—		 	(2,086	)	 	—		 	(2,086	)	
Total comprehensive income	 	 	 	 	 	 	 	 	45,946		
Balance at December 31, 2011	$	9,575		 	$	948,187		 	$	(5,734	)	 	$	4,646		 	$	956,674		
See accompanying notes to consolidated financial statements.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)

												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Operating activities:	 	 	 	 	 	
Net income	$	48,032		 	$	72,276		 	$	61,640		
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	
Depreciation and amortization	143,146		 	136,158		 	131,883		
Amortization of lease incentives and acquisition-related intangible assets and liabilities	1,446		 	1,239		 	1,110		
Share-based compensation expense	6,094		 	6,572		 	6,567		
Allowance for losses on accounts and accrued straight-line rents receivable	2,521		 	4,009		 	5,639		
Amortization of deferred financing costs	3,312		 	3,385		 	2,760		
Amortization of settled cash flow hedges	(118	)	 	237		 	(249	)	
Impairment of assets held for use	2,429		 	—		 	13,518		
(Gain)/loss on debt extinguishment	24		 	705		 	(1,287	)	
Net (gains)/losses on disposition of property	(3,337	)	 	12		 	(21,732	)	
(Gains)/losses on for-sale residential condominiums	316		 	(276	)	 	(922	)	
Gains on disposition of investment in unconsolidated affiliates	(2,282	)	 	(25,330	)	 	—		
Equity in earnings of unconsolidated affiliates	(4,939	)	 	(3,794	)	 	(5,367	)	
Changes in financing obligations	(476	)	 	708		 	392		
Distributions of earnings from unconsolidated affiliates	5,005		 	4,377		 	4,103		
Changes in operating assets and liabilities:	 	 	 	 	 	
Accounts receivable	(8,498	)	 	(3,290	)	 	(2,819	)	
Prepaid expenses and other assets	(400	)	 	370		 	(2,629	)	
Accrued straight-line rents receivable	(13,604	)	 	(11,889	)	 	(6,521	)	
Accounts payable, accrued expenses and other liabilities	16,701		 	5,012		 	2,962		
Net cash provided by operating activities	195,372		 	190,481		 	189,048		
Investing activities:	 	 	 	 	 	
Additions to real estate assets and deferred leasing costs	(184,566	)	 	(102,717	)	 	(151,482	)	
Net proceeds from disposition of real estate assets	17,717		 	6,801		 	77,288		
Net proceeds from disposition of for-sale residential condominiums	3,020		 	4,952		 	12,196		
Proceeds from disposition of investment in unconsolidated affiliates	4,756		 	15,000		 	—		
Distributions of capital from unconsolidated affiliates	1,577		 	1,933		 	3,955		
Repayments of mortgages and notes receivable	444		 	329		 	459		
Investments in and advances to unconsolidated affiliates	(39,901	)	 	(2,875	)	 	(952	)	
Changes in restricted cash and other investing activities	(18,526	)	 	(1,576	)	 	(3,288	)	
Net cash used in investing activities	(215,479	)	 	(78,153	)	 	(61,824	)	
Financing activities:	 	 	 	 	 	
Distributions on Common Units	(128,463	)	 	(127,417	)	 	(120,566	)	
Redemptions/repurchases of Preferred Units	(52,515	)	 	—		 	—		
Dividends on Preferred Units	(4,553	)	 	(6,708	)	 	(6,708	)	
Distributions to noncontrolling interests in consolidated affiliates	(569	)	 	(568	)	 	(1,004	)	
Acquisition of noncontrolling interest in consolidated affiliate	—		 	(500	)	 	—		
Net proceeds from the issuance of Common Units	23,270		 	2,998		 	150,941		
Borrowings on revolving credit facility	525,800		 	37,500		 	128,000		
Repayments of revolving credit facility	(193,800	)	 	(7,500	)	 	(291,000	)	
Borrowings on mortgages and notes payable	200,000		 	10,368		 	217,215		
Repayments of mortgages and notes payable	(344,203	)	 	(27,004	)	 	(188,501	)	
Borrowings on financing obligations	—		 	—		 	4,184		
Payments on financing obligations	(1,194	)	 	(1,116	)	 	(1,044	)	
Payments on debt extinguishment	—		 	(577	)	 	—		
Additions to deferred financing costs and other financing activities	(6,713	)	 	(1,125	)	 	(8,871	)	
Net cash provided by/(used in) financing activities	17,060		 	(121,649	)	 	(117,354	)	
Net increase/(decrease) in cash and cash equivalents	(3,047	)	 	(9,321	)	 	9,870		
Cash and cash equivalents at beginning of the period	14,198		 	23,519		 	13,649		
Cash and cash equivalents at end of the period	$	11,151		 	$	14,198		 	$	23,519		
See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows - Continued
(in thousands)

Supplemental disclosure of cash flow information:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Cash paid for interest, net of amounts capitalized	$	90,838		 	$	86,395		 	$	85,422		

Supplemental disclosure of non-cash investing and financing activities:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Unrealized gains/(losses) on cash flow hedges	$	(2,202	)	 	$	—		 	$	937		
Changes in accrued capital expenditures	11,048		 	(1,946	)	 	(19,098	)	
Write-off of fully depreciated real estate assets	48,565		 	43,955		 	33,006		
Write-off of fully amortized deferred financing and leasing costs	19,987		 	15,719		 	19,194		
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan	(119	)	 	382		 	1,497		
Settlement of financing obligation	—		 	4,184		 	—		
Adjustment of Redeemable Common Units to fair value	(10,183	)	 	(2,721	)	 	27,717		
Unrealized gain/(loss) on tax increment financing bond	234		 	(177	)	 	293		
Mortgages receivable from seller financing	—		 	17,030		 	—		
Assumption of mortgages and notes payable related to acquisition activities	192,367		 	40,306		 	—		
See accompanying notes to consolidated financial statements.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At December 31, 2011 , the Company and/or the Operating Partnership wholly owned: 303 in-service office, industrial and retail properties, comprising 29.3 million square feet; 96 rental residential units; 17 for-sale residential condominiums; 586 acres of undeveloped land suitable for future development, of which 524 acres are considered core assets; one office property under development; and one office property that is considered completed but not yet stabilized. In addition, we owned interests ( 50.0% or less) in 35 in-service office properties, one rental residential property under development and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At December 31, 2011 , the Company owned all of the Preferred Units and 72.2 million , or 95.1% , of the Common Units in the Operating Partnership. Limited partners, including one officer and two directors of the Company, own the remaining 3.7 million Common Units. In the event the Company issues shares of Common Stock, the proceeds of the issuance are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $ 0.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During 2011 , the Company redeemed 64,469 Common Units for a like number of shares of Common Stock. The redemptions, in conjunction with the proceeds from issuances of Common Stock contributed to the Operating Partnership in exchange for additional Common Units, increased the percentage of Common Units owned by the Company from 95.0% at December 31, 2010 to 95.1% at December 31, 2011 .

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2010 was revised from previously reported amounts to reflect in real estate and other assets, net, held for sale those properties which qualified as held for sale during 2011 . Our Consolidated Statements of Income for the years ended December 31, 2010 and 2009 were revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale subsequent to those respective years.

The Consolidated Financial Statements include wholly owned subsidiaries and those subsidiaries in which we own a majority voting interest with the ability to control operations of the subsidiaries and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. We consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of the entity through majority ownership or in our capacity as general partner or managing member. Five of the 50.0% or less owned in-service office properties are consolidated. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At December 31, 2011 , we had involvement with no entities that we concluded to be variable interest entities. All significant intercompany transactions and accounts have been eliminated.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies – Continued

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Real Estate and Related Assets

Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over initial fixed terms of the respective leases, which generally are from three to 10 years. Depreciation expense for real estate assets was $ 120.8 million , $ 117.6 million and $ 115.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at depreciated cost. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs on qualifying assets, real estate taxes, development personnel salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use, but not later than one year from cessation of major construction activity. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction.

Expenditures directly related to the leasing of properties are included in deferred financing and leasing costs and are stated at amortized cost. Such expenditures are part of the investment necessary to execute leases and, therefore, are classified as investment activities in the statement of cash flows. All leasing commissions paid to third parties for new leases or lease renewals are capitalized. Internal leasing costs include primarily compensation, benefits and other costs, such as legal fees related to leasing activities, that are incurred in connection with successfully securing leases of properties. Capitalized leasing costs are amortized on a straight-line basis over the initial fixed terms of the respective leases, which generally are from three to 10 years. Estimated costs related to unsuccessful activities are expensed as incurred.

We record liabilities for the performance of asset retirement activities when the obligation to perform such activities is probable even when uncertainty exists about the timing and/or method of settlement.

Upon the acquisition of real estate assets, we assess the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets and liabilities such as above and below market leases, acquired in-place leases, customer relationships and other identifiable intangible assets and assumed liabilities. We assess fair value based on estimated cash flow projections that utilize discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. 

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies – Continued

The above and below market rate portions of leases acquired in connection with property acquisitions are recorded in deferred financing and leasing costs and in accounts payable, accrued expenses and other liabilities, respectively, at fair value and amortized into rental revenue over the remaining term of the respective leases as described below. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any renewal option that the customer would be economically compelled to exercise for below-market leases.

In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the Company's Board of Directors, or its Investment Committee, has approved the sale of the asset, a legally enforceable contract has been executed and the buyer's due diligence period has expired.

Impairment of Long-Lived Assets and Investments in Unconsolidated Affiliates

With respect to assets classified as held for use, we perform an impairment analysis if events or changes in circumstances indicate that the carrying value may be impaired, such as a significant decline in occupancy, identification of materially adverse legal or environmental factors, change in our designation of an asset from core to non-core which impacts the anticipated holding period or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset's carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
 
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for use.
 
We record assets held for sale, including for-sale residential condominiums, at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.
 
We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investee, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies – Continued

Sales of Real Estate
 
For sales transactions meeting the requirements for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have or receive an interest are accounted for using partial sale accounting.
 
For transactions that do not meet the criteria for a sale, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other alternate method of accounting, rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.

Rental and Other Revenues
 
Minimum contractual rents from leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the customer assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Contingent rental revenue, such as percentage rent, is accrued when the contingency is removed. Termination fee income is recognized at the later of when the customer has vacated the space or the lease has expired and a fully executed lease termination agreement has been delivered, the amount of the fee is determinable and collectability of the fee is reasonably assured. Rental revenue reductions related to co-tenancy lease provisions, if any, are accrued when events have occurred that trigger such provisions.

Property operating cost recovery revenues from customers (“cost reimbursements”) are determined on a calendar year and a lease-by-lease basis. The most common types of cost reimbursements in our leases are common area maintenance (“CAM”) and real estate taxes, for which the customer pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of a base year amount. The computation of cost reimbursements is complex and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are many variations in the computation. Many customers make monthly fixed payments of CAM, real estate taxes and other cost reimbursement items. We accrue income related to these payments each month. We make quarterly accrual adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to our best estimate of the final annual amounts to be billed and collected with respect to the cost reimbursements. After the end of the calendar year, we compute each customer's final cost reimbursements and, after considering amounts paid by the customer during the year, issue a bill or credit for the appropriate amount to the customer. The differences between the amounts billed less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when the final bills are prepared, which occurs during the first half of the subsequent year.
 
Allowance for Doubtful Accounts
 
Accounts receivable, accrued straight-line rents receivable and mortgages and notes receivable are reduced by an allowance for amounts that may become uncollectible in the future. We regularly evaluate the adequacy of our allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of our customer, historical trends of the customer and changes in customer payment terms. Additionally, with respect to customers in bankruptcy, we estimate the probable recovery through bankruptcy claims and adjust the allowance for amounts deemed uncollectible. If our assumptions regarding the collectability of receivables prove incorrect, we could experience losses in excess of our allowance for doubtful accounts. The allowance and its related receivable are written-off when we have concluded there is a low probability of collection and we have discontinued collection efforts.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies – Continued

Discontinued Operations

Properties that are sold or classified as held for sale are classified as discontinued operations provided that (1) the operations and cash flows of the property will be eliminated from our ongoing operations and (2) we will not have any significant continuing involvement in the operations of the property after it is sold. Interest expense is included in discontinued operations if the related loan securing the sold property is to be paid off or assumed by the buyer in connection with the sale. If the property is sold to a joint venture in which we retain an interest, the property will not be accounted for as a discontinued operation due to our significant ongoing interest in the operations through our joint venture interest. If we are retained to provide property management, leasing and/or other services for the property owner after the sale, the property generally will be accounted for as a discontinued operation because the expected cash flows related to our management and leasing activities generally will not be significant in comparison to the cash flows from the property prior to sale.
 
Lease Incentives
 
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign the lease, are capitalized in deferred financing and leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
 
For-Sale Residential Condominiums
 
For-sale residential condominiums include completed, but unsold, condominium inventory. We initially record receipts of earnest money deposits in accounts payable, accrued expenses and other liabilities in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received.

Investments in Unconsolidated Affiliates
 
We account for our investments in less than majority owned joint ventures, partnerships and limited liability companies using the equity method of accounting when our interests represent a general partnership interest but substantive participating rights or substantive kick out rights have been granted to the limited partners or when our interests do not represent a general partnership interest and we do not control the major operating and financial policies of the entity. These investments are initially recorded at cost in investments in unconsolidated affiliates and are subsequently adjusted for our share of earnings and cash contributions and distributions. To the extent our cost basis at formation of the joint venture is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in our share of equity in earnings of unconsolidated affiliates.
 
Cash Equivalents
 
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
 
Restricted Cash
 
Restricted cash represents cash deposits that are legally restricted or held by third parties on our behalf, such as security deposits from sales contracts on for-sale residential condominiums, construction-related escrows, property disposition proceeds set aside and designated or intended to fund future tax-deferred exchanges of qualifying real estate investments, escrows and reserves for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements and any deposits given to lenders to unencumber secured properties.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies – Continued

Redeemable Common Units and Preferred Units

Limited partners holding Common Units other than the Company (“Redeemable Common Units”) have the right to put any and all of the Common Units to the Operating Partnership and the Company has the right to put any and all of the Preferred Units to the Operating Partnership in exchange for their liquidation preference plus accrued and unpaid distributions in the event of a corresponding redemption by the Company of the underlying Preferred Stock. Consequently, these Redeemable Common Units and Preferred Units are classified outside of permanent partners’ capital in the accompanying balance sheet. The recorded value of the Redeemable Common Units is based on fair value at the balance sheet date as measured by the closing price of Common Stock on that date multiplied by the total number of Redeemable Common Units outstanding. The recorded value of the Preferred Units is based on their redemption value.

Income Taxes

The Company has elected and expects to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). A corporate REIT is a legal entity that holds real estate assets and, through the payment of dividends to stockholders, is generally permitted to reduce or avoid the payment of federal and state income taxes at the corporate level. To maintain qualification as a REIT, the Company is required to pay dividends to its stockholders equal to at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to pay economically equivalent distributions on outstanding Common Units at the same time that the Company pays dividends on its outstanding Common Stock.

Other than income taxes related to its taxable REIT subsidiary, the Operating Partnership does not reflect any federal income taxes in its financial statements, since as a partnership the taxable effects of its operations are attributed to its partners. The Operating Partnership does record state income tax for states that tax partnership income directly.

Concentration of Credit Risk
  
At December 31, 2011 , our Wholly Owned Properties were leased to 1,722 customers. The geographic locations that comprise greater than 10.0% of our annualized cash rental revenue are Raleigh, NC, Tampa, FL, Atlanta, GA and Nashville, TN. Our customers engage in a wide variety of businesses. No single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues during 2011 .

We maintain our cash and cash equivalents and our restricted cash at financial or other intermediary institutions. The combined account balances at each institution may exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Additionally, from time to time in connection with tax-deferred 1031 transactions, our restricted cash balances may be commingled with other funds being held by any such intermediary institution which subjects our balance to the credit risk of the institution.

Derivative Financial Instruments
 
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility, construction facility and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings and the issuance of unsecured debt securities, typically bears interest at fixed rates although some loans bear interest at variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. The interest rate on all of our variable rate debt is generally adjusted at one or three month intervals, subject to settlements under these interest rate hedge contracts. We also enter into treasury lock and similar agreements from time to time in order to limit our exposure to an increase in interest rates with respect to future debt offerings.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies – Continued

Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into interest expense in the period that the hedged forecasted transaction affects earnings. Interest rate hedge contracts typically contain a provision whereby if we default on any of our indebtedness, we could also be declared in default on our hedge contracts.

We account for terminated derivative instruments by recognizing the related accumulated comprehensive income/loss balance in current earnings, unless the hedged forecasted transaction continues as originally planned, in which case we continue to amortize the accumulated comprehensive income/loss into earnings over the originally designated hedge period.
 
Earnings Per Unit
 
Basic earnings per unit is computed by dividing net income available for common unitholders by the weighted Common Units outstanding - basic. Diluted earnings per unit is computed by dividing net income available to common unitholders by the weighted Common Units outstanding - basic plus the dilutive effect of options and warrants, using the treasury stock method. Weighted Common Units outstanding - basic include all of the Company's unvested restricted stock since dividends received on such restricted stock are non-forfeitable.

Recently Issued Accounting Standards
 
Beginning with our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, we will be required to enhance our disclosure of assets and liabilities measured at fair value. This includes disclosing any significant transfers between Levels 1 and 2 of the fair value hierarchy, additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy and the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but is disclosed in our Notes to Consolidated Financial Statements. Additionally, we will be required to present comprehensive income on the face of our Consolidated Statements of Income, which is currently disclosed in our Notes to Consolidated Financial Statements.

2.    Real Estate Assets

Acquisitions

In 2011 , we acquired a six-building, 1.54 million square foot office complex in Pittsburgh, PA for a purchase price of $ 188.5 million . The purchase price included the assumption of secured debt recorded at fair value of $ 124.5 million , with an effective interest rate of 4.27% , including amortization of deferred financing costs. This debt matures in November 2017 . We expensed $ 4.0 million of costs related to this acquisition, which are included in general and administrative expense. Additionally, we acquired a 503,000 square foot office building in Atlanta, GA for a purchase price of $ 78.3 million . The purchase price included the assumption of secured debt recorded at fair value of $ 67.9 million , with an effective interest rate of 5.45% , including amortization of deferred financing costs. This debt matures in January 2014 . We expensed $ 0.3 million of costs related to this acquisition.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

2.      Real Estate Assets - Continued

The following table sets forth a summary of the acquisition purchase price consideration for each major class of assets acquired and liabilities assumed in the acquisitions discussed above:

	
				
 	Total Purchase Price Consideration	
Real estate assets	$	241,602		
Acquisition-related intangible assets (in deferred financing and leasing costs)	39,721		
Furniture, fixtures and equipment (in prepaid expenses and other assets)	1,101		
Acquisition-related intangible liabilities (in accounts payable, accrued expenses and other liabilities)	(15,627	)	
Total consideration	$	266,797		

The following tables set forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocation, assuming the acquisitions discussed above both occurred as of the beginning of each annual reporting period:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Proforma rental and other revenues	$	524,480		 	$	511,861		 	$	505,840		
Proforma net income	$	38,470		 	$	58,216		 	$	50,752		
Proforma earnings per unit - basic	$	0.51		 	$	0.78		 	$	0.71		
Proforma earnings per unit - diluted	$	0.51		 	$	0.77		 	$	0.71		

In 2011 , we also acquired a 48,000 square foot medical office property in Raleigh, NC for approximately $ 8.9 million in cash and incurred $ 0.1 million of acquisition-related costs, which are included in general and administrative expense.

In 2010 , we acquired a 336,000 square foot office property in Memphis, TN for a purchase price of $ 52.6 million . The purchase price included the assumption of secured debt recorded at fair value of $ 40.3 million , with an effective interest rate of 6.43% . This debt matures in November 2015 . We incurred $ 0.4 million of acquisition-related costs. We also acquired a 117,000 square foot office property and 32.6 acres of development land in Tampa, FL for a purchase price of $ 12.0 million . We incurred $ 0.2 million of acquisition-related costs. Lastly, we acquired our partner’s interest in a joint venture that owned for-sale residential condominiums for a purchase price of $ 0.5 million .

In 2009 , we acquired a 220,000 square foot office building in Tampa, FL for a purchase price of $ 22.3 million . We expensed $ 0.1 million of costs related to this acquisition.

Dispositions

In 2011 , we sold an office property and adjacent land parcel in a single transaction in Winston-Salem, NC for gross proceeds of $ 15.0 million . We recorded gain on disposition of discontinued operations of $ 2.6 million related to the office property and gain on disposition of property of $ 0.3 million related to the land.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

2.      Real Estate Assets - Continued

In 2010 , we sold seven office properties in Winston Salem, NC and six industrial properties in Greensboro, NC in two separate transactions for gross proceeds of $ 24.9 million . In the aggregate, we received cash of $ 7.9 million . provided seller financing of $ 17.0 million and committed to lend up to an additional $ 1.7 million for tenant improvements and lease commissions, of which $ 0.2 million was funded as of December 31, 2011 . We have accounted for these dispositions using the installment method, whereby the $ 0.4 million gain on disposition of property related to the office properties has been deferred and will be recognized when the seller financing is repaid, and recorded impairment of $ 0.3 million related to the industrial properties. In  2010 , we also recorded a completed sale in connection with the disposition of an office property in Raleigh, NC in the fourth quarter of 2009 where the buyer's limited right to compel us to repurchase the property expired and recorded a gain of $ 0.2 million .

In 2009 , we sold 517,000 square feet of non-core retail and office properties for gross proceeds of $ 78.2 million and recorded gains of $ 21.7 million .

Impairments

In 2011 , we recorded impairment of assets held for use of $ 2.4 million on two office properties located in Orlando, FL due to a change in the assumed timing of future disposition, which reduced the future expected cash flows from the properties.

In 2009 , we recorded impairment of assets held for use of $ 2.6 million on four office properties located in Winston-Salem, NC and recorded impairment of $ 11.0 million on the office, industrial and retail properties in Winston-Salem and Greensboro, NC that were sold in 2010 and required discontinued operations presentation. These impairments were also due to a change in the assumed timing of future disposition, which reduced the future expected cash flows from the properties.

3.    Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

	
								
 	December 31,	
 	2011	 	2010	
Seller financing (first mortgages)	$	17,180		 	$	17,180		
Less allowance	—		 	—		
 	17,180		 	17,180		
Promissory notes	1,481		 	2,732		
Less allowance	(61	)	 	(868	)	
 	1,420		 	1,864		
Mortgages and notes receivable, net	$	18,600		 	$	19,044		

The following table sets forth our notes receivable allowance, which relates only to promissory notes:

	
								
 	December 31,	
 	2011	 	2010	
Beginning notes receivable allowance	$	868		 	$	698		
Bad debt expense	196		 	413		
Recoveries/write-offs/other	(1,003	)	 	(243	)	
Total notes receivable allowance	$	61		 	$	868		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

3.    Mortgages and Notes Receivable – Continued

Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010 (see Note 2). This seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We conclude on the credit quality of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of December 31, 2011 , the payments on both mortgages receivable were current and there were no other indications of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

4.    Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.00% in various joint ventures with unrelated investors that are accounted for using the equity method of accounting. As a result, the assets and liabilities of these joint ventures are not included in our Consolidated Financial Statements.

The following table sets forth our ownership in unconsolidated affiliates at December 31, 2011 :

	
					
Joint Venture	 	Location of Properties	 	Ownership
Interest	
Concourse Center Associates, LLC	 	Greensboro, NC	 	50.00%	
Plaza Colonnade, LLC	 	Kansas City, MO	 	50.00%	
Lofts at Weston, LLC	 	Raleigh, NC	 	50.00%	
Board of Trade Investment Company	 	Kansas City, MO	 	49.00%	
Highwoods DLF 97/26 DLF 99/32, LP	 	Atlanta, GA; Greensboro, NC; Orlando, FL	 	42.93%	
Highwoods KC Glenridge Office, LLC	 	Atlanta, GA	 	40.00%	
Highwoods KC Glenridge Land, LLC	 	Atlanta, GA	 	40.00%	
HIW-KC Orlando, LLC	 	Orlando, FL	 	40.00%	
Kessinger/Hunter, LLC	 	Kansas City, MO	 	26.50%	
Highwoods DLF Forum, LLC	 	Raleigh, NC	 	25.00%	
Highwoods DLF 98/29, LLC	 	Atlanta, GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando, FL	 	22.81%	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

4.    Investments in and Advances to Affiliates – Continued

The following table sets forth combined summarized financial information for our unconsolidated affiliates:

	
								
 	December 31,	
 	2011	 	2010	
Balance Sheets:	 	 	 	
Assets:	 	 	 	
Real estate assets, net	$	523,992		 	$	567,867		
All other assets, net	95,504		 	90,323		
Total Assets	$	619,496		 	$	658,190		
Liabilities and Partners’ or Shareholders’ Equity:	 	 	 	
Mortgages and notes payable (1)	$	396,977		 	$	414,265		
All other liabilities	21,121		 	25,858		
Partners’ or shareholders’ equity	201,398		 	218,067		
Total Liabilities and Partners’ or Shareholders’ Equity	$	619,496		 	$	658,190		
Our share of historical partners’ or shareholders’ equity	$	59,215		 	$	60,581		
Advances to unconsolidated affiliate	38,323		 	—		
Net excess of cost of investments over the net book value of underlying net assets (2)	$	1,758		 	$	1,870		
Carrying value of investments in unconsolidated affiliates	$	99,296		 	$	62,451		
Our share of unconsolidated non-recourse mortgage debt (1)	$	145,689		 	$	149,379		
__________
		
(1)	Our share of scheduled future principal payments, including amortization, due on mortgages and notes payable at December 31, 2011 is as follows:	

				
2012 (a)	$	31,075		
2013	23,221		
2014	56,707		
2015	951		
2016	1,017		
Thereafter	32,718		
 	$	145,689		

(a) Includes our 22.81% portion of a $38.3 million interest-only secured loan provided by us to the DLF I joint venture.

All of this joint venture debt is non-recourse to us except in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and material misrepresentations.
		
(2)	This amount represents the aggregate difference between our historical cost basis and the basis reflected at the joint venture level, which is typically depreciated over the life of the related asset.	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

4.    Investments in and Advances to Affiliates– Continued

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Income Statements:	 	 	 	 	 	
Rental and other revenues	$	96,771		 	$	115,826		 	$	145,143		
Expenses:	 	 	 	 	 	
Rental property and other expenses	42,052		 	54,695		 	70,197		
Depreciation and amortization	25,184		 	29,945		 	33,821		
Interest expense	23,062		 	27,187		 	34,405		
Total expenses	90,298		 	111,827		 	138,423		
Income before disposition of properties	6,473		 	3,999		 	6,720		
Gains on disposition of properties	—		 	—		 	2,963		
Net income	$	6,473		 	$	3,999		 	$	9,683		
Our share of:	 	 	 	 	 	
Depreciation and amortization of real estate assets	$	8,232		 	$	10,318		 	$	11,877		
Interest expense	$	8,075		 	$	10,449		 	$	13,969		
Net gain on disposition of depreciable properties	$	—		 	$	—		 	$	582		
Net income	$	2,585		 	$	1,483		 	$	2,852		
 	 	 	 	 	 	
Our share of net income	$	2,585		 	$	1,483		 	$	2,852		
Purchase accounting and management, leasing and other fees adjustments	2,354		 	2,311		 	2,515		
Equity in earnings of unconsolidated affiliates	$	4,939		 	$	3,794		 	$	5,367		

The following summarizes additional information related to certain of our unconsolidated affiliates:

- Lofts at Weston, LLC

In 2011, we and Ravin Partners, LLC (“Ravin”) formed Lofts at Weston, LLC, in which we have a 50.00% ownership interest. We contributed 15.0 acres of land at an agreed upon value of $ 2.4 million to this joint venture, and Ravin contributed $ 1.2 million in cash and agreed to guarantee the joint venture's development loan. The joint venture then distributed $ 1.2 million to us and we recorded a gain of $ 0.3 million on this transaction. Ravin manages and operates this joint venture, which is constructing 215 rental residential units at a total cost of approximately $ 25.9 million . Ravin is the developer, manager and leasing agent and will receive customary fees from the joint venture.

- Highwoods DLF 97/26 DLF 99/32, L.P. (“DLF II”)
 
In 2009, DLF II sold an office property for gross proceeds of $ 7.1 million and recorded an impairment charge of $ 0.5 million . We recorded $ 0.2 million as our proportionate share of this impairment charge through equity in earnings of unconsolidated affiliates.
 
- Kessinger/Hunter, LLC
 
Kessinger/Hunter, LLC, which is managed by our joint venture partner, provides leasing services to certain of our Wholly Owned Properties in Kansas City, MO in exchange for customary fees from us. These services were reduced by us to only leasing-related services in 2009. Kessinger/Hunter, LLC received $ 2.1 million , $ 0.8 million and $ 0.5 million from us for these services in 2011 , 2010 and 2009 , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

4.    Investments in and Advances to Affiliates – Continued

- Highwoods DLF 98/29, LLC (“DLF I”)
 
At the formation of this joint venture in 1999, our partner contributed excess cash to the venture that was distributed to us under the joint venture agreements. We are required to repay this excess cash to our partner over time, as discussed in Note 9.
 
In 2011, we provided a $ 38.3 million interest-only secured loan to DLF I that is scheduled to mature in March 2012 , which was used to repay a secured loan before maturity to a third party lender. The loan bears interest at LIBOR plus 500 basis points , which may be reduced by up to 50 basis points upon the use of proceeds from the sale of certain assets by the joint venture to repay the loan. We recorded $1.3 million of interest income from this loan in interest and other income during the year ended December 31, 2011.

In 2009, DLF I sold an office property for gross proceeds of $ 14.8 million and recorded a gain of $ 3.4 million . We recorded $ 0.8 million as our proportionate share of this gain through equity in earnings of unconsolidated affiliates.
 
- Des Moines, IA Joint Ventures
 
In 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. The assets in the joint ventures included 1.7 million square feet of office, 788,000 square feet of industrial and 45,000 square feet of retail properties, as well as 418 apartment units. In connection with the closing, we received $ 15.0 million in cash. We had a negative book basis in certain of the joint ventures, primarily as a result of prior cash distributions to the partners. As a result, we recorded gain on disposition of investment in unconsolidated affiliates of $25.3 million .
 
- HIW Development B, LLC
 
In 2011, our joint venture partner exercised its option to acquire our 10.0% equity interest in the HIW Development B, LLC joint venture, which recently completed construction of a build-to-suit office property in Charlotte, NC. As a result, we received gross proceeds of $ 4.8 million and recorded a gain on disposition of investment in unconsolidated affiliate related to this merchant build project of $2.3 million .

- Other Activities
 
We receive development, management and leasing fees for services provided to certain of our joint ventures. These fees are recognized in income to the extent of our respective joint venture partner's interest. In the years ended December 31, 2011 , 2010 and 2009 , we recognized $ 3.1 million , $ 2.7 million and $ 2.1 million , respectively, of development, management and leasing fees from our unconsolidated joint ventures. At December 31, 2011 and 2010 , we had receivables of $1.0 million and $0.6 million , respectively, related to these fees in accounts receivable.
 
Consolidated Affiliates
 
The following summarizes our consolidated affiliates:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

4.    Investments in and Advances to Affiliates – Continued

- Highwoods-Markel Associates, LLC (“Markel”)
 
We have a 50.0% ownership interest in Markel. We are the manager and leasing agent for Markel's properties located in Richmond, VA and receive customary management and leasing fees. We consolidate Markel since we are the general partner and control the major operating and financial policies of the joint venture. The organizational documents of Markel require the entity to be liquidated through the sale of its assets upon reaching December 31, 2100 . As controlling partner, we have an obligation to cause this property-owning entity to distribute proceeds of liquidation to the noncontrolling interest partner in these partially owned properties only if the net proceeds received by the entity from the sale of our assets warrant a distribution as determined by the agreement. We estimate the value of noncontrolling interest distributions would have been approximately $ 14.8 million had the entity been liquidated at December 31, 2011 . This estimated settlement value is based on the fair value of the underlying properties which is based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates and costs to operate each property. If the entity's underlying assets are worth less than the underlying liabilities on the date of such liquidation, we would have no obligation to remit any consideration to the noncontrolling interest holder.

- SF-HIW Harborview Plaza, LP (“Harborview”)
 
We have a 20.0% interest in Harborview. We are the manager and leasing agent for Harborview's property located in Tampa, FL and receive customary management and leasing fees. As further described in Note 8, we account for this joint venture as a financing obligation since our partner has the right to put its interest back to us in the future.
 
- Plaza Residential, LLC (“Plaza Residential”)
 
In 2009, our taxable REIT subsidiary formed the Plaza Residential joint venture with an unrelated party to develop and sell 139 for-sale residential condominiums constructed above a wholly owned office property in Raleigh, NC. We initially had a 93.0% interest in Plaza Residential. In 2010, we acquired our partner's 7.0% ownership interest for $ 0.5 million . During the years ended December 31, 2011 , 2010 and 2009 , we received $ 3.2 million , $ 5.3 million and $ 13.0 million , respectively, in gross proceeds and recorded $ 3.5 million , $ 5.0 million and $ 12.1 million , respectively, of cost of assets sold from condominium sales, including impairment charges, if any.

5.    Intangible Assets and Liabilities

The following table sets forth total intangible assets and liabilities, net of accumulated amortization:

	
								
 	December 31,	
 	2011	 	2010	
Assets:	 	 	 	
Deferred financing costs	$	18,044		 	$	16,331		
Less accumulated amortization	(5,797	)	 	(7,031	)	
 	12,247		 	9,300		
Deferred leasing costs (including lease incentives and acquisition-related intangible assets)	173,697		 	128,030		
Less accumulated amortization	(57,359	)	 	(52,329	)	
 	116,338		 	75,701		
Deferred financing and leasing costs, net	$	128,585		 	$	85,001		
 	 	 	 	
Liabilities (in accounts payable, accrued expenses and other liabilities):	 	 	 	
Acquisition-related intangible liabilities	$	16,441		 	$	733		
Less accumulated amortization	(971	)	 	(200	)	
 	$	15,470		 	$	533		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

5.    Intangible Assets and Liabilities - Continued

The following table sets forth amortization of intangible assets and liabilities:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Amortization of deferred financing costs	$	3,312		 	$	3,385		 	$	2,760		
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)	$	20,980		 	$	17,383		 	$	15,064		
Amortization of lease incentives (in rental and other revenues)	$	1,371		 	$	1,239		 	$	1,110		
Amortization of acquisition-related intangible assets (in rental and other revenues)	$	915		 	$	531		 	$	102		
Amortization of acquisition-related intangible liabilities (in rental and other revenues)	$	(840	)	 	$	(96	)	 	$	(94	)	

The following table sets forth scheduled future amortization of intangible assets and liabilities:

	
																					
Years Ending December 31,	 	Amortization
of Deferred Financing
Costs	 	Amortization
of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization)	 	Amortization
of Lease Incentives (in Rental and Other Revenues)	 	Amortization
of Acquisition-Related Intangible Assets (in Rental and Other Revenues)	 	Amortization
of Acquisition-Related Intangible Liabilities (in Rental and Other Revenues)	
2012	 	$	3,386		 	$	25,082		 	$	1,291		 	$	1,054		 	$	(2,123	)	
2013	 	2,982		 	20,503		 	1,136		 	822		 	(2,094	)	
2014	 	2,682		 	16,336		 	973		 	527		 	(2,019	)	
2015	 	2,073		 	12,411		 	752		 	342		 	(1,808	)	
2016	 	704		 	9,226		 	579		 	281		 	(1,511	)	
Thereafter	 	420		 	22,095		 	2,186		 	742		 	(5,915	)	
 	 	$	12,247		 	$	105,653		 	$	6,917		 	$	3,768		 	$	(15,470	)	

The weighted average remaining amortization periods for deferred financing costs, deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization), lease incentives (in rental and other revenues), acquisition-related intangible assets (in rental and other revenues) and acquisition-related intangible liabilities (in rental and other revenues) were 3.7 years, 6.4 years, 8.0 years, 5.8 years and 8.6 years, respectively, as of December 31, 2011 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

6.    Mortgages and Notes Payable

Our mortgages and notes payable consist of the following:

	
								
 	December 31,	
 	2011	 	2010	
Secured indebtedness: (1)	 	 	 	
7.05% mortgage loan due 2012 (2)	$	—		 	$	186,038		
5.45% mortgage loan due 2014 (3)	67,809		 	—		
5.18% mortgage loan due 2017 (4)	123,613		 	—		
6.03% mortgage loan due 2013	125,264		 	128,084		
5.68% mortgage loan due 2013	110,343		 	113,230		
5.17% (6.43% effective rate) mortgage loan due 2015 (5)	40,015		 	40,199		
6.88% mortgage loans due 2016	112,075		 	113,386		
7.50% mortgage loan due 2016	46,181		 	46,662		
5.74% to 9.00% mortgage loans due between 2012 and 2016 (6) (7) (8)	72,640		 	74,691		
Variable rate construction loan due 2012 (9)	52,109		 	52,109		
 	750,049		 	754,399		
Unsecured indebtedness:	 	 	 	
5.85% (5.88% effective rate) notes due 2017 (10)	391,164		 	391,046		
7.50% notes due 2018	200,000		 	200,000		
Variable rate term loan due 2016 (11)	200,000		 	—		
Variable rate term loans due 2011	—		 	147,500		
Revolving credit facility due 2015 (12)	362,000		 	30,000		
 	1,153,164		 	768,546		
Total	$	1,903,213		 	$	1,522,945		
__________
		
(1)	The secured mortgage loans payable are collateralized by real estate assets with an aggregate undepreciated book value of approximately $ 1.2 billion at December 31, 2011 . Our fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term or are prepayable subject to certain conditions including prepayment penalties.	
		
(2)	We have repaid the remaining balance of this loan as of December 31, 2011 .	
		
(3)	Includes unamortized fair market premium of $0.4 million as of December 31, 2011 .	
		
(4)	Includes unamortized fair market premium of $5.5 million as of December 31, 2011 .	
		
(5)	Net of unamortized fair market value discount of $ 1.7 million as of December 31, 2011 .	
		
(6)	Includes mortgage debt related to Harborview, a consolidated 20.0% owned joint venture, of $ 21.0 million and $ 21.5 million at December 31, 2011 and 2010 , respectively. See Note 8.	
		
(7)	Includes mortgage debt related to Markel, a consolidated 50.0% owned joint venture, of $ 34.0 million and $ 35.0 million at December 31, 2011 and 2010 , respectively. See Note 10.	
		
(8)	Net of unamortized fair market value premium of $ 0.3 million and $ 0.4 million at both December 31, 2011 and 2010 .	
		
(9)	The interest rate is 1.14% at December 31, 2011 .	
		
(10)	Net of unamortized original issuance discount of $ 0.6 million and $ 0.7 million at December 31, 2011 and 2010 , respectively.	
		
(11)	The interest rate is 2.49% at December 31, 2011 .	
		
(12)	The interest rate is 1.78% on our revolving credit facility at December 31, 2011 .	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

6.    Mortgages and Notes Payable - Continued

The following table sets forth scheduled future principal payments, including amortization, due on our mortgages and notes payable at December 31, 2011 :

	
					
Years Ending December 31,	 	Principal Amount	
2012	 	$	85,624		
2013	 	245,917		
2014	 	105,129		
2015	 	406,995		
2016	 	358,480		
Thereafter	 	701,068		
 	 	$	1,903,213		

In 2011, we obtained a $ 475.0 million unsecured revolving credit facility, which is scheduled to mature on June 27, 2015 and includes an accordion feature that allows for an additional $ 75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. Continuing ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $ 362.0 million and $ 148.0 million outstanding under our revolving credit facility at December 31, 2011 and February 1, 2012 , respectively. At both December 31, 2011 and February 1, 2012 , we had $ 0.2 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at December 31, 2011 and February 1, 2012 was $ 112.8 million and $ 326.8 million , respectively.

In 2011, we repaid the remaining balance of $ 184.2 million of a secured mortgage loan bearing interest of 7.05% that was scheduled to mature in January 2012 and the remaining $ 10.0 million of a three -year unsecured term loan bearing interest of 3.90% that was scheduled to mature in February 2012 . We incurred no penalties related to these early repayments. We also obtained a $ 200.0 million , five -year unsecured bank term loan bearing interest of LIBOR plus 220 basis points . The proceeds were used to pay off at maturity a $ 137.5 million unsecured bank term loan bearing interest of LIBOR plus 110 basis points , pay off amounts then outstanding under our revolving credit facility and for general corporate purposes.

In 2010, we repaid $ 10.0 million of our $ 20.0 million , three -year unsecured term loan. Additionally, we repaid the $ 5.8 million remaining balance outstanding on the mortgage payable secured by our 96 rental residential units to unencumber these assets for a planned development project. We incurred a penalty of $ 0.6 million related to this early repayment, which is included in loss on debt extinguishment.

In 2009, we paid off at maturity $ 50.0 million of unsecured notes bearing interest of 8.125% and retired the remaining $ 107.2 million principal amount of a two-tranched secured loan bearing interest of 7.80% . We also obtained a $ 20.0 million , three -year unsecured term loan bearing interest of 3.90% , a $ 115.0 million , six and a half-year secured loan bearing interest of 6.88% and a $ 47.3 million , seven -year secured loan bearing interest of 7.50% . Lastly, we repurchased $ 8.2 million principal amount of unsecured notes due March 2017 bearing interest of 5.85% .

We are currently in compliance with the debt covenants and other requirements with respect to our outstanding debt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

6.    Mortgages and Notes Payable - Continued

Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on the revolving credit facility, the lenders having at least 66.7% of the total commitments under the revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations.

The Operating Partnership has $391.2 million carrying amount of 2017 bonds outstanding and $200.0 million carrying amount of 2018 bonds outstanding. The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of either series of bonds can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.

Capitalized Interest

Total interest capitalized to development projects was $ 0.6 million , $ 1.4 million and $ 4.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

7.	Derivative Financial Instruments	

In 2011, we entered into six forward-starting, floating-to-fixed interest rate swaps for seven -year periods each with respect to an aggregate of $225.0 million LIBOR-based borrowings associated with forecasted issuance of debt. These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678% . The counterparties under the swaps are major financial institutions. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the year ended December 31, 2011 .

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next year, we estimate that $2.4 million will be reclassified as an increase to interest expense.

The following table sets forth the fair value of our derivative instruments:

	
								
 	Fair Value as of December 31,	
 	2011	 	2010	
Liability Derivatives:	 	 	 	
Derivatives designated as cash flow hedges in other liabilities:	 	 	 	
Interest rate swaps	$	2,202		 	$	—		

The following table sets forth the effect of our cash flow hedges on AOCL and interest expense:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Derivatives Designated as Cash Flow Hedges:	 	 	 	 	 	
Amount of unrealized gain/(loss) recognized in AOCL on derivatives (effective portion):	 	 	 	 	 	
Interest rate swaps	$	(2,202	)	 	$	—		 	$	937		
Amount of loss/(gain) reclassified out of AOCL into contractual interest expense (effective portion):	 	 	 	 	 	
Interest rate swaps	$	(118	)	 	$	237		 	$	(249	)	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
8.	Financing Arrangements	

Our financing obligations consist of the following:

	
								
 	December 31,	
 	2011	 	2010	
Harborview financing obligation	$	17,086		 	$	17,616		
Tax increment financing bond	13,064		 	14,258		
Capitalized ground lease obligation	1,294		 	1,240		
Total	$	31,444		 	$	33,114		

Harborview
 
Our joint venture partner in Harborview has the right to put its 80.0% equity interest in the joint venture to us in exchange for cash at any time during the one-year period commencing September 11, 2014 . The value of the 80.0% equity interest will be determined at the time that our partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LP's assets and liabilities, less 3.0% , which amount was intended to cover the normal costs of a sale transaction. Because of the put option, this transaction is accounted for as a financing transaction. Accordingly, the assets, liabilities and operations related to Harborview Plaza, the office property owned by Harborview LP remain in our Consolidated Financial Statements.
 
As a result, we initially established a gross financing obligation equal to the $12.7 million equity contributed by the other partner. During each period, we increase the gross financing obligation for 80.0% of the net income before depreciation of Harborview Plaza, which is recorded as interest expense on financing obligation, and decrease the gross financing obligation for distributions made to our joint venture partner. At the end of each reporting period, the balance of the gross financing obligation is adjusted to equal the greater of the initial financing obligation or the current fair value of the put option, which is recorded as a valuation allowance. The valuation allowance is amortized on a straight-line basis prospectively through September 2014 as interest expense on financing obligation. The fair value of the put option was $6.2 million and $10.2 million at December 31, 2011 and 2010 , respectively. We continue to depreciate Harborview Plaza and record all of the depreciation on our books. At such time as the put option expires or is otherwise terminated, we will record the transaction as a partial sale and recognize gain accordingly.

Tax Increment Financing Bond
 
In connection with tax increment financing for construction of a parking garage, we are obligated to pay fixed special assessments over a 20-year period ending in October 31, 2019 . The net present value of these assessments, discounted at the 6.93% interest rate on the underlying bond financing, is recorded as a financing obligation. We receive special tax revenues and property tax rebates recorded in interest and other income, which are intended, but not guaranteed, to provide funds to pay the special assessments. We acquired the underlying bond, which is recorded in prepaid and other assets, in a privately negotiated transaction in 2007 . For additional information about this tax increment financing bond, see Note 11.
 
Capitalized Ground Lease Obligation
 
The capitalized ground lease obligation represents an obligation to the lessor of land on which we constructed a wholly owned office property. We are obligated to make fixed payments to the lessor through October 31, 2022 . The lease provides for fixed price purchase options in the ninth and tenth years of the lease. We initially recorded the land and associated financing obligation at the net present value of the fixed rental payments and purchase option through the ninth year at the inception of the lease using a discount rate of 7.10% . The liability accretes as interest expense until it equals the amount of the purchase option.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
9.	Commitments and Contingencies	

Operating Ground Leases
 
Certain Wholly Owned Properties are subject to operating ground leases. Rental payments on these leases are adjusted periodically based on either the consumer price index or on a pre-determined schedule. Total rental property expense recorded on the straight-line basis for operating ground leases was $1.4 million , $1.5 million and $1.6 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

The following table sets forth our scheduled obligations for future minimum payments on operating ground leases at December 31, 2011 :

	
					
Years Ending December 31,	 	Minimum Payments	
2012	 	$	1,324		
2013	 	1,345		
2014	 	1,366		
2015	 	1,389		
2016	 	1,413		
Thereafter	 	31,526		
 	 	$	38,363		

Lease and Contractual Commitments
 
We have approximately   $59.8 million of lease and contractual commitments at December 31, 2011 . Lease and contractual commitments represent commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements) and contracts for development/redevelopment projects, of which $10.3 million was recorded on the Consolidated Balance Sheet at December 31, 2011 .
 
Des Moines Joint Ventures

As of the closing date of the 2010 disposition of our interests in the Des Moines, IA joint ventures, the joint ventures had approximately $170.0 million of secured debt, which was non-recourse to us except in the case of customary exceptions pertaining to matters such as misuse of funds, borrower bankruptcy, unpermitted transfers, environmental conditions and material misrepresentations. We have no ongoing lender liability relating to such customary exceptions to non-recourse liability with respect to most, but not all, of the debt. The buyer has agreed to indemnify and hold us harmless from any and all future losses that we suffer as a result of our prior investment in the joint ventures, except for losses directly resulting from our acts or omissions. In the event we are exposed to any such future loss, our financial condition and operating results would not be adversely affected unless the buyer defaults on its indemnification obligation.

Rent Guarantees

In connection with the disposition of six industrial properties in Piedmont Triad, NC in the second quarter of 2010, we entered into a limited rent guarantee agreement with the buyer relating to an existing 237,500 square foot lease with one customer, who has leased space in the properties for 14 years. This agreement guarantees the payment of rent for an approximate two-year period from March 2011 through June 2013 in the event the customer exercises its limited termination right. As of December 31, 2011 , our maximum exposure under this rent guarantee agreement was approximately $0.3 million . No accrual was recorded for this guarantee because we have concluded that a loss was not probable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
9.	Commitments and Contingencies - Continued	

DLF I Obligation
 
At the formation of DLF I, the amount our partner contributed in cash to the venture and subsequently distributed to us was determined to be $7.2 million in excess of the amount required based on its ownership interest and the agreed-upon value of the real estate assets. We are required to repay this amount over 14 years, beginning in the first quarter of 1999 . The $7.2 million was discounted to net present value of $3.8 million using a discount rate of 9.62% specified in the agreement. Payments of $0.6 million were made in each of the years ended December 31, 2011 , 2010 and 2009 . The balance at December 31, 2011 and 2010 was $0.8 million and $1.2 million , respectively, which is included in accounts payable, accrued expenses and other liabilities.
 
Environmental Matters
 
Substantially all of our in-service and development properties have been subjected to Phase I environmental assessments and, in certain instances, Phase II environmental assessments. Such assessments and/or updates have not revealed, nor are we aware of, any environmental liability that we believe would have a material adverse effect on our Consolidated Financial Statements.

Litigation, Claims and Assessments
 
We are from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of our business. We regularly assess the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that we have incurred or will incur a loss and the loss or range of loss can be reasonably estimated, the estimated loss is accrued and charged to income in our Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of such matters, none of these proceedings, claims or assessments is expected to have a material effect on our business, financial condition, results of operations or cash flows.

10.	Noncontrolling Interests	

Noncontrolling Interests in Consolidated Affiliates

At December 31, 2011 , noncontrolling interests in consolidated affiliates relates to our joint venture partner's 50.0% interest in office properties located in Richmond, VA. Our joint venture partner is an unrelated third party.

11.	Disclosure About Fair Value of Financial Instruments	

The following summarizes the three levels of inputs that we use to measure fair value, as well as the assets and liabilities that we recognize at fair value using those levels of inputs.

Level 1.   Quoted prices in active markets for identical assets or liabilities.

Our Level 1 assets are investments in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 liability is our non-qualified deferred compensation obligation.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Our Level 2 liabilities are interest rate swaps that were outstanding at December 31, 2011 whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our Level 3 assets are our tax increment financing bond, which is not routinely traded but whose fair value is determined using the income approach to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bond and real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analyses, which were valued using broker opinion of value and substantiated by internal cash flow projections.

The following tables set forth the assets and liabilities that we measure at fair value by level within the fair value hierarchy. We determine the level based on the lowest level of substantive input used to determine fair value.

	
																
 	 	 	Level 1	 	Level 2	 	Level 3	
 	December 31, 2011	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Observable Inputs	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	 	 	
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	$	3,149		 	$	3,149		 	$	—		 	$	—		
Tax increment financing bond (in prepaid expenses and other assets)	14,788		 	—		 	—		 	14,788		
Impaired real estate assets and for-sale residential condominiums	12,767		 	—		 	—		 	12,767		
Total Assets	$	30,704		 	$	3,149		 	$	—		 	$	27,555		
Liabilities:	 	 	 	 	 	 	 	
Interest rate swaps	$	2,202		 	$	—		 	$	2,202		 	$	—		
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	3,149		 	3,149		 	—		 	—		
Total Liabilities	$	5,351		 	$	3,149		 	$	2,202		 	$	—		

	
												
 	 	 	Level 1	 	Level 3	
 	December 31, 2010	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	$	3,479		 	$	3,479		 	$	—		
Tax increment financing bond (in prepaid expenses and other assets)	15,699		 	—		 	15,699		
Total Assets	$	19,178		 	$	3,479		 	$	15,699		
Liability:	 	 	 	 	 	
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	$	4,091		 	$	4,091		 	$	—		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

The following table sets forth the changes in our Level 3 asset:

	
								
 	December 31,	
 	2011	 	2010	
Asset:	 	 	 	
Tax Increment Financing Bond:	 	 	 	
Beginning balance	$	15,699		 	$	16,871		
Principal repayment	(1,145	)	 	(995	)	
Unrealized gain/(loss) (in AOCL)	234		 	(177	)	
Ending balance	$	14,788		 	$	15,699		

In 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020 . The estimated fair value at December 31, 2011 was $2.3 million below the outstanding principal due on the bond. If the yield-to-maturity used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.6 million lower or $0.6 million higher, respectively, as of December 31, 2011 . Currently, we intend to hold this bond and have concluded that we will not be required to sell this bond before recovery of the bond principal. Payment of the principal and interest for the bond is guaranteed by us and, therefore, we have recorded no credit losses related to the bond in the years ended December 31, 2011 and 2010 . There is no legal right of offset with the liability, which we report as a financing obligation, related to this tax increment financing bond.

The following table sets forth the carrying amounts and fair values of our financial instruments not disclosed elsewhere:

	
								
 	Carrying Amount	 	Fair Value	
December 31, 2011	 	 	 	
Mortgages and notes receivable	$	18,600		 	$	18,990		
Mortgages and notes payable	$	1,903,213		 	$	1,992,937		
Financing obligations (including Harborview financing obligation)	$	31,444		 	$	18,866		
 	 	 	 	
December 31, 2010	 	 	 	
Mortgages and notes receivable	$	19,044		 	$	19,093		
Mortgages and notes payable	$	1,522,945		 	$	1,581,518		
Financing obligations (including Harborview financing obligation)	$	33,114		 	$	23,880		

The carrying values of our cash and cash equivalents, restricted cash, accounts receivable, marketable securities of non-qualified deferred compensation plan, tax increment financing bond, non-qualified deferred compensation obligation and noncontrolling interests in the Operating Partnership are equal to or approximate fair value. The fair values of our mortgages and notes receivable, mortgages and notes payable and financing obligations were estimated using the income or market approaches to approximate the price that would be paid in an orderly transaction between market participants on the respective measurement dates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
12.	Equity	
 
Common Stock Offerings
 
In 2011, the Company entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of its Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During 2011 , the Company issued 378,200 shares of Common Stock under these agreements at an average price of $35.09 per share raising net proceeds, after sales commissions and expenses, of $13.1 million .

In 2009, the Company sold 7.0 million shares of Common Stock for net proceeds of $144.1 million .

Common Unit Distributions
 
Distributions declared and paid per Common Unit aggregated $1.70 for each of the years ended December 31, 2011 , 2010 and 2009 .

Redeemable Common Units

The Operating Partnership is obligated to redeem each Redeemable Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Redeemable Common Unit presented for redemption for cash or one share of Common Stock. When a holder redeems a Redeemable Common Unit for a share of Common Stock or cash, the Company’s share in the Operating Partnership will be increased. The Common Units owned by the Company are not redeemable.

Preferred Units
 
In 2011, we redeemed the remaining 2.1 million outstanding 8.0% Series B Cumulative Redeemable Preferred Units for an aggregate redemption price of $52.5 million , excluding accrued distributions. In connection with this redemption, the $1.9 million excess of the redemption cost over the net carrying amount of the redeemed units was recorded as a reduction to net income available for common unitholders.

The following table sets forth our Preferred Units:

	
																				
Preferred Unit Issuances	 	Issue Date	 	Number of
Units
Outstanding	 	Carrying
Value	 	Liquidation Preference
Per Unit	 	Optional Redemption
Date	 	Annual
Distributions
Payable
Per Unit	
 	 	 	 	(in thousands)	 	 	 	 	 	 	 	 	
December 31, 2011	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,077		 	$	1,000		 	2/12/2027	 	$	86.25		
December 31, 2010	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,092		 	$	1,000		 	2/12/2027	 	$	86.25		
8.000% Series B Cumulative Redeemable	 	9/25/1997	 	2,100		 	$	52,500		 	$	25		 	9/25/2002	 	$	2.00		

Warrants

Warrants to acquire Common Stock were issued in 1997 and 1999 in connection with property acquisitions. Upon exercise of a warrant, the Company will contribute the exercise price to the Operating Partnership in exchange for Common Units. Therefore, the Operating Partnership accounts for such warrants as if issued by the Operating Partnership. In 2011 , 2010 and 2009 , there were no warrants exercised. At December 31, 2011 and 2010 , there were 15,000 warrants outstanding with an exercise price of $32.50 . These warrants have no expiration date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
13.	Employee Benefit Plans	

Officer, Management and Director Compensation Programs

The officers of the Company, which is the sole general partner of the Operating Partnership, participate in an annual non-equity incentive program whereby they are eligible for incentive cash payments based on a percentage of their annual base salary. Each officer has a target annual non-equity incentive payment percentage that ranges from 30% to 130% of base salary depending on the officer’s position. The officer’s actual incentive payment for the year is the product of the target annual incentive payment percentage times a “performance factor,” which can range from zero to 200% . This performance factor depends upon the relationship between how various performance criteria compare with predetermined goals. For an officer who has division responsibilities, goals for certain performance criteria are based partly on the division’s actual performance relative to that division’s established goals and partly on actual total performance. Incentive payments are accrued and expensed in the year earned and are generally paid in the first quarter of the following year.

Certain other employees participate in an annual non-equity incentive program whereby a target annual cash incentive payment is established based upon the job responsibilities of their position. Incentive payment eligibility ranges from 10% to 30% of annual base salary. The actual incentive payment is determined by our overall performance and the individual’s performance during each year. These incentive payments are also accrued and expensed in the year earned and are generally paid in the first quarter of the following year.

The Company's officers generally receive annual grants of stock options and restricted stock on or about March 1 of each year. Restricted stock grants are also made annually to directors and certain other employees. Dividends received on restricted stock are non-forfeitable and are paid at the same rate and on the same date as on shares of Common Stock. Dividends paid on subsequently forfeited shares are expensed. Additional total return-based restricted stock may be issued at the end of the three-year periods if actual performance exceeds certain levels of performance. Such additional shares, if any, would be fully vested when issued. No expense is recorded for additional shares of total return-based restricted stock that may be issued at the end of the three-year period since that possibility is already reflected in the grant date fair value. The following table sets forth the number of shares of Common Stock reserved for future issuance:

	
						
 	December 31,	
 	2011	 	2010	
Outstanding stock options and warrants	1,224,455		 	1,495,196		
Possible future issuance under equity incentive plans	2,363,695		 	2,642,620		
 	3,588,150		 	4,137,816		

Of the possible future issuance under equity incentive plans at December 31, 2011 , no more than 0.7 million can be in the form of restricted stock. At December 31, 2011 , the Company had 127.4 million remaining shares of Common Stock authorized to be issued under our charter.

During the years ended December 31, 2011 , 2010 and 2009 , we recognized $6.1 million , $6.6 million and $6.6 million , respectively, of share-based compensation expense. Because REITs generally do not pay income taxes, we do not realize tax benefits on share-based payments. At December 31, 2011 , there was $5.6 million of total unrecognized share-based compensation costs, which will be recognized over vesting periods that have a weighted average remaining term of 2.1 years.

- Stock Options

Stock options issued prior to 2005 vest ratably over four years and remain outstanding for 10 years. Stock options issued beginning in 2005 vest ratably over a four -year period and remain outstanding for seven years. The value of all options as of the date of grant is calculated using the Black-Scholes option-pricing model and is amortized over the respective vesting or service period. The fair values of options granted during 2011 , 2010 and 2009 were $6.47 , $4.96 and $1.82 , respectively, per option. The fair values of the options granted were determined at the grant dates using the following assumptions:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
13.	Employee Benefit Plans - Continued	

	
									
 	2011	 	2010	 	2009	
Risk free interest rate (1)  	2.4	%	 	2.6	%	 	2.3	%	
Common stock dividend yield (2)  	5.0	%	 	5.9	%	 	9.0	%	
Expected volatility (3)  	32.5	%	 	32.2	%	 	29.9	%	
Average expected option life (years) (4)	5.75		 	5.75		 	5.75		
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the option grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one-year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related stock option grant.	
		
(4)	The average expected option life is based on an analysis of the Company's historical data.	

The following table sets forth stock option activity:

	
							
 	Options Outstanding	
 	Number of Shares	 	Weighted Average Exercise Price	
Balance at December 31, 2008	1,489,250		 	$	28.74		
Options granted	394,044		 	19.00		
Options cancelled	(111,590	)	 	27.65		
Options exercised	(303,931	)	 	24.18		
Balances at December 31, 2009	1,467,773		 	27.15		
Options granted 	190,826		 	29.05		
Options exercised 	(178,403	)	 	22.54		
Balances at December 31, 2010  (1) (2)	1,480,196		 	27.95		
Options granted	146,581		 	33.93		
Options exercised	(417,322	)	 	26.79		
Balances at December 31, 2011	1,209,455		 	$	29.08		
__________
		
(1)	The outstanding options at December 31, 2011 had a weighted average remaining life of  3.5 years.	
		
(2)	The Company has 646,029 options exercisable at December 31, 2011 with weighted average exercise price of $31.01 , weighted average remaining life of 2.4 years and intrinsic value of $1.1 million . Of these exercisable options, 252,277 had exercise prices higher than the market price of our Common Stock at December 31, 2011 .	

Cash received or receivable from options exercised was $11.9 million , $4.4 million and $7.4 million for the years ended December 31, 2011 , 2010 and 2009 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2011 , 2010 and 2009 was $3.0 million , $1.7 million and $2.0 million , respectively. The total intrinsic value of options outstanding at December 31, 2011 , 2010 and 2009 was $3.3 million , $7.2 million and $10.3 million , respectively. The Company generally does not permit the net cash settlement of exercised stock options, but does permit net share settlement so long as the shares received are held for at least one year. The Company has a policy of issuing new shares to satisfy stock option exercises.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
13.	Employee Benefit Plans - Continued	

- Time-Based Restricted Stock

Shares of time-based restricted stock issued to officers and employees generally vest 25% on the first, second, third and fourth anniversary dates, respectively. Shares of time-based restricted stock issued to directors generally vest 25% on January 1 of each successive year after the grant date. The value of grants of time-based restricted stock is based on the market value of Common Stock as of the date of grant and is amortized to expense over the respective vesting or service periods.

The following table sets forth time-based restricted stock activity:

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2008	329,795		 	$	34.21		
Awarded and issued (1)	128,384		 	19.33		
Vested (2)  	(132,779	)	 	33.38		
Forfeited 	(9,326	)	 	31.26		
Restricted shares outstanding at December 31, 2009	316,074		 	28.60		
Awarded and issued (1)	88,930		 	29.05		
Vested (2) 	(138,745	)	 	31.81		
Forfeited 	(1,933	)	 	25.86		
Restricted shares outstanding at December 31, 2010 	264,326		 	27.08		
Awarded and issued (1)	76,966		 	33.70		
Vested (2) 	(116,631	)	 	30.64		
Restricted shares outstanding at December 31, 2011	224,661		 	$	28.02		
__________
		
(1)	The fair value at grant date of time-based restricted stock issued during the years ended December 31, 2011 , 2010 and 2009 was $2.6 million , $2.6 million and $2.5 million , respectively.	
		
(2)	The vesting date fair value of time-based restricted stock that vested during the years ended December 31, 2011 , 2010 and 2009 was $3.9 million , $4.3 million and $2.9 million , respectively.	

- Total Return-Based Restricted Stock

During 2011 , 2010 and 2009 , we issued shares of total return-based restricted stock to officers that will vest from zero to 250% based on (1) our absolute total returns for the three-year periods ended December 31, 2012 , 2013 and 2014 , respectively, relative to defined target returns and (2) whether the Company's total return exceeds the average total returns of a selected group of peer companies. The grant date fair value of such shares of total return-based restricted stock was determined to be $41.02 , $29.05 and $15.01 , respectively, of the market value of a share of Common Stock as of the grant date and is amortized over the respective three-year period. The fair values of the total return-based restricted stock granted were determined at the grant dates using the following assumptions:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
13.	Employee Benefit Plans - Continued	

	
									
 	2011	 	2010	 	2009	
Risk free interest rate (1)  	1.0	%	 	1.3	%	 	1.3	%	
Common stock dividend yield (2)  	5.4	%	 	5.6	%	 	7.6	%	
Expected volatility (3)  	42.8	%	 	42.5	%	 	37.8	%	
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the total return-based restricted stock grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one-year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related total return-based restricted stock grant.	

The following table sets forth total return-based and other types of performance-based restricted stock activity:

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2008	151,342		 	$	33.39		
Awarded and issued (1)	127,594		 	15.01		
Vested (2)	(68,929	)	 	32.66		
Forfeited	(7,232	)	 	34.14		
Restricted shares outstanding at December 31, 2009	202,775		 	22.05		
Awarded and issued (1)	77,624		 	29.05		
Vested (2)	(47,257	)	 	38.50		
Forfeited	(1,307	)	 	22.99		
Restricted shares outstanding at December 31, 2010	231,835		 	21.03		
Awarded and issued (1)	57,386		 	41.02		
Vested (2)	(66,417	)	 	13.79		
Forfeited/cancelled	(99,975	)	 	13.79		
Restricted shares outstanding at December 31, 2011	122,829		 	$	34.86		
__________
		
(1)	The fair value at grant date of total return-based restricted stock issued during the years ended December 31, 2011 , 2010 and 2009 was $2.4 million , $2.3 million and $1.9 million , respectively. There were no performance-based restricted stock issued subsequent to 2008.	
		
(2)	The vesting date fair value of total return-based and other types of performance-based restricted stock that vested during the years ended December 31, 2011 , 2010 and 2009 was $2.0 million , $1.6 million and $2.6 million , respectively.	

Retirement Plan

The Company has adopted a retirement plan applicable to all employees, including officers, who, at the time of retirement, have at least 30 years of continuous qualified service or are at least 55 years old and have at least 10 years of continuous qualified service. Subject to advance retirement notice and execution of a non-compete agreement with us, eligible retirees are entitled to receive a pro rata amount of the annual incentive payment earned during the year of retirement. Stock options and restricted stock granted by the Company to such eligible retiree during his or her employment would be non-forfeitable and vest according to the terms of their original grants. For employees who meet the age and service eligibility requirements, 100% of their annual grants are deemed fully vested at the grant date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
13.	Employee Benefit Plans - Continued	

Deferred Compensation

The Company has a non-qualified deferred compensation plan pursuant to which each officer and director could elect to defer a portion of their base salary and/or annual non-equity incentive payment (or director fees) which are invested in unrelated mutual funds. These investments are recorded at fair value which aggregated $3.1 million and $3.5 million at December 31, 2011 and 2010 , respectively, and are included in prepaid expenses and other assets, with an offsetting deferred compensation liability recorded in accounts payable, accrued expenses and other liabilities. Such deferred compensation is expensed in the period earned by the officers and directors. Deferred amounts ultimately payable to the officers and directors are based on the value of the related mutual fund investments. Accordingly, changes in the value of the marketable mutual fund investments are recorded in interest and other income and the corresponding offsetting changes in the deferred compensation liability are recorded in general and administration expense. As a result, there is no effect on our net income subsequent to the time the compensation is deferred and fully funded. Prior to 2006, as part of the non-qualified deferred compensation plan, officers and directors could elect to defer cash compensation for investment in units of phantom stock. At the end of each calendar quarter, any person who deferred compensation into phantom stock was credited with units of phantom stock at a 15% discount. Dividends on the phantom units were assumed to be issued in additional units of phantom stock at a 15% discount. By the terms of the plan, the cash value of all phantom stock outstanding under the plan was reinvested in unrelated mutual funds as of December 31, 2011.

The following table sets forth the Company's deferred compensation liability:

	
												
 	Years Ended December 31,	
 	2011	 	2010	 	2009	
Beginning deferred compensation liability	$	4,091		 	$	6,898		 	$	6,522		
Contributions to deferred compensation plans	545		 	229		 	—		
Mark-to-market adjustment to deferred compensation (general and administrative expense)	(119	)	 	246		 	1,497		
Distributions from deferred compensation plans	(1,368	)	 	(3,282	)	 	(1,121	)	
Total deferred compensation liability	$	3,149		 	$	4,091		 	$	6,898		

401(k) Savings Plan

We have a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. We contribute amounts for each participant at a rate of 75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary and cash incentives subject to statutory limits). During the years ended December 31, 2011 , 2010 and 2009 , we contributed $1.1 million , $1.0 million and $1.0 million , respectively, to the 401(k) savings plan. The assets of this qualified plan are not included in our Consolidated Financial Statements since the assets are not owned by us. Administrative expenses of the plan are paid by us.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan pursuant to which employees generally may contribute up to 25% of their base and annual non-equity incentive compensation for the purchase of Common Stock. At the end of each three-month offering period, the contributions in each participant's account balance, which includes accrued dividends, is applied to acquire shares of Common Stock at a cost that was calculated during 2011 at 85% of the average closing price on the New York Stock Exchange on the five days preceding the last day of the quarter and during 2010 and 2009 at 85% of the lower of the average closing price on the New York Stock Exchange on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. In the years ended December 31, 2011 , 2010 and 2009 , the Company issued 30,826 , 27,378 and 37,287 shares, respectively, of Common Stock under the Employee Stock Purchase Plan. The discount on newly issued shares is expensed by us as additional compensation and aggregated $0.2 million , $0.1 million and $0.3 million in the years ended December 31, 2011 , 2010 and 2009 , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
14.	Comprehensive Income and Accumulated Other Comprehensive Loss	

Comprehensive income represents net income plus the changes in certain amounts deferred in accumulated other comprehensive loss related to hedging activities and changes in fair market value of an available for-sale security. The following table sets forth the components of comprehensive income:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Net income	$	48,032		 	$	72,276		 	$	61,640		
Other comprehensive income:	 	 	 	 	 	
Unrealized gain/(loss) on tax increment financing bond	234		 	(177	)	 	293		
Unrealized gains/(losses) on cash flow hedges	(2,202	)	 	—		 	937		
Amortization of settled cash flow hedges	(118	)	 	237		 	(249	)	
Sale of cash flow hedge related to disposition of investment in unconsolidated affiliate	—		 	103		 	—		
Total other comprehensive income/(loss)	(2,086	)	 	163		 	981		
Total comprehensive income	$	45,946		 	$	72,439		 	$	62,621		

Accumulated other comprehensive loss represents certain amounts deferred related to hedging activities and an available for-sale security. The following table sets forth the components of accumulated other comprehensive loss:

	
								
 	December 31,	
 	2011	 	2010	
Tax increment financing bond	$	(2,308	)	 	$	(2,543	)	
Settled and outstanding cash flow hedges	(3,426	)	 	(1,105	)	
 	$	(5,734	)	 	$	(3,648	)	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
15.	Rental and Other Revenues; Rental Property and Other Expenses	

Our real estate assets are leased to customers under operating leases. The minimum rental amounts under the leases are generally subject to scheduled fixed increases. Generally, the leases also require that the customers reimburse us for increases in certain costs above the base-year costs. The following table sets forth rental and other revenues from continuing operations:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Contractual rents, net	$	420,285		 	$	398,224		 	$	392,360		
Straight-line rental income, net	12,828		 	11,349		 	3,644		
Amortization of lease incentives	(1,371	)	 	(1,239	)	 	(1,100	)	
Property operating expense recoveries, net	36,105		 	41,736		 	44,462		
Lease termination fees	2,443		 	2,992		 	1,813		
Fee income	5,571		 	5,466		 	5,155		
Other miscellaneous operating revenues	6,991		 	2,598		 	1,684		
 	$	482,852		 	$	461,126		 	$	448,018		

The following table sets forth scheduled future minimum base rents to be received from customers for leases in effect at December 31, 2011 for the Wholly Owned Properties:

	
				
2012	$	448,420		
2013	409,453		
2014	352,743		
2015	297,859		
2016	247,283		
Thereafter	809,042		
 	$	2,564,800		

The following table sets forth rental property and other expenses from continuing operations:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Utilities, insurance and real estate taxes	$	97,129		 	$	90,478		 	$	90,648		
Maintenance, cleaning and general building	61,700		 	56,877		 	55,840		
Property management and administrative expenses	11,624		 	11,203		 	11,702		
Other miscellaneous operating expenses	5,669		 	4,720		 	3,309		
 	$	176,122		 	$	163,278		 	$	161,499		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
16.	Discontinued Operations	

The following table sets forth our operations which required classification as discontinued operations:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Rental and other revenues	$	1,593		 	$	3,627		 	$	11,292		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	570		 	1,406		 	4,263		
Depreciation and amortization	127		 	744		 	2,231		
Impairment of assets held for use	—		 	—		 	10,964		
Total operating expenses	697		 	2,150		 	17,458		
Interest expense	—		 	—		 	67		
Other income	1		 	2		 	3		
Income/(loss) from discontinued operations	897		 	1,479		 	(6,230	)	
Net gains/(losses) on disposition of discontinued operations	2,573		 	(86	)	 	21,466		
Total discontinued operations	$	3,470		 	$	1,393		 	$	15,236		
Carrying value of assets held for sale and assets sold that qualified for discontinued operations during the year	$	15,261		 	$	42,133		 	$	97,457		

The following table sets forth the major classes of assets and liabilities of the properties held for sale:

	
								
 	December 31,	
 	2011	 	2010	
Assets:	 	 	 	
Land	$	—		 	$	2,788		
Buildings and tenant improvements	—		 	12,707		
Land held for development	—		 	4,536		
Accumulated depreciation	—		 	(5,012	)	
Net real estate assets	—		 	15,019		
Accrued straight line rents receivable	—		 	57		
Deferred leasing costs, net	—		 	257		
Prepaid expenses and other assets	—		 	43		
Real estate and other assets, net, held for sale	$	—		 	$	15,376		
Tenant security deposits, deferred rents and accrued costs (1)	$	—		 	$	11		
__________
		
(1)	Included in accounts payable, accrued expenses and other liabilities.	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
17.	Earnings Per Unit	

The following table sets forth the computation of basic and diluted earnings per unit:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Earnings per common unit - basic:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	44,562		 	$	70,883		 	$	46,404		
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(755	)	 	(485	)	 	(11	)	
Distributions on Preferred Units	(4,553	)	 	(6,708	)	 	(6,708	)	
Excess of preferred unit redemption/repurchase cost over carrying value	(1,895	)	 	—		 	—		
Income from continuing operations available for common unitholders	37,359		 	63,690		 	39,685		
Income from discontinued operations available for common unitholders	3,470		 	1,393		 	15,236		
Net income available for common unitholders	$	40,829		 	$	65,083		 	$	54,921		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Unit – weighted average units (1) (2)	75,644		 	74,971		 	71,591		
Earnings per common unit - basic:	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.49		 	$	0.85		 	$	0.56		
Income from discontinued operations available for common unitholders	0.05		 	0.02		 	0.21		
Net income available for common unitholders	$	0.54		 	$	0.87		 	$	0.77		
Earnings per common unit - diluted:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	44,562		 	$	70,883		 	$	46,404		
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(755	)	 	(485	)	 	(11	)	
Distributions on Preferred Units	(4,553	)	 	(6,708	)	 	(6,708	)	
Excess of preferred unit redemption/repurchase cost over carrying value	(1,895	)	 	—		 	—		
Income from continuing operations available for common unitholders	37,359		 	63,690		 	39,685		
Income from discontinued operations available for common unitholders	3,470		 	1,393		 	15,236		
Net income available for common unitholders	$	40,829		 	$	65,083		 	$	54,921		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Unit –weighted average units (1) (2)	75,644		 	74,971		 	71,591		
Add:	 	 	 	 	 	
Stock options using the treasury method	136		 	198		 	79		
Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions (1)	75,780		 	75,169		 	71,670		
Earnings per common unit - diluted:	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.49		 	$	0.85		 	$	0.56		
Income from discontinued operations available for common unitholders	0.05		 	0.02		 	0.21		
Net income available for common unitholders	$	0.54		 	$	0.87		 	$	0.77		
__________
		
(1)	There were 0.4 million , 0.7 million and 1.0 million options outstanding during the years ended December 31, 2011 , 2010 and 2009 , respectively, that were not included in the computation of diluted earnings per unit because the impact of including such options would be anti-dilutive .	
		
(2)	Includes all unvested restricted stock since dividends on such restricted stock are non-forfeitable.	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
18.	Income Taxes	

Our Consolidated Financial Statements include the operations of the Company’s taxable REIT subsidiary, which is not entitled to the dividends paid deduction and is subject to federal, state and local income taxes. The taxable REIT subsidiary has operated at a cumulative taxable loss through December 31, 2011 of approximately $5.3 million and has paid no income taxes since its formation. In addition to the $2.0 million deferred tax asset for these cumulative tax loss carryforwards, the taxable REIT subsidiary also had net deferred tax liabilities of approximately $1.6 million comprised primarily of tax versus book basis differences in certain investments and depreciable assets held by the taxable REIT subsidiary. Because the future tax benefit of the cumulative losses is not assured, the approximate $0.4 million net deferred tax asset position of the taxable REIT subsidiary has been fully reserved as management does not believe that it is more likely than not that the net deferred tax asset will be realized. The tax benefit of the cumulative losses could be recognized for financial reporting purposes in future periods to the extent the taxable REIT subsidiary generates sufficient taxable income. Other than income taxes related to its taxable REIT subsidiary, the Operating Partnership recorded state income tax expense in rental property and other expenses of $0.1 million , $0.1 million and $0.5 million for the years ended December 31, 2011 , 2010 and 2009 , respectively.

The minimum dividend per share of Common Stock required for the Company to maintain its REIT status was $1.01 , $0.32 and $0.89 per share in 2011 , 2010 and 2009 , respectively. Continued qualification as a REIT depends on the Company's ability to satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests prescribed in the Code. The tax basis of our assets (net of accumulated tax depreciation and amortization) and liabilities was approximately $2.7 billion and $2.0 billion , respectively, at December 31, 2011 and $2.4 billion and $1.6 billion , respectively, at  December 31, 2010 .

The Company is subject to federal, state and local income tax examinations by tax authorities for 2008 through 2011 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
19.	Segment Information	

Our principal business is the operation, acquisition and development of rental real estate properties. We evaluate our business by product type and by geographic location. Each product type has different customers and economic characteristics as to rental rates and terms, cost per square foot of buildings, the purposes for which customers use the space, the degree of maintenance and customer support required and customer dependency on different economic drivers, among others. The operating results by geographic grouping are also regularly reviewed by our chief operating decision maker for assessing performance and other purposes. There are no material inter-segment transactions.

Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States and, at December 31, 2011 , no single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues on an annualized basis.

The following table summarizes the rental and other revenues and net operating income, the primary industry property-level performance metric which is defined as rental and other revenues less rental property and other expenses, for each reportable segment:

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Rental and Other Revenues: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	52,999		 	$	48,051		 	$	48,704		
Greenville, SC	14,079		 	13,616		 	14,010		
Kansas City, MO	14,391		 	14,822		 	14,839		
Memphis, TN	40,324		 	34,982		 	30,642		
Nashville, TN	60,857		 	59,151		 	60,551		
Orlando, FL	10,235		 	11,615		 	11,809		
Piedmont Triad, NC	20,650		 	21,155		 	21,255		
Pittsburgh, PA	10,971		 	—		 	—		
Raleigh, NC	78,513		 	75,604		 	72,521		
Richmond, VA	47,536		 	47,191		 	46,617		
Tampa, FL	69,865		 	72,522		 	67,294		
Total Office Segment	420,420		 	398,709		 	388,242		
Industrial:	 	 	 	 	 	
Atlanta, GA	15,911		 	15,159		 	15,611		
Piedmont Triad, NC	11,829		 	12,376		 	12,778		
Total Industrial Segment	27,740		 	27,535		 	28,389		
Retail:	 	 	 	 	 	
Kansas City, MO	34,277		 	33,527		 	29,997		
Piedmont Triad, NC	—		 	—		 	185		
Raleigh, NC	146		 	135		 	120		
Total Retail Segment	34,423		 	33,662		 	30,302		
Residential:	 	 	 	 	 	
Kansas City, MO	269		 	1,220		 	1,085		
Total Residential Segment	269		 	1,220		 	1,085		
Total Rental and Other Revenues	$	482,852		 	$	461,126		 	$	448,018		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
19.	Segment Information - Continued	

	
												
 	Year Ended December 31,	
 	2011	 	2010	 	2009	
Net Operating Income: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	33,746		 	$	30,404		 	$	30,810		
Greenville, SC	8,336		 	8,156		 	8,722		
Kansas City, MO	8,404		 	8,893		 	9,088		
Memphis, TN	23,077		 	20,853		 	17,730		
Nashville, TN	40,348		 	39,336		 	39,138		
Orlando, FL	5,188		 	6,267		 	6,279		
Piedmont Triad, NC	13,046		 	13,898		 	14,001		
Pittsburgh, PA	5,456		 	—		 	—		
Raleigh, NC	54,594		 	52,320		 	48,868		
Richmond, VA	31,292		 	32,089		 	32,081		
Tampa, FL	43,372		 	45,537		 	40,157		
Total Office Segment	266,859		 	257,753		 	246,874		
Industrial:	 	 	 	 	 	
Atlanta, GA	11,200		 	10,684		 	11,627		
Piedmont Triad, NC	8,656		 	9,053		 	9,758		
Total Industrial Segment	19,856		 	19,737		 	21,385		
Retail:	 	 	 	 	 	
Atlanta, GA (2)	(22	)	 	(21	)	 	(22	)	
Kansas City, MO	20,164		 	19,961		 	18,207		
Piedmont Triad, NC	—		 	—		 	12		
Raleigh, NC	49		 	37		 	9		
Total Retail Segment	20,191		 	19,977		 	18,206		
Residential:	 	 	 	 	 	
Kansas City, MO	19		 	743		 	582		
Raleigh, NC (2)	(195	)	 	(362	)	 	(528	)	
Total Residential Segment	(176	)	 	381		 	54		
Total Net Operating Income	306,730		 	297,848		 	286,519		
Reconciliation to income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates:	 	 	 	 	 	
Depreciation and amortization	(143,019	)	 	(135,414	)	 	(129,652	)	
Impairment of assets held for use	(2,429	)	 	—		 	(2,554	)	
General and administrative expense	(35,753	)	 	(33,308	)	 	(37,208	)	
Interest expense	(95,999	)	 	(93,372	)	 	(86,805	)	
Other income	7,363		 	5,655		 	9,549		
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	$	36,893		 	$	41,409		 	$	39,849		
__________

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
19.	Segment Information - Continued	

(1)	Net of discontinued operations.	
		
(2)	Negative NOI with no corresponding revenues represents expensed real estate taxes and other carrying costs associated with land held for development that is currently zoned for the respective product type.	

	
												
 	December 31,	
 	2011	 	2010	 	2009	
Total Assets:	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	359,225		 	$	268,772		 	$	275,464		
Baltimore, MD	1,789		 	1,787		 	1,787		
Greenville, SC	69,669		 	73,931		 	78,567		
Kansas City, MO	86,028		 	84,197		 	85,681		
Memphis, TN	265,259		 	270,091		 	220,722		
Nashville, TN	325,272		 	326,855		 	338,124		
Orlando, FL	46,547		 	47,042		 	48,821		
Piedmont Triad, NC	115,096		 	126,680		 	141,971		
Pittsburgh, PA	227,965		 	—		 	—		
Raleigh, NC	465,813		 	457,945		 	464,729		
Richmond, VA	254,364		 	249,036		 	249,881		
Tampa, FL	394,569		 	395,931		 	393,812		
Total Office Segment	2,611,596		 	2,302,267		 	2,299,559		
Industrial:	 	 	 	 	 	
Atlanta, GA	133,640		 	135,858		 	136,570		
Piedmont Triad, NC	78,081		 	79,321		 	92,300		
Total Industrial Segment	211,721		 	215,179		 	228,870		
Retail:	 	 	 	 	 	
Atlanta, GA	504		 	306		 	1,044		
Kansas City, MO	170,717		 	172,116		 	175,757		
Piedmont Triad, NC	—		 	—		 	1,082		
Raleigh, NC	6,667		 	5,170		 	6,048		
Total Retail Segment	177,888		 	177,592		 	183,931		
Residential:	 	 	 	 	 	
Kansas City, MO	5,707		 	5,925		 	6,129		
Orlando, FL	2,098		 	2,098		 	2,147		
Raleigh, NC	4,768		 	9,574		 	16,291		
Total Residential Segment	12,573		 	17,597		 	24,567		
Corporate	166,106		 	158,036		 	148,811		
Total Assets	$	3,179,884		 	$	2,870,671		 	$	2,885,738		

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
20.	Quarterly Financial Data (Unaudited)	

The following tables set forth quarterly financial information and have been adjusted to reflect discontinued operations:

	
																				
 	Year Ended December 31, 2011	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	114,979		 	$	117,057		 	$	122,086		 	$	128,730		 	$	482,852		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	12,114		 	14,147		 	5,402		 	12,899		 	44,562		
Income from discontinued operations (1)	337		 	291		 	2,842		 	—		 	3,470		
Net income	12,451		 	14,438		 	8,244		 	12,899		 	48,032		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(123	)	 	(182	)	 	(249	)	 	(201	)	 	(755	)	
Distributions on preferred units	(1,677	)	 	(1,622	)	 	(627	)	 	(627	)	 	(4,553	)	
Excess of preferred unit redemption/repurchase over carrying value	—		 	(1,895	)	 	—		 	—		 	(1,895	)	
Net income available for common unitholders	$	10,651		 	$	10,739		 	$	7,368		 	$	12,071		 	$	40,829		
Earnings per unit-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.14		 	$	0.14		 	$	0.06		 	$	0.16		 	$	0.49		
Income from discontinued operations available for common unitholders	—		 	—		 	0.04		 	—		 	0.05		
Net income available for common unitholders	$	0.14		 	$	0.14		 	$	0.10		 	$	0.16		 	$	0.54		
Earnings per unit-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.14		 	$	0.14		 	$	0.06		 	$	0.16		 	$	0.49		
Income from discontinued operations available for common unitholders	—		 	—		 	0.04		 	—		 	0.05		
Net income available for common unitholders	$	0.14		 	$	0.14		 	$	0.10		 	$	0.16		 	$	0.54		

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
20.	Quarterly Financial Data (Unaudited)	

	
																				
 	Year Ended December 31, 2010	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	114,503		 	$	113,765		 	$	115,528		 	$	117,330		 	$	461,126		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	11,451		 	39,794		 	8,516		 	11,122		 	70,883		
Income from discontinued operations (1)	637		 	238		 	272		 	246		 	1,393		
Net income	12,088		 	40,032		 	8,788		 	11,368		 	72,276		
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates	(214	)	 	(215	)	 	148		 	(204	)	 	(485	)	
Distributions on preferred units	(1,677	)	 	(1,677	)	 	(1,677	)	 	(1,677	)	 	(6,708	)	
Net income available for common unitholders	$	10,197		 	$	38,140		 	$	7,259		 	$	9,487		 	$	65,083		
Earnings per unit-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.13		 	$	0.51		 	$	0.10		 	$	0.13		 	$	0.85		
Income from discontinued operations available for common unitholders	0.01		 	—		 	—		 	—		 	0.02		
Net income available for common unitholders	$	0.14		 	$	0.51		 	$	0.10		 	$	0.13		 	$	0.87		
Earnings per unit-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.13		 	$	0.51		 	$	0.10		 	$	0.13		 	$	0.85		
Income from discontinued operations available for common unitholders	0.01		 	—		 	—		 	—		 	0.02		
Net income available for common unitholders	$	0.14		 	$	0.51		 	$	0.10		 	$	0.13		 	$	0.87		
__________

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
20.	Quarterly Financial Data (Unaudited) – Continued	

(1)	The amounts presented may not equal to the amounts previously reported in the most recent Form 10-Qs or prior 10-K for each period as a result of discontinued operations. Below is the reconciliation to the amounts previously reported:	

	
												
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	
 	2011	 	2011	 	2011	
Rental and other revenues, as reported	$	115,592		 	$	117,057		 	$	122,086		
Discontinued operations	(613	)	 	—		 	—		
Rental and other revenues, as adjusted	$	114,979		 	$	117,057		 	$	122,086		
Income from continuing operations, as reported	$	12,451		 	$	14,147		 	$	5,402		
Discontinued operations	(337	)	 	—		 	—		
Income from continuing operations, as adjusted	$	12,114		 	$	14,147		 	$	5,402		
Income from discontinued operations, as reported	$	—		 	$	291		 	$	2,842		
Additional discontinued operations from properties sold subsequent to the respective reporting period	337		 	—		 	—		
Income from discontinued operations, as adjusted	$	337		 	$	291		 	$	2,842		

	
																
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	 	December 31,	
 	2010	 	2010	 	2010	 	2010	
Rental and other revenues, as reported	$	115,054		 	$	113,765		 	$	115,528		 	$	117,865		
Discontinued operations	(551	)	 	—		 	—		 	(535	)	
Rental and other revenues, as adjusted	$	114,503		 	$	113,765		 	$	115,528		 	$	117,330		
Income from continuing operations, as reported	$	11,700		 	$	39,794		 	$	8,516		 	$	11,368		
Discontinued operations	(249	)	 	—		 	—		 	(246	)	
Income from continuing operations, as adjusted	$	11,451		 	$	39,794		 	$	8,516		 	$	11,122		
Income from discontinued operations, as reported	$	388		 	$	238		 	$	272		 	$	—		
Additional discontinued operations from properties sold subsequent to the respective reporting period	249		 	—		 	—		 	246		
Income from discontinued operations, as adjusted	$	637		 	$	238		 	$	272		 	$	246		

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per unit data)

		
21.	Subsequent Events	

On January 2012 , we obtained a $225.0 million , seven -year unsecured bank term loan bearing interest of LIBOR plus 190 basis points . The proceeds were used to pay off amounts then outstanding under our revolving credit facility.

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HIGHWOODS PROPERTIES, INC.
 
HIGHWOODS REALTY LIMITED PARTNERSHIP

SCHEDULE II
 
(in thousands)

The following table sets forth the activity of allowance for doubtful accounts:

	
																
 	Balance at December 31, 2010	 	Additions	 	Deductions	 	Balance at December 31, 2011	
Allowance for Doubtful Accounts - Straight Line Rent	$	2,209		 	$	710		 	$	(1,625	)	 	$	1,294		
Allowance for Doubtful Accounts - Accounts Receivable	3,595		 	1,616		 	(1,663	)	 	3,548		
Allowance for Doubtful Accounts - Notes Receivable	868		 	196		 	(1,003	)	 	61		
Totals	$	6,672		 	$	2,522		 	$	(4,291	)	 	$	4,903		

	
																
 	Balance at December 31, 2009	 	Additions	 	Deductions	 	Balance at December 31, 2010	
Allowance for Doubtful Accounts - Straight Line Rent	$	2,443		 	$	635		 	$	(869	)	 	$	2,209		
Allowance for Doubtful Accounts - Accounts Receivable	2,810		 	2,961		 	(2,176	)	 	3,595		
Allowance for Doubtful Accounts - Notes Receivable	698		 	413		 	(243	)	 	868		
Totals	$	5,951		 	$	4,009		 	$	(3,288	)	 	$	6,672		

	
																
 	Balance at December 31, 2008	 	Additions	 	Deductions	 	Balance at December 31, 2009	
Allowance for Doubtful Accounts - Straight Line Rent	$	2,082		 	$	2,484		 	$	(2,123	)	 	$	2,443		
Allowance for Doubtful Accounts - Accounts Receivable	1,281		 	2,900		 	(1,371	)	 	2,810		
Allowance for Doubtful Accounts - Notes Receivable	459		 	255		 	(16	)	 	698		
Totals	$	3,822		 	$	5,639		 	$	(3,510	)	 	$	5,951		

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HIGHWOODS PROPERTIES, INC.
 
HIGHWOODS REALTY LIMITED PARTNERSHIP

NOTE TO SCHEDULE III
 
(in thousands)

The following table sets forth the activity of real estate assets and accumulated depreciation:

	
												
 	December 31,	
 	2011	 	2010	 	2009	
Real estate assets:	 	 	 	 	 	
Beginning balance	$	3,338,036		 	$	3,341,257		 	$	3,272,904		
Additions:	 	 	 	 	 	
Acquisitions, development and improvements	329,674		 	104,199		 	167,624		
Cost of real estate sold and retired	(48,565	)	 	(107,420	)	 	(99,271	)	
Ending balance (a)	$	3,619,145		 	$	3,338,036		 	$	3,341,257		
Accumulated depreciation:	 	 	 	 	 	
Beginning balance	$	830,153		 	$	782,557		 	$	714,224		
Depreciation expense	120,812		 	117,639		 	115,603		
Real estate sold and retired	(49,665	)	 	(70,043	)	 	(47,270	)	
Ending balance (b)	$	901,300		 	$	830,153		 	$	782,557		

(a)	Reconciliation of total real estate assets to balance sheet caption:	

												
 	2011	 	2010	 	2009	
Total per Schedule III	$	3,619,145		 	$	3,348,888		 	$	3,347,197		
Development in progress exclusive of land included in Schedule III	—		 	4,524		 	—		
Real estate assets, net, held for sale	—		 	(15,376	)	 	(5,940	)	
Total real estate assets	$	3,619,145		 	$	3,338,036		 	$	3,341,257		

(b)	Reconciliation of total accumulated depreciation to balance sheet caption:	

												
 	2011	 	2010	 	2009	
Total per Schedule III	$	901,300		 	$	835,165		 	$	784,041		
Real estate assets, net, held for sale	—		 	(5,012	)	 	(1,484	)	
Total accumulated depreciation	$	901,300		 	$	830,153		 	$	782,557		

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
 
(in thousands)
 
December 31, 2011 

																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Atlanta, GA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1700 Century Circle	 	Office	 	Atlanta	 	 	 	$	—		 	$	2,482		 	$	2		 	$	(8	)	 	$	2		 	$	2,474		 	$	2,476		 	$	510		 	1983	 	 5-40 yrs.	
1800 Century Boulevard	 	Office	 	Atlanta	 	 	 	1,444		 	29,081		 	—		 	12,484		 	1,444		 	41,565		 	43,009		 	16,099		 	1975	 	 5-40 yrs.	
1825 Century Center	 	Office	 	Atlanta	 	 	 	864		 	—		 	303		 	15,280		 	1,167		 	15,280		 	16,447		 	4,625		 	2002	 	 5-40 yrs.	
1875 Century Boulevard	 	Office	 	Atlanta	 	 	 	—		 	8,924		 	—		 	2,114		 	—		 	11,038		 	11,038		 	4,595		 	1976	 	 5-40 yrs.	
1900 Century Boulevard	 	Office	 	Atlanta	 	 	 	—		 	4,744		 	—		 	775		 	—		 	5,519		 	5,519		 	2,225		 	1971	 	 5-40 yrs.	
2200 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	14,432		 	—		 	3,767		 	—		 	18,199		 	18,199		 	7,015		 	1971	 	 5-40 yrs.	
2400 Century Center	 	Office	 	Atlanta	 	 	 	—		 	—		 	406		 	12,642		 	406		 	12,642		 	13,048		 	4,273		 	1998	 	 5-40 yrs.	
2500 Century Center	 	Office	 	Atlanta	 	 	 	—		 	—		 	328		 	14,317		 	328		 	14,317		 	14,645		 	3,353		 	2005	 	 5-40 yrs.	
2500/2635 Parking Garage	 	Office	 	Atlanta	 	 	 	—		 	—		 	—		 	6,242		 	—		 	6,242		 	6,242		 	951		 	2005	 	 5-40 yrs.	
2600 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	10,679		 	—		 	4,114		 	—		 	14,793		 	14,793		 	5,706		 	1973	 	 5-40 yrs.	
2635 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	21,643		 	—		 	4,034		 	—		 	25,677		 	25,677		 	10,261		 	1980	 	 5-40 yrs.	
2800 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	20,449		 	—		 	2,991		 	—		 	23,440		 	23,440		 	8,595		 	1983	 	 5-40 yrs.	
50 Glenlake	 	Office	 	Atlanta	 	(1)	 	2,500		 	20,006		 	—		 	2,153		 	2,500		 	22,159		 	24,659		 	8,039		 	1997	 	 5-40 yrs.	
6348 Northeast Expressway	 	Industrial	 	Atlanta	 	 	 	275		 	1,655		 	—		 	199		 	275		 	1,854		 	2,129		 	734		 	1978	 	 5-40 yrs.	
6438 Northeast Expressway	 	Industrial	 	Atlanta	 	 	 	179		 	2,216		 	—		 	420		 	179		 	2,636		 	2,815		 	986		 	1981	 	 5-40 yrs.	
Bluegrass Lakes I	 	Industrial	 	Atlanta	 	 	 	816		 	—		 	336		 	2,909		 	1,152		 	2,909		 	4,061		 	1,052		 	1999	 	 5-40 yrs.	
Bluegrass Place I	 	Industrial	 	Atlanta	 	 	 	491		 	2,061		 	—		 	344		 	491		 	2,405		 	2,896		 	953		 	1995	 	 5-40 yrs.	
Bluegrass Place II	 	Industrial	 	Atlanta	 	 	 	412		 	2,583		 	—		 	103		 	412		 	2,686		 	3,098		 	954		 	1996	 	 5-40 yrs.	
Bluegrass Valley	 	Industrial	 	Atlanta	 	 	 	1,500		 	—		 	374		 	3,425		 	1,874		 	3,425		 	5,299		 	1,140		 	2000	 	 5-40 yrs.	
Bluegrass Valley Land	 	Industrial	 	Atlanta	 	 	 	19,711		 	—		 	(14,810	)	 	—		 	4,901		 	—		 	4,901		 	—		 	N/A	 	N/A	
Century Plaza I	 	Office	 	Atlanta	 	 	 	1,290		 	8,567		 	—		 	3,441		 	1,290		 	12,008		 	13,298		 	3,968		 	1981	 	 5-40 yrs.	
Century Plaza II	 	Office	 	Atlanta	 	 	 	1,380		 	7,733		 	—		 	1,941		 	1,380		 	9,674		 	11,054		 	2,886		 	1984	 	 5-40 yrs.	
Chastain Place I	 	Industrial	 	Atlanta	 	 	 	451		 	—		 	341		 	3,525		 	792		 	3,525		 	4,317		 	1,026		 	1997	 	 5-40 yrs.	
Chastain Place II	 	Industrial	 	Atlanta	 	 	 	599		 	—		 	194		 	1,505		 	793		 	1,505		 	2,298		 	454		 	1998	 	 5-40 yrs.	
Chastain Place III	 	Industrial	 	Atlanta	 	 	 	539		 	—		 	173		 	1,359		 	712		 	1,359		 	2,071		 	462		 	1999	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Corporate Lakes	 	Industrial	 	Atlanta	 	 	 	1,265		 	7,243		 	—		 	2,067		 	1,265		 	9,310		 	10,575		 	3,112		 	1988	 	 5-40 yrs.	
DHS.ICE	 	Office	 	Atlanta	 	 	 	3,100		 	—		 	2,576		 	15,874		 	5,676		 	15,874		 	21,550		 	2,273		 	2007	 	 5-40 yrs.	
FAA at Tradeport	 	Office	 	Atlanta	 	(2)	 	1,196		 	—		 	1,416		 	15,143		 	2,612		 	15,143		 	17,755		 	1,637		 	2009	 	 5-40 yrs.	
Gwinnett Distribution Center	 	Industrial	 	Atlanta	 	 	 	1,119		 	5,960		 	—		 	2,864		 	1,119		 	8,824		 	9,943		 	2,909		 	1991	 	 5-40 yrs.	
Henry County Land	 	Industrial	 	Atlanta	 	 	 	3,010		 	—		 	13		 	—		 	3,023		 	—		 	3,023		 	—		 	N/A	 	N/A	
Highwoods Center I at Tradeport	 	Office	 	Atlanta	 	(1)	 	307		 	—		 	139		 	2,218		 	446		 	2,218		 	2,664		 	730		 	1999	 	 5-40 yrs.	
Highwoods Center II at Tradeport	 	Office	 	Atlanta	 	(1)	 	641		 	—		 	181		 	8,968		 	822		 	8,968		 	9,790		 	73		 	1999	 	 5-40 yrs.	
Highwoods Center III at Tradeport	 	Office	 	Atlanta	 	(1)	 	409		 	—		 	130		 	2,183		 	539		 	2,183		 	2,722		 	549		 	2001	 	 5-40 yrs.	
Highwoods Riverpoint IV	 	Industrial	 	Atlanta	 	 	 	1,037		 	—		 	858		 	8,799		 	1,895		 	8,799		 	10,694		 	903		 	2009	 	 5-40 yrs.	
National Archives and Records Administration	 	Industrial	 	Atlanta	 	 	 	1,484		 	—		 	—		 	17,833		 	1,484		 	17,833		 	19,317		 	3,543		 	2004	 	 5-40 yrs.	
Newpoint Place I	 	Industrial	 	Atlanta	 	 	 	819		 	—		 	356		 	3,237		 	1,175		 	3,237		 	4,412		 	963		 	1998	 	 5-40 yrs.	
Newpoint Place II	 	Industrial	 	Atlanta	 	 	 	1,499		 	—		 	394		 	3,092		 	1,893		 	3,092		 	4,985		 	1,008		 	1999	 	 5-40 yrs.	
Newpoint Place III	 	Industrial	 	Atlanta	 	 	 	668		 	—		 	253		 	1,870		 	921		 	1,870		 	2,791		 	608		 	1998	 	 5-40 yrs.	
Newpoint Place IV	 	Industrial	 	Atlanta	 	 	 	989		 	—		 	406		 	4,365		 	1,395		 	4,365		 	5,760		 	1,129		 	2001	 	 5-40 yrs.	
Newpoint Place V	 	Industrial	 	Atlanta	 	 	 	2,150		 	—		 	816		 	9,101		 	2,966		 	9,101		 	12,067		 	1,898		 	2007	 	 5-40 yrs.	
Norcross I & II	 	Industrial	 	Atlanta	 	 	 	323		 	2,000		 	—		 	698		 	323		 	2,698		 	3,021		 	1,076		 	1970	 	 5-40 yrs.	
Nortel	 	Office	 	Atlanta	 	 	 	3,342		 	32,111		 	—		 	379		 	3,342		 	32,490		 	35,832		 	11,293		 	1998	 	 5-40 yrs.	
River Point Land	 	Industrial	 	Atlanta	 	 	 	7,250		 	—		 	4,524		 	2,668		 	11,774		 	2,668		 	14,442		 	142		 	N/A	 	N/A	
Riverwood 100	 	Office	 	Atlanta	 	(3)	 	5,785		 	64,913		 	—		 	1,426		 	5,785		 	66,339		 	72,124		 	896		 	1989	 	 5-40 yrs.	
South Park Residential Land	 	Multi-
Family	 	Atlanta	 	 	 	50		 	—		 	7		 	—		 	57		 	—		 	57		 	—		 	N/A	 	N/A	
South Park Site Land	 	Industrial	 	Atlanta	 	 	 	1,204		 	—		 	754		 	—		 	1,958		 	—		 	1,958		 	—		 	N/A	 	N/A	
Southside Distribution Center	 	Industrial	 	Atlanta	 	 	 	804		 	4,553		 	—		 	2,152		 	804		 	6,705		 	7,509		 	2,400		 	1988	 	5-40 yrs.	
Tradeport  I	 	Industrial	 	Atlanta	 	 	 	557		 	—		 	261		 	2,498		 	818		 	2,498		 	3,316		 	963		 	1999	 	5-40 yrs.	
Tradeport II	 	Industrial	 	Atlanta	 	 	 	557		 	—		 	261		 	2,003		 	818		 	2,003		 	2,821		 	691		 	1999	 	5-40 yrs.	
Tradeport III	 	Industrial	 	Atlanta	 	 	 	673		 	—		 	370		 	2,663		 	1,043		 	2,663		 	3,706		 	777		 	1999	 	5-40 yrs.	
Tradeport IV	 	Industrial	 	Atlanta	 	 	 	667		 	—		 	365		 	3,679		 	1,032		 	3,679		 	4,711		 	913		 	2001	 	5-40 yrs.	
Tradeport Land	 	Industrial	 	Atlanta	 	 	 	5,243		 	—		 	(387	)	 	—		 	4,856		 	—		 	4,856		 	—		 	N/A	 	N/A	
Tradeport V	 	Industrial	 	Atlanta	 	 	 	463		 	—		 	180		 	2,116		 	643		 	2,116		 	2,759		 	431		 	2002	 	 5-40 yrs.	
Two Point Royal	 	Office	 	Atlanta	 	(1)	 	1,793		 	14,964		 	—		 	2,536		 	1,793		 	17,500		 	19,293		 	6,087		 	1997	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Baltimore, MD	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sportsman Club Land	 	Office	 	Baltimore	 	 	 	24,931		 	—		 	(23,147	)	 	—		 	1,784		 	—		 	1,784		 	—		 	N/A	 	N/A	
Greenville, SC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Brookfield Plaza	 	Office	 	Greenville	 	 	 	1,500		 	8,514		 	—		 	2,870		 	1,500		 	11,384		 	12,884		 	4,561		 	1987	 	5-40 yrs.	
Brookfield-Jacobs-Sirrine	 	Office	 	Greenville	 	 	 	3,050		 	17,280		 	(23	)	 	4,580		 	3,027		 	21,860		 	24,887		 	8,997		 	1990	 	5-40 yrs.	
MetLife @ Brookfield	 	Office	 	Greenville	 	 	 	1,039		 	—		 	352		 	7,863		 	1,391		 	7,863		 	9,254		 	1,902		 	2001	 	5-40 yrs.	
Patewood I	 	Office	 	Greenville	 	 	 	942		 	5,117		 	—		 	1,164		 	942		 	6,281		 	7,223		 	2,793		 	1985	 	5-40 yrs.	
Patewood II	 	Office	 	Greenville	 	 	 	942		 	5,176		 	—		 	989		 	942		 	6,165		 	7,107		 	2,623		 	1987	 	5-40 yrs.	
Patewood III	 	Office	 	Greenville	 	 	 	842		 	4,776		 	—		 	472		 	842		 	5,248		 	6,090		 	1,995		 	1989	 	5-40 yrs.	
Patewood IV	 	Office	 	Greenville	 	 	 	1,219		 	6,918		 	—		 	2,215		 	1,219		 	9,133		 	10,352		 	4,477		 	1989	 	5-40 yrs.	
Patewood V	 	Office	 	Greenville	 	 	 	1,690		 	9,589		 	—		 	2,133		 	1,690		 	11,722		 	13,412		 	5,173		 	1990	 	5-40 yrs.	
Patewood VI	 	Office	 	Greenville	 	 	 	2,360		 	—		 	321		 	7,760		 	2,681		 	7,760		 	10,441		 	2,749		 	1999	 	5-40 yrs.	
Kansas City, MO	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Country Club Plaza	 	Mixed-
Use	 	Kansas
City	 	 	 	14,286		 	146,879		 	(198	)	 	121,202		 	14,088		 	268,081		 	282,169		 	90,289		 	1920-2002	 	 5-40 yrs.	
Land - Hotel Land - Valencia	 	Office	 	Kansas
City	 	 	 	978		 	—		 	111		 	—		 	1,089		 	—		 	1,089		 	—		 	N/A	 	N/A	
Neptune Apartments	 	Multi-
Family	 	Kansas
City	 	 	 	1,098		 	6,282		 	—		 	665		 	1,098		 	6,947		 	8,045		 	2,339		 	1988	 	 5-40 yrs.	
One Ward Parkway	 	Office	 	Kansas
City	 	 	 	681		 	3,937		 	—		 	1,643		 	681		 	5,580		 	6,261		 	1,942		 	1980	 	 5-40 yrs.	
Park Plaza	 	Office	 	Kansas
City	 	(3)	 	1,384		 	6,410		 	—		 	1,355		 	1,384		 	7,765		 	9,149		 	2,510		 	1983	 	 5-40 yrs.	
Two Brush Creek	 	Office	 	Kansas
City	 	 	 	984		 	4,402		 	—		 	1,263		 	984		 	5,665		 	6,649		 	1,879		 	1983	 	 5-40 yrs.	
Valencia Place Office	 	Office	 	Kansas
City	 	(3)	 	1,576		 	—		 	970		 	33,822		 	2,546		 	33,822		 	36,368		 	12,002		 	1999	 	 5-40 yrs.	
Memphis, TN	 	 	 	 	 	 	 	 	 	 	 	—		 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3400 Players Club Parkway	 	Office	 	Memphis	 	 	 	1,005		 	—		 	207		 	5,353		 	1,212		 	5,353		 	6,565		 	2,063		 	1997	 	5-40 yrs.	
6000 Poplar Ave	 	Office	 	Memphis	 	 	 	2,340		 	11,385		 	(849	)	 	4,488		 	1,491		 	15,873		 	17,364		 	4,608		 	1985	 	5-40 yrs.	
6060 Poplar Ave	 	Office	 	Memphis	 	 	 	1,980		 	8,677		 	(404	)	 	3,206		 	1,576		 	11,883		 	13,459		 	3,400		 	1987	 	5-40 yrs.	
Atrium I & II	 	Office	 	Memphis	 	 	 	1,570		 	6,253		 	—		 	2,257		 	1,570		 	8,510		 	10,080		 	3,242		 	1984	 	5-40 yrs.	
Centrum	 	Office	 	Memphis	 	 	 	1,013		 	5,580		 	—		 	2,454		 	1,013		 	8,034		 	9,047		 	2,772		 	1979	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Comcast Corporation	 	Office	 	Memphis	 	 	 	946		 	—		 	—		 	8,621		 	946		 	8,621		 	9,567		 	1,395		 	2008	 	5-40 yrs.	
International Place II	 	Office	 	Memphis	 	(4)	 	4,884		 	27,782		 	—		 	4,220		 	4,884		 	32,002		 	36,886		 	12,653		 	1988	 	5-40 yrs.	
Penn Marc	 	Office	 	Memphis	 	7,376	 	3,607		 	10,240		 	—		 	1,457		 	3,607		 	11,697		 	15,304		 	1,451		 	2008	 	5-40 yrs.	
Shadow Creek I	 	Office	 	Memphis	 	 	 	924		 	—		 	466		 	6,797		 	1,390		 	6,797		 	8,187		 	2,086		 	2000	 	5-40 yrs.	
Shadow Creek II	 	Office	 	Memphis	 	 	 	734		 	—		 	467		 	7,094		 	1,201		 	7,094		 	8,295		 	1,801		 	2001	 	5-40 yrs.	
Southwind Office Center A	 	Office	 	Memphis	 	 	 	1,004		 	5,694		 	282		 	1,347		 	1,286		 	7,041		 	8,327		 	2,663		 	1991	 	5-40 yrs.	
Southwind Office Center B	 	Office	 	Memphis	 	 	 	1,366		 	7,754		 	—		 	901		 	1,366		 	8,655		 	10,021		 	3,312		 	1990	 	5-40 yrs.	
Southwind Office Center C	 	Office	 	Memphis	 	 	 	1,070		 	—		 	221		 	5,088		 	1,291		 	5,088		 	6,379		 	1,643		 	1998	 	5-40 yrs.	
Southwind Office Center D	 	Office	 	Memphis	 	 	 	744		 	—		 	193		 	4,914		 	937		 	4,914		 	5,851		 	1,491		 	1999	 	5-40 yrs.	
The Colonnade	 	Office	 	Memphis	 	 	 	1,300		 	6,481		 	267		 	254		 	1,567		 	6,735		 	8,302		 	2,343		 	1998	 	5-40 yrs.	
ThyssenKrupp	 	Office	 	Memphis	 	 	 	1,040		 	—		 	25		 	8,342		 	1,065		 	8,342		 	9,407		 	1,832		 	2007	 	5-40 yrs.	
FBI Jackson	 	Office	 	Memphis	 	(2)	 	871		 	—		 	296		 	36,372		 	1,167		 	36,372		 	37,539		 	2,522		 	2007	 	5-40 yrs.	
Crescent Center	 	Office	 	Memphis	 	40,015	 	7,875		 	32,756		 	—		 	2,424		 	7,875		 	35,180		 	43,055		 	1,813		 	1986	 	5-40 yrs.	
Triad Center	 	Office	 	Memphis	 	 	 	1,253		 	—		 	—		 	33,671		 	1,253		 	33,671		 	34,924		 	1,715		 	2009	 	5-40 yrs.	
Nashville, TN	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3322 West End	 	Office	 	Nashville	 	 	 	3,025		 	27,490		 	—		 	3,527		 	3,025		 	31,017		 	34,042		 	9,876		 	1986	 	 5-40 yrs.	
3401 West End	 	Office	 	Nashville	 	 	 	5,862		 	22,917		 	—		 	5,247		 	5,862		 	28,164		 	34,026		 	11,653		 	1982	 	 5-40 yrs.	
5310 Maryland Way	 	Office	 	Nashville	 	 	 	1,863		 	7,201		 	—		 	225		 	1,863		 	7,426		 	9,289		 	2,916		 	1994	 	 5-40 yrs.	
BNA Corporate Center	 	Office	 	Nashville	 	 	 	—		 	18,506		 	—		 	8,287		 	—		 	26,793		 	26,793		 	10,526		 	1985	 	 5-40 yrs.	
Century City Plaza I	 	Office	 	Nashville	 	 	 	903		 	6,919		 	—		 	(2,407	)	 	903		 	4,512		 	5,415		 	1,864		 	1987	 	 5-40 yrs.	
Cool Springs 1 & 2 Deck	 	Office	 	Nashville	 	(5)	 	—		 	—		 	—		 	3,958		 	—		 	3,958		 	3,958		 	413		 	2007	 	 5-40 yrs.	
Cool Springs 3 &4 Deck	 	Office	 	Nashville	 	(3)	 	—		 	—		 	—		 	4,418		 	—		 	4,418		 	4,418		 	525		 	2007	 	 5-40 yrs.	
Cool Springs I	 	Office	 	Nashville	 	(5)	 	1,583		 	—		 	15		 	12,429		 	1,598		 	12,429		 	14,027		 	4,019		 	1999	 	 5-40 yrs.	
Cool Springs II	 	Office	 	Nashville	 	(5)	 	1,824		 	—		 	346		 	18,677		 	2,170		 	18,677		 	20,847		 	5,377		 	1999	 	 5-40 yrs.	
Cool Springs III	 	Office	 	Nashville	 	(5)	 	1,631		 	—		 	804		 	17,857		 	2,435		 	17,857		 	20,292		 	4,252		 	2006	 	 5-40 yrs.	
Cool Springs IV	 	Office	 	Nashville	 	(3)	 	1,715		 	—		 	—		 	21,299		 	1,715		 	21,299		 	23,014		 	2,432		 	2008	 	 5-40 yrs.	
Cool Springs V	 	Office	 	Nashville	 	 	 	3,688		 	—		 	295		 	52,486		 	3,983		 	52,486		 	56,469		 	6,848		 	2007	 	 5-40 yrs.	
Harpeth on the Green II	 	Office	 	Nashville	 	(1)	 	1,419		 	5,677		 	—		 	1,293		 	1,419		 	6,970		 	8,389		 	2,758		 	1984	 	 5-40 yrs.	
Harpeth on the Green III	 	Office	 	Nashville	 	(1)	 	1,660		 	6,649		 	—		 	1,924		 	1,660		 	8,573		 	10,233		 	3,245		 	1987	 	 5-40 yrs.	
Harpeth on the Green IV	 	Office	 	Nashville	 	(1)	 	1,713		 	6,842		 	—		 	1,475		 	1,713		 	8,317		 	10,030		 	3,104		 	1989	 	 5-40 yrs.	
Harpeth on The Green V	 	Office	 	Nashville	 	(1)	 	662		 	—		 	197		 	4,261		 	859		 	4,261		 	5,120		 	1,505		 	1998	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Hickory Trace	 	Office	 	Nashville	 	(4)	 	1,164		 	—		 	164		 	5,009		 	1,328		 	5,009		 	6,337		 	1,381		 	2001	 	5-40 yrs.	
Highwoods Plaza I	 	Office	 	Nashville	 	(1)	 	1,552		 	—		 	307		 	8,355		 	1,859		 	8,355		 	10,214		 	3,452		 	1996	 	 5-40 yrs.	
Highwoods Plaza II	 	Office	 	Nashville	 	(1)	 	1,448		 	—		 	307		 	5,825		 	1,755		 	5,825		 	7,580		 	2,072		 	1997	 	 5-40 yrs.	
Lakeview Ridge II	 	Office	 	Nashville	 	(1)	 	605		 	—		 	187		 	4,254		 	792		 	4,254		 	5,046		 	1,475		 	1998	 	 5-40 yrs.	
Lakeview Ridge III	 	Office	 	Nashville	 	(1)	 	1,073		 	—		 	400		 	8,537		 	1,473		 	8,537		 	10,010		 	2,587		 	1999	 	 5-40 yrs.	
Seven Springs - Land I	 	Office	 	Nashville	 	 	 	3,122		 	—		 	1,399		 	—		 	4,521		 	—		 	4,521		 	—		 	N/A	 	N/A	
Seven Springs - Land  II	 	Office	 	Nashville	 	 	 	3,715		 	—		 	(1,025	)	 	—		 	2,690		 	—		 	2,690		 	—		 	N/A	 	N/A	
Seven Springs I	 	Office	 	Nashville	 	 	 	2,076		 	—		 	592		 	12,898		 	2,668		 	12,898		 	15,566		 	4,288		 	2002	 	 5-40 yrs.	
SouthPointe	 	Office	 	Nashville	 	 	 	1,655		 	—		 	310		 	6,717		 	1,965		 	6,717		 	8,682		 	2,209		 	1998	 	 5-40 yrs.	
Southwind Land	 	Office	 	Nashville	 	 	 	3,662		 	—		 	(1,477	)	 	—		 	2,185		 	—		 	2,185		 	—		 	N/A	 	N/A	
The Ramparts at Brentwood	 	Office	 	Nashville	 	 	 	2,394		 	12,806		 	—		 	2,145		 	2,394		 	14,951		 	17,345		 	4,434		 	1986	 	 5-40 yrs.	
Westwood South	 	Office	 	Nashville	 	(1)	 	2,106		 	—		 	382		 	8,950		 	2,488		 	8,950		 	11,438		 	2,640		 	1999	 	 5-40 yrs.	
Winners Circle	 	Office	 	Nashville	 	(1)	 	1,497		 	7,258		 	—		 	1,306		 	1,497		 	8,564		 	10,061		 	2,841		 	1987	 	 5-40 yrs.	
Orlando, FL	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Berkshire at Metro Center	 	Office	 	Orlando	 	 	 	1,265		 	—		 	672		 	12,802		 	1,937		 	12,802		 	14,739		 	2,400		 	2007	 	 5-40 yrs.	
Capital Plaza III	 	Office	 	Orlando	 	 	 	2,994		 	—		 	18		 	—		 	3,012		 	—		 	3,012		 	—		 	N/A	 	 N/A	
Eola Park Land	 	Office	 	Orlando	 	 	 	2,027		 	—		 	—		 	—		 	2,027		 	—		 	2,027		 	—		 	N/A	 	 N/A	
In Charge Institute	 	Office	 	Orlando	 	 	 	501		 	—		 	14		 	3,339		 	515		 	3,339		 	3,854		 	576		 	2000	 	 5-40 yrs.	
MetroWest 1 Land	 	Office	 	Orlando	 	 	 	1,100		 	—		 	51		 	—		 	1,151		 	—		 	1,151		 	—		 	N/A	 	 N/A	
Metrowest Center	 	Office	 	Orlando	 	 	 	1,354		 	7,687		 	(164	)	 	490		 	1,190		 	8,177		 	9,367		 	3,441		 	1988	 	 5-40 yrs.	
MetroWest Land	 	Office	 	Orlando	 	 	 	2,034		 	—		 	(148	)	 	—		 	1,886		 	—		 	1,886		 	—		 	N/A	 	 N/A	
Windsor at Metro Center	 	Office	 	Orlando	 	 	 	—		 	—		 	2,060		 	8,055		 	2,060		 	8,055		 	10,115		 	1,747		 	2002	 	 5-40 yrs.	
Piedmont Triad, NC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
101 Stratford	 	Office	 	Piedmont
Triad	 	 	 	1,205		 	6,916		 	—		 	1,548		 	1,205		 	8,464		 	9,669		 	3,297		 	1986	 	 5-40 yrs.	
150 Stratford	 	Office	 	Piedmont
Triad	 	 	 	2,788		 	11,511		 	(2,788	)	 	(11,511	)	 	—		 	—		 	—		 	—		 	1991	 	 5-40 yrs.	
160 Stratford - Land	 	Office	 	Piedmont
Triad	 	 	 	967		 	—		 	(967	)	 	—		 	—		 	—		 	—		 	—		 	N/A	 	N/A	
6348 Burnt Poplar	 	Industrial	 	Piedmont
Triad	 	 	 	724		 	2,900		 	—		 	415		 	724		 	3,315		 	4,039		 	1,542		 	1990	 	 5-40 yrs.	
6350 Burnt Poplar	 	Industrial	 	Piedmont
Triad	 	 	 	341		 	1,374		 	—		 	249		 	341		 	1,623		 	1,964		 	657		 	1992	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
7341 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	113		 	841		 	—		 	364		 	113		 	1,205		 	1,318		 	475		 	1988	 	 5-40 yrs.	
7343 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	72		 	555		 	—		 	298		 	72		 	853		 	925		 	298		 	1988	 	 5-40 yrs.	
7345 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	66		 	492		 	—		 	214		 	66		 	706		 	772		 	263		 	1988	 	 5-40 yrs.	
7347 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	97		 	719		 	—		 	256		 	97		 	975		 	1,072		 	365		 	1988	 	 5-40 yrs.	
7349 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	53		 	393		 	—		 	133		 	53		 	526		 	579		 	183		 	1988	 	 5-40 yrs.	
7351 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	106		 	788		 	—		 	158		 	106		 	946		 	1,052		 	370		 	1988	 	 5-40 yrs.	
7353 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	123		 	912		 	—		 	135		 	123		 	1,047		 	1,170		 	397		 	1988	 	 5-40 yrs.	
7355 West Friendly Avenue	 	Industrial	 	Piedmont
Triad	 	 	 	72		 	538		 	—		 	128		 	72		 	666		 	738		 	249		 	1988	 	 5-40 yrs.	
Airpark East-Building 1	 	Office	 	Piedmont
Triad	 	 	 	379		 	1,516		 	—		 	580		 	379		 	2,096		 	2,475		 	835		 	1990	 	 5-40 yrs.	
Airpark East-Building 2	 	Office	 	Piedmont
Triad	 	 	 	462		 	1,849		 	—		 	409		 	462		 	2,258		 	2,720		 	878		 	1986	 	 5-40 yrs.	
Airpark East-Building 3	 	Office	 	Piedmont
Triad	 	 	 	322		 	1,293		 	—		 	492		 	322		 	1,785		 	2,107		 	691		 	1986	 	 5-40 yrs.	
Airpark East-Building A	 	Office	 	Piedmont
Triad	 	 	 	510		 	2,921		 	—		 	1,644		 	510		 	4,565		 	5,075		 	1,781		 	1986	 	 5-40 yrs.	
Airpark East-Building B	 	Office	 	Piedmont
Triad	 	 	 	739		 	3,237		 	—		 	908		 	739		 	4,145		 	4,884		 	1,916		 	1988	 	 5-40 yrs.	
Airpark East-Building C	 	Office	 	Piedmont
Triad	 	(4)	 	2,393		 	9,576		 	—		 	2,582		 	2,393		 	12,158		 	14,551		 	4,987		 	1990	 	 5-40 yrs.	
Airpark East-Building D	 	Office	 	Piedmont
Triad	 	(4)	 	850		 	—		 	699		 	3,898		 	1,549		 	3,898		 	5,447		 	1,356		 	1997	 	 5-40 yrs.	
Airpark East-Copier Consultants	 	Industrial	 	Piedmont
Triad	 	 	 	224		 	1,068		 	—		 	301		 	224		 	1,369		 	1,593		 	669		 	1990	 	 5-40 yrs.	
Airpark East-HewlettPackard	 	Office	 	Piedmont
Triad	 	 	 	465		 	—		 	380		 	1,051		 	845		 	1,051		 	1,896		 	411		 	1996	 	 5-40 yrs.	
Airpark East-Highland	 	Industrial	 	Piedmont
Triad	 	 	 	145		 	1,081		 	—		 	353		 	145		 	1,434		 	1,579		 	540		 	1990	 	 5-40 yrs.	
Airpark East-Inacom Building	 	Office	 	Piedmont
Triad	 	 	 	265		 	—		 	270		 	977		 	535		 	977		 	1,512		 	329		 	1996	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Airpark East-Service Center 1	 	Industrial	 	Piedmont
Triad	 	 	 	237		 	1,103		 	—		 	186		 	237		 	1,289		 	1,526		 	515		 	1985	 	 5-40 yrs.	
Airpark East-Service Center 2	 	Industrial	 	Piedmont
Triad	 	 	 	192		 	946		 	—		 	340		 	192		 	1,286		 	1,478		 	566		 	1985	 	 5-40 yrs.	
Airpark East-Service Center 3	 	Industrial	 	Piedmont
Triad	 	 	 	305		 	1,219		 	—		 	375		 	305		 	1,594		 	1,899		 	602		 	1985	 	 5-40 yrs.	
Airpark East-Service Center 4	 	Industrial	 	Piedmont
Triad	 	 	 	225		 	928		 	—		 	85		 	225		 	1,013		 	1,238		 	426		 	1985	 	 5-40 yrs.	
Airpark East-Service Court	 	Industrial	 	Piedmont
Triad	 	 	 	171		 	777		 	—		 	213		 	171		 	990		 	1,161		 	389		 	1990	 	 5-40 yrs.	
Airpark East-Simplex	 	Office	 	Piedmont
Triad	 	 	 	271		 	—		 	239		 	999		 	510		 	999		 	1,509		 	420		 	1997	 	 5-40 yrs.	
Airpark East-Warehouse 1	 	Industrial	 	Piedmont
Triad	 	 	 	356		 	1,613		 	—		 	196		 	356		 	1,809		 	2,165		 	777		 	1985	 	 5-40 yrs.	
Airpark East-Warehouse 2	 	Industrial	 	Piedmont
Triad	 	 	 	374		 	1,523		 	—		 	393		 	374		 	1,916		 	2,290		 	765		 	1985	 	 5-40 yrs.	
Airpark East-Warehouse 3	 	Industrial	 	Piedmont
Triad	 	 	 	341		 	1,486		 	—		 	582		 	341		 	2,068		 	2,409		 	940		 	1986	 	 5-40 yrs.	
Airpark East-Warehouse 4	 	Industrial	 	Piedmont
Triad	 	 	 	659		 	2,676		 	—		 	637		 	659		 	3,313		 	3,972		 	1,314		 	1988	 	 5-40 yrs.	
Airpark North - DC1	 	Industrial	 	Piedmont
Triad	 	 	 	860		 	2,919		 	—		 	576		 	860		 	3,495		 	4,355		 	1,431		 	1986	 	 5-40 yrs.	
Airpark North - DC2	 	Industrial	 	Piedmont
Triad	 	 	 	1,302		 	4,392		 	—		 	707		 	1,302		 	5,099		 	6,401		 	2,335		 	1987	 	 5-40 yrs.	
Airpark North - DC3	 	Industrial	 	Piedmont
Triad	 	 	 	450		 	1,517		 	—		 	795		 	450		 	2,312		 	2,762		 	908		 	1988	 	 5-40 yrs.	
Airpark North - DC4	 	Industrial	 	Piedmont
Triad	 	 	 	452		 	1,514		 	—		 	147		 	452		 	1,661		 	2,113		 	730		 	1988	 	 5-40 yrs.	
Airpark South Warehouse 1	 	Industrial	 	Piedmont
Triad	 	 	 	546		 	—		 	—		 	2,591		 	546		 	2,591		 	3,137		 	1,034		 	1998	 	 5-40 yrs.	
Airpark South Warehouse 2	 	Industrial	 	Piedmont
Triad	 	 	 	749		 	—		 	—		 	2,509		 	749		 	2,509		 	3,258		 	790		 	1999	 	 5-40 yrs.	
Airpark South Warehouse 3	 	Industrial	 	Piedmont
Triad	 	 	 	603		 	—		 	—		 	2,273		 	603		 	2,273		 	2,876		 	672		 	1999	 	 5-40 yrs.	
Airpark South Warehouse 4	 	Industrial	 	Piedmont
Triad	 	 	 	499		 	—		 	—		 	2,162		 	499		 	2,162		 	2,661		 	650		 	1999	 	 5-40 yrs.	
Airpark South Warehouse 6	 	Industrial	 	Piedmont
Triad	 	 	 	1,733		 	—		 	—		 	5,570		 	1,733		 	5,570		 	7,303		 	2,507		 	1999	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Airpark West 1	 	Office	 	Piedmont
Triad	 	 	 	944		 	3,831		 	—		 	995		 	944		 	4,826		 	5,770		 	2,006		 	1984	 	 5-40 yrs.	
Airpark West 2	 	Office	 	Piedmont
Triad	 	 	 	887		 	3,550		 	—		 	516		 	887		 	4,066		 	4,953		 	1,699		 	1985	 	 5-40 yrs.	
Airpark West 4	 	Office	 	Piedmont
Triad	 	 	 	227		 	907		 	—		 	420		 	227		 	1,327		 	1,554		 	589		 	1985	 	 5-40 yrs.	
Airpark West 5	 	Office	 	Piedmont
Triad	 	 	 	243		 	971		 	—		 	441		 	243		 	1,412		 	1,655		 	531		 	1985	 	 5-40 yrs.	
Airpark West 6	 	Office	 	Piedmont
Triad	 	 	 	327		 	1,309		 	—		 	814		 	327		 	2,123		 	2,450		 	847		 	1985	 	 5-40 yrs.	
Brigham Road - Land	 	Industrial	 	Piedmont
Triad	 	 	 	7,059		 	—		 	(3,720	)	 	—		 	3,339		 	—		 	3,339		 	—		 	N/A	 	N/A	
Consolidated Center/ Building I	 	Office	 	Piedmont
Triad	 	 	 	625		 	2,183		 	(235	)	 	306		 	390		 	2,489		 	2,879		 	1,285		 	1983	 	 5-40 yrs.	
Consolidated Center/ Building II	 	Office	 	Piedmont
Triad	 	 	 	625		 	4,435		 	(203	)	 	(1,083	)	 	422		 	3,352		 	3,774		 	1,635		 	1983	 	 5-40 yrs.	
Consolidated Center/ Building III	 	Office	 	Piedmont
Triad	 	 	 	680		 	3,572		 	(217	)	 	(963	)	 	463		 	2,609		 	3,072		 	1,253		 	1989	 	 5-40 yrs.	
Consolidated Center/ Building IV	 	Office	 	Piedmont
Triad	 	 	 	376		 	1,655		 	(123	)	 	(359	)	 	253		 	1,296		 	1,549		 	647		 	1989	 	 5-40 yrs.	
Deep River Corporate Center	 	Office	 	Piedmont
Triad	 	 	 	1,041		 	5,892		 	—		 	1,230		 	1,041		 	7,122		 	8,163		 	2,511		 	1989	 	 5-40 yrs.	
Enterprise Warehouse I	 	Industrial	 	Piedmont
Triad	 	 	 	453		 	—		 	360		 	2,896		 	813		 	2,896		 	3,709		 	793		 	2002	 	 5-40 yrs.	
Enterprise Warehouse II	 	Industrial	 	Piedmont
Triad	 	 	 	2,733		 	—		 	881		 	12,431		 	3,614		 	12,431		 	16,045		 	2,636		 	2006	 	 5-40 yrs.	
Enterprise Warehouse III	 	Industrial	 	Piedmont
Triad	 	 	 	814		 	—		 	—		 	3,589		 	814		 	3,589		 	4,403		 	365		 	2007	 	 5-40 yrs.	
Forsyth Corporate Center	 	Office	 	Piedmont
Triad	 	 	 	329		 	1,867		 	—		 	1,030		 	329		 	2,897		 	3,226		 	1,417		 	1985	 	 5-40 yrs.	
Highwoods Park Building I	 	Office	 	Piedmont
Triad	 	 	 	1,476		 	—		 	—		 	8,052		 	1,476		 	8,052		 	9,528		 	2,205		 	2001	 	 5-40 yrs.	
Jefferson Pilot Land	 	Office	 	Piedmont
Triad	 	 	 	11,759		 	—		 	(4,311	)	 	—		 	7,448		 	—		 	7,448		 	—		 	N/A	 	 N/A	
Regency One-Piedmont Center	 	Industrial	 	Piedmont
Triad	 	 	 	515		 	—		 	383		 	2,352		 	898		 	2,352		 	3,250		 	896		 	1996	 	 5-40 yrs.	
Regency Two-Piedmont Center	 	Industrial	 	Piedmont
Triad	 	 	 	435		 	—		 	288		 	2,160		 	723		 	2,160		 	2,883		 	764		 	1996	 	 5-40 yrs.	

156

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
7023 Albert Pick	 	Office	 	Piedmont
Triad	 	(1)	 	834		 	3,459		 	—		 	441		 	834		 	3,900		 	4,734		 	1,627		 	1989	 	 5-40 yrs.	
The Knollwood -380 Retail	 	Office	 	Piedmont
Triad	 	 	 	—		 	1		 	—		 	193		 	—		 	194		 	194		 	110		 	1995	 	 5-40 yrs.	
The Knollwood-370	 	Office	 	Piedmont
Triad	 	 	 	1,826		 	7,495		 	—		 	862		 	1,826		 	8,357		 	10,183		 	3,427		 	1994	 	 5-40 yrs.	
The Knollwood-380	 	Office	 	Piedmont
Triad	 	 	 	2,989		 	12,028		 	—		 	3,090		 	2,989		 	15,118		 	18,107		 	6,347		 	1990	 	 5-40 yrs.	
US Airways	 	Office	 	Piedmont
Triad	 	 	 	1,450		 	11,375		 	—		 	1,005		 	1,450		 	12,380		 	13,830		 	4,510		 	1970-1987	 	 5-40 yrs.	
Westpoint Business Park-Luwabahnson	 	Office	 	Piedmont
Triad	 	 	 	347		 	1,389		 	—		 	97		 	347		 	1,486		 	1,833		 	612		 	1990	 	 5-40 yrs.	
Pittsburgh, PA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PPG I	 	Office	 	Pittsburgh	 	(6)	 	9,819		 	107,643		 	—		 	2,810		 	9,819		 	110,453		 	120,272		 	1,340		 	1983-1985	 	 5-40 yrs.	
PPG II-Office	 	Office	 	Pittsburgh	 	(6)	 	2,302		 	10,863		 	—		 	9		 	2,302		 	10,872		 	13,174		 	129		 	1983-1985	 	 5-40 yrs.	
PPG II-Retail	 	Retail	 	Pittsburgh	 	(6)	 	—		 	115		 	—		 	34		 	—		 	149		 	149		 	10		 	1983-1985	 	 5-40 yrs.	
PPG III	 	Office	 	Pittsburgh	 	(6)	 	501		 	2,923		 	—		 	62		 	501		 	2,985		 	3,486		 	37		 	1983-1985	 	 5-40 yrs.	
PPG IV	 	Office	 	Pittsburgh	 	(6)	 	620		 	3,239		 	—		 	14		 	620		 	3,253		 	3,873		 	73		 	1983-1985	 	 5-40 yrs.	
PPG V	 	Office	 	Pittsburgh	 	(6)	 	803		 	4,924		 	—		 	441		 	803		 	5,365		 	6,168		 	73		 	1983-1985	 	 5-40 yrs.	
PPG VI	 	Office	 	Pittsburgh	 	(6)	 	3,353		 	25,602		 	—		 	411		 	3,353		 	26,013		 	29,366		 	359		 	1983-1985	 	 5-40 yrs.	
Raleigh, NC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3600 Glenwood Avenue	 	Office	 	Raleigh	 	 	 	—		 	10,994		 	—		 	4,247		 	—		 	15,241		 	15,241		 	4,711		 	1986	 	 5-40 yrs.	
3737 Glenwood Avenue	 	Office	 	Raleigh	 	 	 	—		 	—		 	318		 	14,637		 	318		 	14,637		 	14,955		 	4,227		 	1999	 	 5-40 yrs.	
4101 Research Commons	 	Office	 	Raleigh	 	 	 	1,348		 	8,346		 	220		 	(1,141	)	 	1,568		 	7,205		 	8,773		 	2,718		 	1999	 	 5-40 yrs.	
4201 Research Commons	 	Office	 	Raleigh	 	 	 	1,204		 	11,858		 	—		 	(2,586	)	 	1,204		 	9,272		 	10,476		 	3,688		 	1991	 	 5-40 yrs.	
4301 Research Commons	 	Office	 	Raleigh	 	 	 	900		 	8,237		 	—		 	534		 	900		 	8,771		 	9,671		 	3,606		 	1989	 	 5-40 yrs.	
4401 Research Commons	 	Office	 	Raleigh	 	 	 	1,249		 	9,387		 	—		 	2,005		 	1,249		 	11,392		 	12,641		 	4,618		 	1987	 	 5-40 yrs.	
4501 Research Commons	 	Office	 	Raleigh	 	 	 	785		 	5,856		 	—		 	1,791		 	785		 	7,647		 	8,432		 	3,449		 	1985	 	 5-40 yrs.	
4800 North Park	 	Office	 	Raleigh	 	 	 	2,678		 	17,630		 	—		 	9,204		 	2,678		 	26,834		 	29,512		 	11,811		 	1985	 	 5-40 yrs.	
4900 North Park	 	Office	 	Raleigh	 	249	 	770		 	1,983		 	—		 	805		 	770		 	2,788		 	3,558		 	1,263		 	1984	 	 5-40 yrs.	
5000 North Park	 	Office	 	Raleigh	 	 	 	1,010		 	4,612		 	(49	)	 	2,530		 	961		 	7,142		 	8,103		 	3,592		 	1980	 	 5-40 yrs.	
801 Corporate Center	 	Office	 	Raleigh	 	(5)	 	828		 	—		 	272		 	10,223		 	1,100		 	10,223		 	11,323		 	3,063		 	2002	 	 5-40 yrs.	
Blue Ridge I	 	Office	 	Raleigh	 	(1)	 	722		 	4,606		 	—		 	1,449		 	722		 	6,055		 	6,777		 	2,994		 	1982	 	 5-40 yrs.	

157

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Blue Ridge II	 	Office	 	Raleigh	 	(1)	 	462		 	1,410		 	—		 	438		 	462		 	1,848		 	2,310		 	1,020		 	1988	 	 5-40 yrs.	
Cape Fear	 	Office	 	Raleigh	 	 	 	131		 	1,630		 	—		 	772		 	131		 	2,402		 	2,533		 	2,149		 	1979	 	 5-40 yrs.	
Catawba	 	Office	 	Raleigh	 	 	 	125		 	1,635		 	—		 	2,390		 	125		 	4,025		 	4,150		 	2,724		 	1980	 	 5-40 yrs.	
CentreGreen One - Weston	 	Office	 	Raleigh	 	(4)	 	1,529		 	—		 	(378	)	 	8,585		 	1,151		 	8,585		 	9,736		 	2,346		 	2000	 	 5-40 yrs.	
CentreGreen Two - Weston	 	Office	 	Raleigh	 	(4)	 	1,653		 	—		 	(389	)	 	8,673		 	1,264		 	8,673		 	9,937		 	2,340		 	2001	 	 5-40 yrs.	
CentreGreen Three Land - Weston	 	Office	 	Raleigh	 	 	 	1,876		 	—		 	(384	)	 	—		 	1,492		 	—		 	1,492		 	—		 	N/A	 	N/A	
CentreGreen Four	 	Office	 	Raleigh	 	(4)	 	1,779		 	—		 	(397	)	 	11,094		 	1,382		 	11,094		 	12,476		 	3,491		 	2002	 	 5-40 yrs.	
CentreGreen Five	 	Office	 	Raleigh	 	 	 	1,280		 	—		 	69		 	12,756		 	1,349		 	12,756		 	14,105		 	1,826		 	2008	 	 5-40 yrs.	
Cottonwood	 	Office	 	Raleigh	 	 	 	609		 	3,244		 	—		 	434		 	609		 	3,678		 	4,287		 	1,619		 	1983	 	 5-40 yrs.	
Dogwood	 	Office	 	Raleigh	 	 	 	766		 	2,769		 	—		 	524		 	766		 	3,293		 	4,059		 	1,546		 	1983	 	 5-40 yrs.	
EPA	 	Office	 	Raleigh	 	 	 	2,597		 	—		 	—		 	1,661		 	2,597		 	1,661		 	4,258		 	827		 	2003	 	 5-40 yrs.	
GlenLake Land	 	Office	 	Raleigh	 	 	 	13,003		 	—		 	(6,096	)	 	114		 	6,907		 	114		 	7,021		 	30		 	N/A	 	N/A	
GlenLake Bldg I	 	Office	 	Raleigh	 	(4)	 	924		 	—		 	1,324		 	21,823		 	2,248		 	21,823		 	24,071		 	6,051		 	2002	 	 5-40 yrs.	
GlenLake Four	 	Office	 	Raleigh	 	(5)	 	1,659		 	—		 	493		 	22,318		 	2,152		 	22,318		 	24,470		 	4,338		 	2006	 	 5-40 yrs.	
GlenLake Six	 	Office	 	Raleigh	 	 	 	941		 	—		 	16		 	22,172		 	957		 	22,172		 	23,129		 	2,615		 	2008	 	 5-40 yrs.	
Healthsource	 	Office	 	Raleigh	 	(5)	 	1,304		 	—		 	540		 	13,259		 	1,844		 	13,259		 	15,103		 	5,261		 	1996	 	 5-40 yrs.	
Highwoods Centre-Weston	 	Office	 	Raleigh	 	(1)	 	531		 	—		 	(267	)	 	7,542		 	264		 	7,542		 	7,806		 	2,618		 	1998	 	 5-40 yrs.	
Highwoods Office Center North Land	 	Office	 	Raleigh	 	 	 	357		 	49		 	—		 	—		 	357		 	49		 	406		 	30		 	N/A	 	N/A	
Highwoods Tower One	 	Office	 	Raleigh	 	 	 	203		 	16,744		 	—		 	3,548		 	203		 	20,292		 	20,495		 	10,094		 	1991	 	 5-40 yrs.	
Highwoods Tower Two	 	Office	 	Raleigh	 	 	 	365		 	—		 	503		 	21,337		 	868		 	21,337		 	22,205		 	5,363		 	2001	 	 5-40 yrs.	
Inveresk Land Parcel 2	 	Office	 	Raleigh	 	 	 	657		 	—		 	197		 	—		 	854		 	—		 	854		 	—		 	N/A	 	N/A	
Inveresk Land Parcel 3	 	Office	 	Raleigh	 	 	 	548		 	—		 	306		 	—		 	854		 	—		 	854		 	—		 	N/A	 	N/A	
Lake Boone Medical Center	 	Office	 	Raleigh	 	 	 	1,450		 	6,311		 	—		 	302		 	1,450		 	6,613		 	8,063		 	257		 	1998	 	 5-40 yrs.	
Maplewood	 	Office	 	Raleigh	 	(1)	 	149		 	—		 	107		 	3,108		 	256		 	3,108		 	3,364		 	858		 	2001	 	 5-40 yrs.	
Overlook	 	Office	 	Raleigh	 	 	 	398		 	—		 	293		 	9,104		 	691		 	9,104		 	9,795		 	2,812		 	1999	 	 5-40 yrs.	
Pamlico	 	Office	 	Raleigh	 	 	 	289		 	—		 	—		 	14,834		 	289		 	14,834		 	15,123		 	9,254		 	1980	 	 5-40 yrs.	
ParkWest One - Weston	 	Office	 	Raleigh	 	 	 	242		 	—		 	—		 	3,376		 	242		 	3,376		 	3,618		 	900		 	2001	 	 5-40 yrs.	
ParkWest Two - Weston	 	Office	 	Raleigh	 	 	 	356		 	—		 	—		 	4,104		 	356		 	4,104		 	4,460		 	1,392		 	2001	 	 5-40 yrs.	
ParkWest Three - Land - Weston	 	Office	 	Raleigh	 	 	 	306		 	—		 	—		 	—		 	306		 	—		 	306		 	—		 	N/A	 	N/A	
Progress Center Renovation	 	Office	 	Raleigh	 	 	 	—		 	—		 	—		 	362		 	—		 	362		 	362		 	187		 	2003	 	 5-40 yrs.	
Raleigh Corp Center Lot D	 	Office	 	Raleigh	 	 	 	1,211		 	—		 	8		 	—		 	1,219		 	—		 	1,219		 	—		 	N/A	 	N/A	

158

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
RBC Plaza	 	Mixed-
Use	 	Raleigh	 	46,181	 	1,206		 	—		 	—		 	71,345		 	1,206		 	71,345		 	72,551		 	7,332		 	2008	 	 5-40 yrs.	
Rexwoods Center I	 	Office	 	Raleigh	 	 	 	878		 	3,730		 	—		 	1,210		 	878		 	4,940		 	5,818		 	2,606		 	1990	 	 5-40 yrs.	
Rexwoods Center II	 	Office	 	Raleigh	 	 	 	362		 	1,818		 	—		 	184		 	362		 	2,002		 	2,364		 	864		 	1993	 	 5-40 yrs.	
Rexwoods Center III	 	Office	 	Raleigh	 	 	 	919		 	2,816		 	—		 	810		 	919		 	3,626		 	4,545		 	1,792		 	1992	 	 5-40 yrs.	
Rexwoods Center IV	 	Office	 	Raleigh	 	 	 	586		 	—		 	—		 	3,394		 	586		 	3,394		 	3,980		 	1,431		 	1995	 	 5-40 yrs.	
Rexwoods Center V	 	Office	 	Raleigh	 	 	 	1,301		 	—		 	184		 	5,442		 	1,485		 	5,442		 	6,927		 	1,889		 	1998	 	 5-40 yrs.	
Riverbirch	 	Office	 	Raleigh	 	 	 	469		 	4,038		 	21		 	5,996		 	490		 	10,034		 	10,524		 	220		 	1987	 	 5-40 yrs.	
Situs I	 	Office	 	Raleigh	 	 	 	692		 	4,646		 	178		 	(1,215	)	 	870		 	3,431		 	4,301		 	1,230		 	1996	 	 5-40 yrs.	
Situs II	 	Office	 	Raleigh	 	 	 	718		 	6,254		 	181		 	(1,315	)	 	899		 	4,939		 	5,838		 	1,645		 	1998	 	 5-40 yrs.	
Situs III	 	Office	 	Raleigh	 	 	 	440		 	4,078		 	119		 	(1,008	)	 	559		 	3,070		 	3,629		 	913		 	2000	 	 5-40 yrs.	
Six Forks Center I	 	Office	 	Raleigh	 	 	 	666		 	2,665		 	—		 	1,145		 	666		 	3,810		 	4,476		 	1,622		 	1982	 	 5-40 yrs.	
Six Forks Center II	 	Office	 	Raleigh	 	 	 	1,086		 	4,533		 	—		 	1,517		 	1,086		 	6,050		 	7,136		 	2,566		 	1983	 	 5-40 yrs.	
Six Forks Center III	 	Office	 	Raleigh	 	 	 	862		 	4,411		 	—		 	2,286		 	862		 	6,697		 	7,559		 	3,038		 	1987	 	 5-40 yrs.	
Smoketree Tower	 	Office	 	Raleigh	 	 	 	2,353		 	11,743		 	—		 	3,559		 	2,353		 	15,302		 	17,655		 	6,579		 	1984	 	 5-40 yrs.	
Sycamore	 	Office	 	Raleigh	 	 	 	255		 	—		 	217		 	5,152		 	472		 	5,152		 	5,624		 	1,787		 	1997	 	 5-40 yrs.	
Weston Land	 	Mixed-
Use	 	Raleigh	 	 	 	22,771		 	—		 	(8,938	)	 	—		 	13,833		 	—		 	13,833		 	—		 	N/A	 	N/A	
Willow Oak	 	Office	 	Raleigh	 	 	 	458		 	—		 	268		 	5,154		 	726		 	5,154		 	5,880		 	2,061		 	1995	 	 5-40 yrs.	
Other Property	 	Other	 	Raleigh	 	 	 	48		 	9,496		 	716		 	3,310		 	764		 	12,806		 	13,570		 	6,965		 	N/A	 	 N/A	
Richmond, VA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4900 Cox Road	 	Office	 	Richmond	 	 	 	1,324		 	5,311		 	—		 	3,006		 	1,324		 	8,317		 	9,641		 	3,204		 	1991	 	 5-40 yrs.	
Colonnade Building	 	Office	 	Richmond	 	(4)	 	1,364		 	6,105		 	—		 	758		 	1,364		 	6,863		 	8,227		 	1,730		 	2003	 	 5-40 yrs.	
Dominion Place - Pitts Parcel	 	Office	 	Richmond	 	 	 	1,101		 	—		 	(480	)	 	—		 	621		 	—		 	621		 	—		 	N/A	 	N/A	
Essex Plaza	 	Office	 	Richmond	 	10,438	 	1,581		 	13,299		 	—		 	(1,746	)	 	1,581		 	11,553		 	13,134		 	3,387		 	1999	 	 5-40 yrs.	
Grove Park I	 	Office	 	Richmond	 	 	 	713		 	—		 	319		 	5,178		 	1,032		 	5,178		 	6,210		 	1,803		 	1997	 	 5-40 yrs.	
Hamilton Beach	 	Office	 	Richmond	 	 	 	1,086		 	4,345		 	—		 	1,969		 	1,086		 	6,314		 	7,400		 	2,735		 	1986	 	 5-40 yrs.	
Highwoods Commons	 	Office	 	Richmond	 	 	 	521		 	—		 	446		 	3,141		 	967		 	3,141		 	4,108		 	1,023		 	1999	 	 5-40 yrs.	
Highwoods One	 	Office	 	Richmond	 	 	 	1,688		 	—		 	—		 	10,899		 	1,688		 	10,899		 	12,587		 	3,849		 	1996	 	 5-40 yrs.	
Highwoods Two	 	Office	 	Richmond	 	(4)	 	786		 	—		 	213		 	6,026		 	999		 	6,026		 	7,025		 	2,173		 	1997	 	 5-40 yrs.	
Highwoods Five	 	Office	 	Richmond	 	 	 	783		 	—		 	—		 	5,561		 	783		 	5,561		 	6,344		 	1,996		 	1998	 	 5-40 yrs.	
Highwoods Plaza	 	Office	 	Richmond	 	 	 	909		 	—		 	176		 	5,665		 	1,085		 	5,665		 	6,750		 	1,580		 	2000	 	 5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Innsbrooke Centre	 	Office	 	Richmond	 	4,948	 	1,300		 	6,958		 	(144	)	 	(414	)	 	1,156		 	6,544		 	7,700		 	1,233		 	1987	 	 5-40 yrs.	
Innslake Center	 	Office	 	Richmond	 	(1)	 	845		 	—		 	195		 	5,401		 	1,040		 	5,401		 	6,441		 	1,379		 	2001	 	 5-40 yrs.	
Liberty Mutual	 	Office	 	Richmond	 	 	 	1,205		 	4,825		 	—		 	954		 	1,205		 	5,779		 	6,984		 	2,175		 	1990	 	 5-40 yrs.	
Markel American	 	Office	 	Richmond	 	8,226	 	1,300		 	13,259		 	72		 	(4,466	)	 	1,372		 	8,793		 	10,165		 	1,808		 	1998	 	 5-40 yrs.	
Markel Plaza	 	Office	 	Richmond	 	10,438	 	1,700		 	17,081		 	(386	)	 	(5,389	)	 	1,314		 	11,692		 	13,006		 	2,309		 	1989	 	 5-40 yrs.	
North Park	 	Office	 	Richmond	 	 	 	2,163		 	8,659		 	(14	)	 	1,826		 	2,149		 	10,485		 	12,634		 	4,450		 	1989	 	 5-40 yrs.	
North Shore Commons A	 	Office	 	Richmond	 	(4)	 	951		 	—		 	—		 	11,256		 	951		 	11,256		 	12,207		 	2,809		 	2002	 	 5-40 yrs.	
North Shore Commons B - Land	 	Office	 	Richmond	 	(4)	 	2,067		 	—		 	(103	)	 	11,105		 	1,964		 	11,105		 	13,069		 	1,760		 	N/A	 	 N/A	
North Shore Commons C - Land	 	Office	 	Richmond	 	 	 	1,497		 	—		 	—		 	—		 	1,497		 	—		 	1,497		 	—		 	N/A	 	 N/A	
North Shore Commons D - Land	 	Office	 	Richmond	 	 	 	1,261		 	—		 	—		 	—		 	1,261		 	—		 	1,261		 	—		 	N/A	 	N/A	
Nuckols Corner Land	 	Office	 	Richmond	 	 	 	1,259		 	—		 	—		 	—		 	1,259		 	—		 	1,259		 	—		 	N/A	 	N/A	
One Shockoe Plaza	 	Office	 	Richmond	 	 	 	—		 	—		 	356		 	15,155		 	356		 	15,155		 	15,511		 	6,278		 	1996	 	 5-40 yrs.	
Pavilion Land	 	Office	 	Richmond	 	 	 	181		 	46		 	20		 	(46	)	 	201		 	—		 	201		 	—		 	N/A	 	N/A	
Rhodia Building	 	Office	 	Richmond	 	 	 	1,600		 	8,864		 	—		 	1,957		 	1,600		 	10,821		 	12,421		 	925		 	1996	 	 5-40 yrs.	
Sadler & Cox Land	 	Office	 	Richmond	 	 	 	1,535		 	—		 	—		 	—		 	1,535		 	—		 	1,535		 	—		 	N/A	 	 N/A	
Saxon Capital Building	 	Office	 	Richmond	 	(4)	 	1,918		 	—		 	337		 	13,550		 	2,255		 	13,550		 	15,805		 	3,531		 	2005	 	 5-40 yrs.	
Stony Point F Land	 	Office	 	Richmond	 	 	 	1,841		 	—		 	—		 	—		 	1,841		 	—		 	1,841		 	—		 	N/A	 	 N/A	
Stony Point I	 	Office	 	Richmond	 	(4)	 	1,384		 	11,630		 	59		 	2,339		 	1,443		 	13,969		 	15,412		 	4,885		 	1990	 	 5-40 yrs.	
Stony Point II	 	Office	 	Richmond	 	 	 	1,240		 	—		 	—		 	11,654		 	1,240		 	11,654		 	12,894		 	3,495		 	1999	 	 5-40 yrs.	
Stony Point III	 	Office	 	Richmond	 	(4)	 	995		 	—		 	—		 	9,134		 	995		 	9,134		 	10,129		 	2,422		 	2002	 	 5-40 yrs.	
Stony Point IV	 	Office	 	Richmond	 	 	 	955		 	—		 	—		 	11,583		 	955		 	11,583		 	12,538		 	2,682		 	2006	 	 5-40 yrs.	
Technology Park 1	 	Office	 	Richmond	 	 	 	541		 	2,166		 	—		 	363		 	541		 	2,529		 	3,070		 	973		 	1991	 	 5-40 yrs.	
Technology Park 2	 	Office	 	Richmond	 	 	 	264		 	1,058		 	—		 	143		 	264		 	1,201		 	1,465		 	475		 	1991	 	 5-40 yrs.	
Vantage Place A	 	Office	 	Richmond	 	(4)	 	203		 	811		 	—		 	241		 	203		 	1,052		 	1,255		 	476		 	1987	 	 5-40 yrs.	
Vantage Place B	 	Office	 	Richmond	 	(4)	 	233		 	931		 	—		 	236		 	233		 	1,167		 	1,400		 	467		 	1988	 	 5-40 yrs.	
Vantage Place C	 	Office	 	Richmond	 	(4)	 	235		 	940		 	—		 	285		 	235		 	1,225		 	1,460		 	522		 	1987	 	 5-40 yrs.	
Vantage Place D	 	Office	 	Richmond	 	(4)	 	218		 	873		 	—		 	270		 	218		 	1,143		 	1,361		 	459		 	1988	 	 5-40 yrs.	
Vantage Pointe	 	Office	 	Richmond	 	(4)	 	1,089		 	4,500		 	—		 	1,210		 	1,089		 	5,710		 	6,799		 	2,349		 	1990	 	 5-40 yrs.	
Virginia Mutual	 	Office	 	Richmond	 	 	 	1,301		 	6,036		 	—		 	670		 	1,301		 	6,706		 	8,007		 	1,890		 	1996	 	 5-40 yrs.	
Waterfront Plaza	 	Office	 	Richmond	 	 	 	585		 	2,347		 	—		 	1,054		 	585		 	3,401		 	3,986		 	1,390		 	1988	 	 5-40 yrs.	
West Shore I	 	Office	 	Richmond	 	(1)	 	332		 	1,431		 	—		 	267		 	332		 	1,698		 	2,030		 	690		 	1995	 	 5-40 yrs.	

160

Table of Contents

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
West Shore II	 	Office	 	Richmond	 	(1)	 	489		 	2,181		 	—		 	467		 	489		 	2,648		 	3,137		 	985		 	1995	 	 5-40 yrs.	
West Shore III	 	Office	 	Richmond	 	(1)	 	961		 	—		 	141		 	4,226		 	1,102		 	4,226		 	5,328		 	1,439		 	1997	 	 5-40 yrs.	
South Florida	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
The 1800 Eller Drive Building	 	Office	 	South
Florida	 	 	 	—		 	9,851		 	—		 	2,154		 	—		 	12,005		 	12,005		 	5,003		 	1983	 	 5-40 yrs.	
Tampa, FL	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
380 Park Place	 	Office	 	Tampa	 	 	 	1,502		 	—		 	240		 	7,061		 	1,742		 	7,061		 	8,803		 	1,856		 	2001	 	5-40 yrs.	
4200 Cypress	 	Office	 	Tampa	 	 	 	2,673		 	16,470		 	—		 	309		 	2,673		 	16,779		 	19,452		 	1,732		 	1989	 	5-40 yrs.	
Anchor Glass	 	Office	 	Tampa	 	 	 	1,281		 	11,318		 	—		 	1,617		 	1,281		 	12,935		 	14,216		 	4,855		 	1988	 	 5-40 yrs.	
Avion Park Land	 	Office	 	Tampa	 	 	 	5,237		 	—		 	—		 	1,487		 	5,237		 	1,487		 	6,724		 	120		 	N/A	 	N/A	
Bayshore	 	Office	 	Tampa	 	 	 	2,276		 	11,817		 	—		 	1,057		 	2,276		 	12,874		 	15,150		 	4,728		 	1990	 	 5-40 yrs.	
FBI Field Office	 	Office	 	Tampa	 	(5)	 	4,054		 	—		 	406		 	27,273		 	4,460		 	27,273		 	31,733		 	5,429		 	2005	 	 5-40 yrs.	
Feathersound Corporate Center II	 	Office	 	Tampa	 	 	 	802		 	7,463		 	—		 	1,774		 	802		 	9,237		 	10,039		 	3,184		 	1986	 	 5-40 yrs.	
Harborview Plaza	 	Office	 	Tampa	 	21,049	 	3,537		 	29,944		 	969		 	(1,339	)	 	4,506		 	28,605		 	33,111		 	9,848		 	2001	 	 5-40 yrs.	
Highwoods Preserve I	 	Office	 	Tampa	 	(5)	 	991		 	—		 	—		 	22,192		 	991		 	22,192		 	23,183		 	6,730		 	1999	 	 5-40 yrs.	
Highwoods Preserve Land	 	Office	 	Tampa	 	 	 	1,485		 	—		 	485		 	—		 	1,970		 	—		 	1,970		 	—		 	N/A	 	N/A	
Highwoods Preserve V	 	Office	 	Tampa	 	(5)	 	881		 	—		 	—		 	27,263		 	881		 	27,263		 	28,144		 	9,144		 	2001	 	 5-40 yrs.	
HIW Bay Center I	 	Office	 	Tampa	 	 	 	3,565		 	—		 	(64	)	 	37,660		 	3,501		 	37,660		 	41,161		 	6,002		 	2007	 	 5-40 yrs.	
HIW Bay Center II	 	Office	 	Tampa	 	 	 	3,482		 	—		 	—		 	—		 	3,482		 	—		 	3,482		 	—		 	N/A	 	N/A	
HIW Preserve VII	 	Office	 	Tampa	 	 	 	790		 	—		 	—		 	12,513		 	790		 	12,513		 	13,303		 	1,480		 	2007	 	 5-40 yrs.	
HIW Preserve VII Garage	 	Office	 	Tampa	 	 	 	—		 	—		 	—		 	6,789		 	—		 	6,789		 	6,789		 	834		 	2007	 	 5-40 yrs.	
Horizon	 	Office	 	Tampa	 	 	 	—		 	6,257		 	—		 	2,492		 	—		 	8,749		 	8,749		 	3,465		 	1980	 	 5-40 yrs.	
LakePointe I	 	Office	 	Tampa	 	 	 	2,106		 	89		 	—		 	35,350		 	2,106		 	35,439		 	37,545		 	12,643		 	1986	 	 5-40 yrs.	
LakePointe II	 	Office	 	Tampa	 	 	 	2,000		 	15,848		 	672		 	6,896		 	2,672		 	22,744		 	25,416		 	7,194		 	1999	 	 5-40 yrs.	
Lakeside	 	Office	 	Tampa	 	 	 	—		 	7,369		 	—		 	1,775		 	—		 	9,144		 	9,144		 	3,619		 	1978	 	 5-40 yrs.	
Lakeside/Parkside Garage	 	Office	 	Tampa	 	 	 	—		 	—		 	—		 	3,224		 	—		 	3,224		 	3,224		 	578		 	2004	 	 5-40 yrs.	
One Harbour Place	 	Office	 	Tampa	 	 	 	2,016		 	25,252		 	—		 	6,174		 	2,016		 	31,426		 	33,442		 	9,756		 	1985	 	 5-40 yrs.	
Parkside	 	Office	 	Tampa	 	 	 	—		 	9,407		 	—		 	3,488		 	—		 	12,895		 	12,895		 	5,319		 	1979	 	 5-40 yrs.	
Pavilion	 	Office	 	Tampa	 	 	 	—		 	16,394		 	—		 	2,165		 	—		 	18,559		 	18,559		 	6,720		 	1982	 	 5-40 yrs.	
Pavilion Parking Garage	 	Office	 	Tampa	 	 	 	—		 	—		 	—		 	5,600		 	—		 	5,600		 	5,600		 	1,708		 	1999	 	 5-40 yrs.	
Spectrum	 	Office	 	Tampa	 	 	 	1,454		 	14,502		 	—		 	5,857		 	1,454		 	20,359		 	21,813		 	7,376		 	1984	 	 5-40 yrs.	

161

Table of Contents

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																											
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2011
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Tower Place	 	Office	 	Tampa	 	(5)	 	3,218		 	19,898		 	—		 	2,667		 	3,218		 	22,565		 	25,783		 	9,150		 	1988	 	 5-40 yrs.	
Westshore Square	 	Office	 	Tampa	 	 	 	1,126		 	5,186		 	—		 	616		 	1,126		 	5,802		 	6,928		 	1,973		 	1976	 	 5-40 yrs.	
Independence Park Land	 	Office	 	Tampa	 	 	 	4,943		 	—		 	—		 	—		 	4,943		 	—		 	4,943		 	—		 	N/A	 	N/A	
Independence Park	 	Office	 	Tampa	 	 	 	2,531		 	4,526		 	—		 	726		 	2,531		 	5,252		 	7,783		 	139		 	1983	 	 5-40 yrs.	
 	 	 	 	 	 		 	503,691		 	1,573,930		 	(28,714	)	 	1,570,238		 	474,977		 	3,144,168		 	3,619,145		 	901,300		 	 	 	 	

2011 Encumbrance Notes

(1)	These assets are pledged as collateral for a $125,264,000 first mortgage loan.	

(2)	These assets are pledged as collateral for a $52,109,000 first mortgage loan.	

(3)	These assets are pledged as collateral for a $67,809,000 first mortgage loan.	

(4)	These assets are pledged as collateral for a $120,259,000 first mortgage loan.	

(5)	These assets are pledged as collateral for a $112,075,000 first mortgage loan.	

(6)	These assets are pledged as collateral for a $123,613,000 first mortgage loan.	

162

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on February 7, 2012 .

		
Highwoods Properties, Inc.
 	
By: 	 
/s/ Edward J. Fritsch	
 	Edward J. Fritsch	
 	President and Chief Executive Officer	

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

	
					
Signature	 	Title	 	Date	
 	 	 	 	 	
/s/ O. Temple Sloan, Jr.	 	Chairman of the Board of Directors	 	February 7, 2012	
O. Temple Sloan, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Edward J. Fritsch	 	President, Chief Executive Officer and Director	 	February 7, 2012	
Edward J. Fritsch	 	 	 	 	
 	 	 	 	 	
/s/ Thomas W. Adler	 	Director	 	February 7, 2012	
Thomas W. Adler	 	 	 	 	
 	 	 	 	 	
/s/ Gene H. Anderson	 	Director	 	February 7, 2012	
Gene H. Anderson	 	 	 	 	
 	 	 	 	 	
/s/ David J. Hartzell	 	Director	 	February 7, 2012	
David J. Hartzell	 	 	 	 	
 	 	 	 	 	
/s/ Sherry A. Kellett	 	Director	 	February 7, 2012	
Sherry A. Kellett	 	 	 	 	
 	 	 	 	 	
/s/ Mark F. Mulhern	 	Director	 	February 7, 2012	
Mark F. Mulhern	 	 	 	 	
 	 	 	 	 	
/s/ L. Glenn Orr, Jr.	 	Director	 	February 7, 2012	
L. Glenn Orr, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Terry L. Stevens	 	Senior Vice President and Chief Financial Officer	 	February 7, 2012	
Terry L. Stevens	 	 	 	 	
 	 	 	 	 	
/s/ Daniel L. Clemmens	 	Vice President and Chief Accounting Officer	 	February 7, 2012	
Daniel L. Clemmens	 	 	 	 	

163

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on February 7, 2012 .

	
		
Highwoods Realty Limited Partnership
 	
By:	Highwoods Properties, Inc., its sole general partner	
By: 	 
/s/ Edward J. Fritsch	
 	Edward J. Fritsch	
 	President and Chief Executive Officer	

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

	
					
Signature	 	Title	 	Date	
 	 	 	 	 	
/s/ O. Temple Sloan, Jr.	 	Chairman of the Board of Directors of the General Partner	 	February 7, 2012	
O. Temple Sloan, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Edward J. Fritsch	 	President, Chief Executive Officer and Director of the General Partner	 	February 7, 2012	
Edward J. Fritsch	 	 	 	 	
 	 	 	 	 	
/s/ Thomas W. Adler	 	Director of the General Partner	 	February 7, 2012	
Thomas W. Adler	 	 	 	 	
 	 	 	 	 	
/s/ Gene H. Anderson	 	Director of the General Partner	 	February 7, 2012	
Gene H. Anderson	 	 	 	 	
 	 	 	 	 	
/s/ David J. Hartzell	 	Director of the General Partner	 	February 7, 2012	
David J. Hartzell	 	 	 	 	
 	 	 	 	 	
/s/ Sherry A. Kellett	 	Director of the General Partner	 	February 7, 2012	
Sherry A. Kellett	 	 	 	 	
 	 	 	 	 	
/s/ Mark F. Mulhern	 	Director of the General Partner	 	February 7, 2012	
Mark F. Mulhern	 	 	 	 	
 	 	 	 	 	
/s/ L. Glenn Orr, Jr.	 	Director of the General Partner	 	February 7, 2012	
L. Glenn Orr, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Terry L. Stevens	 	Senior Vice President and Chief Financial Officer of the General Partner	 	February 7, 2012	
Terry L. Stevens	 	 	 	 	
 	 	 	 	 	
/s/ Daniel L. Clemmens	 	Vice President and Chief Accounting Officer of the General Partner	 	February 7, 2012	
Daniel L. Clemmens	 	 	 	 	

164

Exhibit 12.1

HIGHWOODS PROPERTIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS

	

 	 	2011	 	2010	 	2009	 	2008	 	2007	
Earnings:	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before equity in earnings of unconsolidated affiliates	 	$	39,623		 	$	67,089		 	$	41,037		 	$	31,640		 	$	35,808		
Fixed charges	 	98,024		 	96,315		 	92,968		 	108,271		 	111,478		
Capitalized interest	 	(589	)	 	(1,419	)	 	(4,555	)	 	(8,312	)	 	(9,743	)	
Distributions of earnings from unconsolidated affiliates	 	5,029		 	4,433		 	4,180		 	5,994		 	4,462		
Total earnings	 	$	142,087		 	$	166,418		 	$	133,630		 	$	137,593		 	$	142,005		
 	 	 	 	 	 	 	 	 	 	 	
Fixed charges and Preferred Stock dividends:	 	 	 	 	 	 	 	 	 	 	
Contractual interest expense	 	$	91,838		 	$	87,726		 	$	81,982		 	$	92,858		 	$	93,975		
Amortization of deferred financing costs	 	3,312		 	3,385		 	2,760		 	2,716		 	2,415		
Financing obligations interest expense	 	849		 	2,261		 	2,063		 	2,918		 	3,930		
Capitalized interest	 	589		 	1,419		 	4,555		 	8,312		 	9,743		
Interest component of rental expense	 	1,436		 	1,524		 	1,608		 	1,467		 	1,415		
Total fixed charges	 	98,024		 	96,315		 	92,968		 	108,271		 	111,478		
Preferred Stock dividends	 	4,553		 	6,708		 	6,708		 	9,804		 	13,477		
Total fixed charges and Preferred Stock dividends	 	$	102,577		 	$	103,023		 	$	99,676		 	$	118,075		 	$	124,955		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	1.45		 	1.73		 	1.44		 	1.27		 	1.27		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and Preferred Stock dividends	 	1.39		 	1.62		 	1.34		 	1.17		 	1.14		

Exhibit 12.2

HIGHWOODS REALTY LIMITED PARTNERSHIP
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED UNIT DISTRIBUTIONS

	

 	 	2011	 	2010	 	2009	 	2008	 	2007	
Earnings:	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before equity in earnings of unconsolidated affiliates	 	$	39,623		 	$	67,089		 	$	41,037		 	$	31,580		 	$	35,855		
Fixed charges	 	98,024		 	96,315		 	92,968		 	108,271		 	111,397		
Capitalized interest	 	(589	)	 	(1,419	)	 	(4,555	)	 	(8,312	)	 	(9,743	)	
Distributions of earnings from unconsolidated affiliates	 	5,005		 	4,377		 	4,103		 	5,978		 	4,271		
Total earnings	 	$	142,063		 	$	166,362		 	$	133,553		 	$	137,517		 	$	141,780		
 	 	 	 	 	 	 	 	 	 	 	
Fixed charges and Preferred Unit distributions:	 	 	 	 	 	 	 	 	 	 	
Contractual interest expense	 	$	91,838		 	$	87,726		 	$	81,982		 	$	92,858		 	$	93,894		
Amortization of deferred financing costs	 	3,312		 	3,385		 	2,760		 	2,716		 	2,415		
Financing obligations interest expense	 	849		 	2,261		 	2,063		 	2,918		 	3,930		
Capitalized interest	 	589		 	1,419		 	4,555		 	8,312		 	9,743		
Interest component of rental expense	 	1,436		 	1,524		 	1,608		 	1,467		 	1,415		
Total fixed charges	 	98,024		 	96,315		 	92,968		 	108,271		 	111,397		
Preferred Unit distributions	 	4,553		 	6,708		 	6,708		 	9,804		 	13,477		
Total fixed charges and Preferred Unit distributions	 	$	102,577		 	$	103,023		 	$	99,676		 	$	118,075		 	$	124,874		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	1.45		 	1.73		 	1.44		 	1.27		 	1.27		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and Preferred Unit distributions	 	1.38		 	1.61		 	1.34		 	1.16		 	1.14		

Exhibit 21
 
Subsidiaries of Highwoods Properties, Inc.

Highwoods Realty Limited Partnership, a North Carolina limited partnership
 
Highwoods/Tennessee Holdings, L.P., a Tennessee limited partnership
 
Highwoods Services, Inc., a North Carolina corporation

HRLP Riverwood, LLC, a Delaware limited liability company

HRLP Fourth Avenue, LLC, a Delaware limited liability company

	
		
*	We have omitted the names of other direct and indirect subsidiaries of Highwoods Properties, Inc. because such other subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.	

Subsidiaries of Highwoods Realty Limited Partnership

Highwoods/Tennessee Holdings, L.P., a Tennessee limited partnership
 
Highwoods Services, Inc., a North Carolina corporation

HRLP Riverwood, LLC, a Delaware limited liability company

HRLP Fourth Avenue, LLC, a Delaware limited liability company

	
		
*	We have omitted the names of other direct and indirect subsidiaries of Highwoods Realty Limited Partnership because such other subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.	

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-12117, 333-29759, 333-55901, 333-160521, and 333-168356 on Form S-8, and Registration Statements No. 333-149736, 333-158408 and 333-172134 on Form S-3, of our reports dated February 7, 2012, relating to the consolidated financial statements and financial statement schedules of Highwoods Properties, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2011.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 7, 2012

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-172134-01 on Form S-3, of our reports dated February 7, 2012, relating to the consolidated financial statements and financial statement schedules of Highwoods Realty Limited Partnership and subsidiaries (the “Operating Partnership”) appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2011.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 7, 2012

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Edward J. Fritsch, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Highwoods Properties, Inc.;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;	

4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:	

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and	

5.	The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):	

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and	

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.	

Date: February 7, 2012

	
	
/s/ Edward J. Fritsch	
Edward J. Fritsch
President and Chief Executive Officer	

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Terry L. Stevens, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Highwoods Properties, Inc.;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;	

4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:	

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and	

5.	The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):	

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and	

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.	

Date: February 7, 2012

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer	

Exhibit 31.3

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Edward J. Fritsch, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Highwoods Realty Limited Partnership;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;	

4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:	

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and	

5.	The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):	

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and	

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.	

Date: February 7, 2012

	
	
/s/ Edward J. Fritsch	
Edward J. Fritsch
President and Chief Executive Officer of the General Partner	

Exhibit 31.4

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Terry L. Stevens, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Highwoods Realty Limited Partnership;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;	

4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:	

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and	

5.	The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):	

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and	

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.	

Date: February 7, 2012

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer of the General Partner	

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Properties, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Fritsch, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

	
	
/s/ Edward J. Fritsch	
Edward J. Fritsch
President and Chief Executive Officer	
February 7, 2012	

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Properties, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry L. Stevens, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer	
February 7, 2012	

Exhibit 32.3

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Realty Limited Partnership (the “Operating Partnership”) on Form 10-K for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Fritsch, President and Chief Executive Officer of Highwoods Properties, Inc., general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.	

	
	
/s/ Edward J. Fritsch	
Edward J. Fritsch
President and Chief Executive Officer of the General Partner	
February 7, 2012	

Exhibit 32.4

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Realty Limited Partnership (the “Operating Partnership”) on Form 10-K for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry L. Stevens, Senior Vice President and Chief Financial Officer of Highwoods Properties, Inc., general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.	

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer of the General Partner	
February 7, 2012