HIGHWOODS PROPERTIES, INC., 10-Q filed on 4/23/2019
Quarterly Report
v3.19.1
Document and Entity Information Document - shares
3 Months Ended
Mar. 31, 2019
Apr. 16, 2019
Entity Information [Line Items]    
Entity Registrant Name HIGHWOODS PROPERTIES INC.  
Entity Central Index Key 0000921082  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   103,692,619
Highwoods Realty Limited Partnership [Member]    
Entity Information [Line Items]    
Entity Registrant Name HIGHWOODS REALTY LIMITED PARTNERSHIP  
Entity Central Index Key 0000941713  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Real estate assets, at cost:    
Land $ 491,613 $ 491,441
Buildings and tenant improvements 4,728,637 4,676,862
Development in-process 162,076 165,537
Land held for development 94,312 128,248
Total real estate assets 5,476,638 5,462,088
Less-accumulated depreciation (1,324,447) (1,296,562)
Net real estate assets 4,152,191 4,165,526
Real estate and other assets, net, held for sale 24,893 0
Cash and cash equivalents 4,827 3,769
Restricted cash 7,640 6,374
Accounts receivable 30,646 25,952
Mortgages and notes receivable, net of allowance of $36 and $44, respectively 1,623 5,599
Accrued straight-line rents receivable 219,870 220,088
Investments in and advances to unconsolidated affiliates 23,296 23,585
Deferred leasing costs, net of accumulated amortization of $149,863 and $149,275, respectively 194,848 195,273
Prepaid expenses and other assets, net of accumulated depreciation of $18,751 and $18,074, respectively 66,282 28,843
Total Assets 4,726,116 4,675,009
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:    
Mortgages and notes payable, net 2,160,594 2,085,831
Accounts payable, accrued expenses and other liabilities 237,278 218,922
Total Liabilities 2,397,872 2,304,753
Commitments and contingencies
Noncontrolling interests in the Operating Partnership 127,976 105,960
Equity/Capital:    
Preferred Stock, $.01 par value, 50,000,000 authorized shares; 8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,859 and 28,877 shares issued and outstanding, respectively 28,859 28,877
Common Stock, $.01 par value, 200,000,000 authorized shares; 103,690,619 and 103,557,065 shares issued and outstanding, respectively 1,037 1,036
Additional paid-in capital 2,956,517 2,976,197
Distributions in excess of net income available for common stockholders (811,223) (769,303)
Accumulated other comprehensive income 7,494 9,913
Total Stockholders’ Equity 2,182,684 2,246,720
Noncontrolling interests in consolidated affiliates 17,584 17,576
Total Equity/Capital 2,200,268 2,264,296
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital 4,726,116 4,675,009
Highwoods Realty Limited Partnership [Member]    
Real estate assets, at cost:    
Land 491,613 491,441
Buildings and tenant improvements 4,728,637 4,676,862
Development in-process 162,076 165,537
Land held for development 94,312 128,248
Total real estate assets 5,476,638 5,462,088
Less-accumulated depreciation (1,324,447) (1,296,562)
Net real estate assets 4,152,191 4,165,526
Real estate and other assets, net, held for sale 24,893 0
Cash and cash equivalents 4,827 3,769
Restricted cash 7,640 6,374
Accounts receivable 30,646 25,952
Mortgages and notes receivable, net of allowance of $36 and $44, respectively 1,623 5,599
Accrued straight-line rents receivable 219,870 220,088
Investments in and advances to unconsolidated affiliates 23,296 23,585
Deferred leasing costs, net of accumulated amortization of $149,863 and $149,275, respectively 194,848 195,273
Prepaid expenses and other assets, net of accumulated depreciation of $18,751 and $18,074, respectively 66,282 28,843
Total Assets 4,726,116 4,675,009
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:    
Mortgages and notes payable, net 2,160,594 2,085,831
Accounts payable, accrued expenses and other liabilities 237,278 218,922
Total Liabilities 2,397,872 2,304,753
Commitments and contingencies
Redeemable Operating Partnership Units:    
Common Units, 2,735,703 and 2,738,703 outstanding, respectively 127,976 105,960
Series A Preferred Units (liquidation preference $1,000 per unit), 28,859 and 28,877 units issued and outstanding, respectively 28,859 28,877
Total Redeemable Operating Partnership Units 156,835 134,837
Equity/Capital:    
General partner Common Units, 1,060,175 and 1,058,870 outstanding, respectively 21,463 22,078
Limited partner Common Units, 102,221,635 and 102,089,386 outstanding, respectively 2,124,868 2,185,852
Accumulated other comprehensive income 7,494 9,913
Noncontrolling interests in consolidated affiliates 17,584 17,576
Total Equity/Capital 2,171,409 2,235,419
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital $ 4,726,116 $ 4,675,009
v3.19.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2019
Dec. 31, 2018
Assets:    
Mortgages and notes receivable allowance $ 36 $ 44
Deferred leasing costs, accumulated amortization 149,863 149,275
Prepaid expenses and other assets, accumulated depreciation $ 18,751 $ 18,074
Equity/Capital:    
Series A Preferred Stock, dividend rate percentage (in hundredths) 8.625% 8.625%
Series A Preferred Stock, par value (in dollars per share) $ 0.01 $ 0.01
Series A Preferred Stock, authorized shares (in shares) 50,000,000 50,000,000
Series A Preferred Stock, liquidation preference (in dollars per share) $ 1,000 $ 1,000
Series A Preferred Stock, shares issued (in shares) 28,859 28,877
Series A Preferred Stock, shares outstanding (in shares) 28,859 28,877
Common Stock, par value (in dollars per share) $ 0.01 $ 0.01
Common Stock, authorized shares (in shares) 200,000,000 200,000,000
Common Stock, shares issued (in shares) 103,690,619 103,557,065
Common Stock, shares outstanding (in shares) 103,690,619 103,557,065
Highwoods Realty Limited Partnership [Member]    
Assets:    
Mortgages and notes receivable allowance $ 36 $ 44
Deferred leasing costs, accumulated amortization 149,863 149,275
Prepaid expenses and other assets, accumulated depreciation $ 18,751 $ 18,074
Redeemable Operating Partnership Units: [Abstract]    
Redeemable Common Units outstanding (in shares) 2,735,703 2,738,703
Series A Preferred Units, liquidation preference (in dollars per share) $ 1,000 $ 1,000
Series A Preferred Units, issued (in shares) 28,859 28,877
Series A Preferred Units, outstanding (in shares) 28,859 28,877
Common Units: [Abstract]    
General partners' capital account, units outstanding (in shares) 1,060,175 1,058,870
Limited partners' capital account, units outstanding (in shares) 102,221,635 102,089,386
v3.19.1
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Rental and other revenues $ 172,363 $ 180,438
Operating expenses:    
Rental property and other expenses 60,551 59,432
Depreciation and amortization 69,204 57,568
General and administrative 12,381 11,778
Total operating expenses 142,136 128,778
Interest expense 18,739 18,391
Other income/(loss) (3,766) 455
Equity in earnings of unconsolidated affiliates 664 522
Net income 8,386 34,246
Net (income) attributable to noncontrolling interests in the Operating Partnership (193) (888)
Net (income) attributable to noncontrolling interests in consolidated affiliates (316) (286)
Dividends on Preferred Stock (622) (623)
Net income available for common stockholders $ 7,255 $ 32,449
Earnings per Common Share – basic:    
Net income available for common stockholders (in dollars per share) $ 0.07 $ 0.31
Weighted average Common Shares outstanding - basic (in shares) 103,600 103,324
Earnings per Common Share - diluted:    
Net income available for common stockholders (in dollars per share) $ 0.07 $ 0.31
Weighted average Common Shares outstanding - diluted (in shares) 106,357 106,165
Highwoods Realty Limited Partnership [Member]    
Rental and other revenues $ 172,363 $ 180,438
Operating expenses:    
Rental property and other expenses 60,551 59,432
Depreciation and amortization 69,204 57,568
General and administrative 12,381 11,778
Total operating expenses 142,136 128,778
Interest expense 18,739 18,391
Other income/(loss) (3,766) 455
Equity in earnings of unconsolidated affiliates 664 522
Net income 8,386 34,246
Net (income) attributable to noncontrolling interests in consolidated affiliates (316) (286)
Distributions on Preferred Units (622) (623)
Net income available for common unitholders $ 7,448 $ 33,337
Earnings per Common Unit - basic:    
Net income available for common unitholders (in dollars per share) $ 0.07 $ 0.32
Weighted average Common Units outstanding - basic (in shares) 105,928 105,730
Earnings per Common Unit - diluted:    
Net income available for common unitholders (in dollars per share) $ 0.07 $ 0.32
Weighted average Common Units outstanding - diluted (in shares) 105,948 105,756
v3.19.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Comprehensive income:    
Net income $ 8,386 $ 34,246
Other comprehensive income/(loss):    
Unrealized gains/(losses) on cash flow hedges (1,904) 7,877
Amortization of cash flow hedges (515) (106)
Total other comprehensive income/(loss) (2,419) 7,771
Total comprehensive income 5,967 42,017
Less-comprehensive (income) attributable to noncontrolling interests (509) (1,174)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders 5,458 40,843
Highwoods Realty Limited Partnership [Member]    
Comprehensive income:    
Net income 8,386 34,246
Other comprehensive income/(loss):    
Unrealized gains/(losses) on cash flow hedges (1,904) 7,877
Amortization of cash flow hedges (515) (106)
Total other comprehensive income/(loss) (2,419) 7,771
Total comprehensive income 5,967 42,017
Less-comprehensive (income) attributable to noncontrolling interests (316) (286)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders $ 5,651 $ 41,731
v3.19.1
Consolidated Statements of Equity/Capital - USD ($)
$ in Thousands
Total
Highwoods Realty Limited Partnership [Member]
Common Stock [Member]
Series A Cumulative Redeemable Preferred Shares [Member]
General Partners' Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Limited Partners' Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Highwoods Realty Limited Partnership [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Highwoods Realty Limited Partnership [Member]
Distributions in Excess of Net Income Available for Common Stockholders [Member]
Balance (in shares) at Dec. 31, 2017     103,266,875                  
Balance at Dec. 31, 2017 $ 2,237,234 $ 2,208,342 $ 1,033 $ 28,892 $ 21,830 $ 2,161,258 $ 2,929,399 $ 7,838 $ 7,838 $ 17,416 $ 17,416 $ (747,344)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Issuances of Common Units, net of issuance costs and tax withholdings   (1,029)     (10) (1,019)            
Distributions on Common Units   (48,858)     (488) (48,370)            
Distributions on Preferred Units   (623)     (6) (617)            
Issuances of Common Stock, net of issuance costs and tax withholdings - Shares     (36,757)                  
Issuances of Common Stock, net of issuance costs and tax withholdings (1,029)   $ 0       (1,029)          
Conversions of Common Units to Common Stock - Shares     19,196                  
Conversions of Common Units to Common Stock 902           902          
Dividends on Common Stock (47,747)                     (47,747)
Dividends on Preferred Stock (623)                     (623)
Adjustment of noncontrolling interests in the Operating Partnership to fair value 19,582           19,582          
Distributions to noncontrolling interests in consolidated affiliates (238) (238)               (238) (238)  
Issuances of restricted stock - shares     172,440                  
Issuances of restricted stock 0                      
Redemptions/repurchases of Preferred Stock (5)     (5)                
Share-based compensation expense, net of forfeitures 4,295 4,295 $ 1   43 4,252 4,294          
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner   20,707     207 20,500            
Net (income) attributable to noncontrolling interests in the Operating Partnership (888)                     (888)
Net (income) attributable to noncontrolling interests in consolidated affiliates 0 0     (3) (283)       286 286 (286)
Comprehensive income:                        
Net income 34,246 34,246     342 33,904           34,246
Other comprehensive income/(loss) 7,771 7,771           7,771 7,771      
Total comprehensive income 42,017 42,017                    
Balance (in shares) at Mar. 31, 2018     103,421,754                  
Balance at Mar. 31, 2018 $ 2,253,500 2,224,613 $ 1,034 28,887 21,915 2,169,625 2,953,148 15,609 15,609 17,464 17,464 (762,642)
Balance (in shares) at Dec. 31, 2018 103,557,065   103,557,065                  
Balance at Dec. 31, 2018 $ 2,264,296 2,235,419 $ 1,036 28,877 22,078 2,185,852 2,976,197 9,913 9,913 17,576 17,576 (769,303)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Issuances of Common Units, net of issuance costs and tax withholdings   (1,128)     (11) (1,117)            
Distributions on Common Units   (50,281)     (503) (49,778)            
Distributions on Preferred Units   (622)     (6) (616)            
Issuances of Common Stock, net of issuance costs and tax withholdings - Shares     (33,377)                  
Issuances of Common Stock, net of issuance costs and tax withholdings (1,128)   $ 0       (1,128)          
Conversions of Common Units to Common Stock - Shares     3,000                  
Conversions of Common Units to Common Stock 131           131          
Dividends on Common Stock (49,175)                     (49,175)
Dividends on Preferred Stock (622)                     (622)
Adjustment of noncontrolling interests in the Operating Partnership to fair value (23,254)           (23,254)          
Distributions to noncontrolling interests in consolidated affiliates (308) (308)               (308) (308)  
Issuances of restricted stock - shares     164,190                  
Issuances of restricted stock 0                      
Redemptions/repurchases of Preferred Stock (18)     (18)                
Share-based compensation expense, net of forfeitures - shares     (259)                  
Share-based compensation expense, net of forfeitures 4,572 4,572 $ 1   46 4,526 4,571          
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner   (22,210)     (222) (21,988)            
Net (income) attributable to noncontrolling interests in the Operating Partnership (193)                     (193)
Net (income) attributable to noncontrolling interests in consolidated affiliates 0 0     (3) (313)       316 316 (316)
Comprehensive income:                        
Net income 8,386 8,386     84 8,302           8,386
Other comprehensive income/(loss) (2,419) (2,419)           (2,419) (2,419)      
Total comprehensive income $ 5,967 5,967                    
Balance (in shares) at Mar. 31, 2019 103,690,619   103,690,619                  
Balance at Mar. 31, 2019 $ 2,200,268 $ 2,171,409 $ 1,037 $ 28,859 $ 21,463 $ 2,124,868 $ 2,956,517 $ 7,494 $ 7,494 $ 17,584 $ 17,584 $ (811,223)
v3.19.1
Consolidated Statements of Equity/Capital (Parentheticals) - $ / shares
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Highwoods Properties, Inc. [Member]    
Dividends on Common Stock (per share) $ 0.475 $ 0.4625
Highwoods Properties, Inc. [Member] | Series A Cumulative Redeemable Preferred Shares [Member]    
Dividends on Preferred Stock (per share)/Distributions on Preferred Units (per unit) 21.5625 21.5625
Highwoods Realty Limited Partnership [Member]    
Distributions on Common Units (per unit) 0.475 0.4625
Highwoods Realty Limited Partnership [Member] | Series A Cumulative Redeemable Preferred Shares [Member]    
Dividends on Preferred Stock (per share)/Distributions on Preferred Units (per unit) $ 21.5625 $ 21.5625
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating activities:    
Net income $ 8,386 $ 34,246
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 69,204 57,568
Amortization of lease incentives and acquisition-related intangible assets and liabilities 1,689 (509)
Share-based compensation expense 4,572 4,295
Credit losses on operating lease receivables 7,315 227
Write-off of mortgages and notes receivable 4,087 0
Accrued interest on mortgages and notes receivable (85) (112)
Amortization of debt issuance costs 736 686
Amortization of cash flow hedges (515) (106)
Amortization of mortgages and notes payable fair value adjustments 385 317
Losses on debt extinguishment 375 0
Equity in earnings of unconsolidated affiliates (664) (522)
Distributions of earnings from unconsolidated affiliates 609 881
Settlement of cash flow hedges (5,144) 7,216
Changes in operating assets and liabilities:    
Accounts receivable (2,583) 3,288
Prepaid expenses and other assets (6,953) (7,692)
Accrued straight-line rents receivable (6,903) (6,619)
Accounts payable, accrued expenses and other liabilities (11,798) (14,636)
Net cash provided by operating activities 62,713 78,528
Investing activities:    
Investments in acquired real estate and related intangible assets, net of cash acquired 0 (50,649)
Investments in development in-process (28,555) (42,438)
Investments in tenant improvements and deferred leasing costs (38,544) (33,071)
Investments in building improvements (12,517) (19,293)
Distributions of capital from unconsolidated affiliates 29 105
Repayments of mortgages and notes receivable 74 379
Changes in other investing activities (1,989) (586)
Net cash used in investing activities (81,502) (145,553)
Financing activities:    
Dividends on Common Stock (49,175) (47,747)
Redemptions/repurchases of Preferred Stock (18) (5)
Dividends on Preferred Stock (622) (623)
Distributions to noncontrolling interests in the Operating Partnership (1,300) (1,300)
Distributions to noncontrolling interests in consolidated affiliates (308) (238)
Proceeds from the issuance of Common Stock 652 561
Costs paid for the issuance of Common Stock 0 (46)
Repurchase of shares related to tax withholdings (1,780) (1,544)
Borrowings on revolving credit facility 98,300 32,000
Repayments of revolving credit facility (145,300) (277,000)
Borrowings on mortgages and notes payable 349,010 345,863
Repayments of mortgages and notes payable (225,462) (444)
Changes in debt issuance costs and other financing activities (2,884) (2,903)
Net cash provided by financing activities 21,113 46,574
Net increase/(decrease) in cash and cash equivalents and restricted cash 2,324 (20,451)
Cash and cash equivalents and restricted cash at beginning of the period 10,143 88,333
Cash and cash equivalents and restricted cash at end of the period 12,467 67,882
Reconciliation of cash and cash equivalents and restricted cash:    
Cash and cash equivalents at end of the period 4,827 31,034
Restricted cash at end of the period 7,640 36,848
Supplemental disclosure of cash flow information:    
Cash paid for interest, net of amounts capitalized 23,924 15,986
Supplemental disclosure of non-cash investing and financing activities:    
Unrealized gains/(losses) on cash flow hedges (1,904) 7,877
Conversions of Common Units to Common Stock 131 902
Changes in accrued capital expenditures (119) (7,333)
Write-off of fully depreciated real estate assets 23,880 10,511
Write-off of fully amortized leasing costs 12,671 7,112
Write-off of fully amortized debt issuance costs 828 0
Adjustment of noncontrolling interests in the Operating Partnership to fair value 23,254 (19,582)
Initial recognition of lease liabilities related to right of use assets 35,349 0
Highwoods Realty Limited Partnership [Member]    
Operating activities:    
Net income 8,386 34,246
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 69,204 57,568
Amortization of lease incentives and acquisition-related intangible assets and liabilities 1,689 (509)
Share-based compensation expense 4,572 4,295
Credit losses on operating lease receivables 7,315 227
Write-off of mortgages and notes receivable 4,087 0
Accrued interest on mortgages and notes receivable (85) (112)
Amortization of debt issuance costs 736 686
Amortization of cash flow hedges (515) (106)
Amortization of mortgages and notes payable fair value adjustments 385 317
Losses on debt extinguishment 375 0
Equity in earnings of unconsolidated affiliates (664) (522)
Distributions of earnings from unconsolidated affiliates 609 881
Settlement of cash flow hedges (5,144) 7,216
Changes in operating assets and liabilities:    
Accounts receivable (2,583) 3,288
Prepaid expenses and other assets (6,953) (7,692)
Accrued straight-line rents receivable (6,903) (6,619)
Accounts payable, accrued expenses and other liabilities (11,798) (14,636)
Net cash provided by operating activities 62,713 78,528
Investing activities:    
Investments in acquired real estate and related intangible assets, net of cash acquired 0 (50,649)
Investments in development in-process (28,555) (42,438)
Investments in tenant improvements and deferred leasing costs (38,544) (33,071)
Investments in building improvements (12,517) (19,293)
Distributions of capital from unconsolidated affiliates 29 105
Repayments of mortgages and notes receivable 74 379
Changes in other investing activities (1,989) (586)
Net cash used in investing activities (81,502) (145,553)
Financing activities:    
Distributions on Common Units (50,281) (48,858)
Redemptions/repurchases of Preferred Units (18) (5)
Distributions on Preferred Units (622) (623)
Distributions to noncontrolling interests in consolidated affiliates (308) (238)
Proceeds from the issuance of Common Units 652 561
Costs paid for the issuance of Common Units 0 (46)
Repurchase of units related to tax withholdings (1,780) (1,544)
Borrowings on revolving credit facility 98,300 32,000
Repayments of revolving credit facility (145,300) (277,000)
Borrowings on mortgages and notes payable 349,010 345,863
Repayments of mortgages and notes payable (225,462) (444)
Changes in debt issuance costs and other financing activities (3,078) (3,092)
Net cash provided by financing activities 21,113 46,574
Net increase/(decrease) in cash and cash equivalents and restricted cash 2,324 (20,451)
Cash and cash equivalents and restricted cash at beginning of the period 10,143 88,333
Cash and cash equivalents and restricted cash at end of the period 12,467 67,882
Reconciliation of cash and cash equivalents and restricted cash:    
Cash and cash equivalents at end of the period 4,827 31,034
Restricted cash at end of the period 7,640 36,848
Supplemental disclosure of cash flow information:    
Cash paid for interest, net of amounts capitalized 23,924 15,986
Supplemental disclosure of non-cash investing and financing activities:    
Unrealized gains/(losses) on cash flow hedges (1,904) 7,877
Changes in accrued capital expenditures (119) (7,333)
Write-off of fully depreciated real estate assets 23,880 10,511
Write-off of fully amortized leasing costs 12,671 7,112
Write-off of fully amortized debt issuance costs 828 0
Adjustment of Redeemable Common Units to fair value 22,016 20,896
Initial recognition of lease liabilities related to right of use assets $ 35,349 $ 0
v3.19.1
Description of Business and Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies

Description of Business
 
Highwoods Properties, Inc. (the “Company”) is a fully integrated 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 its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At March 31, 2019, we owned or had an interest in 30.7 million rentable square feet of in-service properties, 1.6 million rentable square feet of office properties under development and approximately 350 acres of development land.
 
The Company is the sole general partner of the Operating Partnership. At March 31, 2019, the Company owned all of the Preferred Units and 103.3 million, or 97.4%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.7 million Common Units. During the three months ended March 31, 2019, the Company redeemed 3,000 Common Units for a like number of shares of Common Stock.
 
Basis of Presentation
 
Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
 
The Company's Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership's Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. All intercompany transactions and accounts have been eliminated.
 
The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have condensed or omitted certain notes and other information from the interim Consolidated Financial Statements presented in this Quarterly Report as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2018 Annual Report on Form 10-K.
 
Certain amounts within the Consolidated Statements of Income for the three months ended March 31, 2018 were removed and/or combined to conform to the current year presentation.
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 our 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 $58.3 million and $47.5 million for the three months ended March 31, 2019 and 2018, respectively.
Leases
 
See Note 2 for policies and related disclosures with respect to our leases as both a lessee and lessor.
Insurance
 
We are primarily self-insured for health care claims for participating employees. We have stop-loss coverage to limit our exposure to significant claims on a per claim and annual aggregate basis. We determine our liabilities for claims, including incurred but not reported losses, based on all relevant information, including actuarial estimates of claim liabilities. At March 31, 2019, a reserve of $0.6 million was recorded to cover estimated reported and unreported claims.
Other Events
 
During the first quarter of 2019, Laser Spine Institute, which leased a 176,000 square foot building with structured parking in Tampa’s Westshore submarket, suddenly ceased operations. As a result of this sudden closure, we incurred $5.6 million of credit losses on operating lease receivables and $2.3 million of write-offs of lease incentives (in rental and other revenues), $4.1 million of write-offs of notes receivable (in other income/(loss)) and $11.6 million of write-offs of tenant improvements and deferred leasing costs (in depreciation and amortization).
 
Recently Issued Accounting Standards
 
The Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) that eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item when the hedged item affects earnings. We adopted the ASU as of January 1, 2019 with no material effect on our Consolidated Financial Statements.
 
The FASB issued an ASU that changes certain disclosure requirements for fair value measurements. The ASU is required to be adopted in 2020 and applied prospectively. We do not expect such adoption to have a material effect on our Notes to Consolidated Financial Statements.
v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Leases
 
On January 1, 2019, we adopted Accounting Standards Codification Topic 842 “Leases” (“ASC 842”), which supersedes Accounting Standards Codification Topic 840 “Leases” (“ASC 840”). Information in this Note 2 with respect to our leases and lease related costs as both lessee and lessor and lease related receivables as lessor is presented under ASC 842 as of and for the three months ended March 31, 2019 and under ASC 840 as of and for the year ended December 31, 2018.
 
We adopted ASC 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. ASC 842 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. We operate as both a lessor and a lessee. As a lessor, we are required under ASC 842 to account for leases using an approach that is substantially equivalent to ASC 840's guidance for operating leases and other leases such as sales-type leases and direct financing leases. In addition, ASC 842 requires lessors to capitalize and amortize only incremental direct leasing costs. As a lessee, we are required under the new standard to apply a dual approach, classifying leases, such as ground leases, as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. ASC 842 also requires lessees to record a right of use asset and a lease liability for all leases with a term of greater than a year regardless of their classification. We have also elected the practical expedient not to recognize right of use assets and lease liabilities for leases with a term of a year or less.
 
On adoption of the standard, we elected the package of practical expedients provided for in ASC 842, including:
 
No reassessment of whether any expired or existing contracts were or contained leases;
 
No reassessment of the lease classification for any expired or existing leases; and
 
No reassessment of initial direct costs for any existing leases.
 
The package of practical expedients was made as a single election and was consistently applied to all existing leases as of January 1, 2019. We also elected the practical expedient provided to lessors in a subsequent amendment to ASC 842 that removed the requirement to separate lease and nonlease components, provided certain conditions were met.
 
Information as Lessor Under ASC 842
 
To generate positive cash flow, as a lessor, we lease our office properties to lessees in exchange for fixed monthly payments that cover rent, property taxes, insurance and certain cost recoveries, primarily common area maintenance (“CAM”). Office properties owned by us that are under lease are located in Atlanta, Greensboro, Memphis, Nashville, Orlando, Pittsburgh, Raleigh, Richmond and Tampa and are leased to a wide variety of lessees across many industries. Our leases were determined to be operating leases and generally range from three to 10 years. Payments from customers for CAM are considered nonlease components that are separated from lease components and are generally accounted for in accordance with the revenue recognition standard. However, we qualified for and elected the practical expedient related to combining the components because the lease component is classified as an operating lease and the timing and pattern of transfer of CAM income, which is not the predominant component, is the same as the lease component. As such, consideration for CAM is accounted for as part of the overall consideration in the lease. Payments from customers for property taxes and insurance are considered noncomponents of the lease and therefore no consideration is allocated to them because they do not transfer a good or service to the customer. Fixed contractual payments from our 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.
 
Some of our leases are subject to annual changes in the Consumer Price Index (“CPI”). Although increases in the CPI are not estimated as part of our measurement of straight-line rental revenue, to the extent that actual CPI is greater or less than the CPI at lease commencement, the amount of straight-line rent recognized in a given year is affected accordingly.
 
Some of our leases have termination options and/or extension options. Termination options allow the customer to terminate the lease prior to the end of the lease term under certain circumstances. Termination options generally become effective half way or further into the original lease term and require advance notification from the customer and payment of a termination fee that reimburses us for a portion of the remaining rent under the original lease term and the undepreciated lease inception costs such as commissions, tenant improvements and lease incentives. 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. Our extension options generally require a re-negotiation with the customer at market rates.
 
Initial direct costs, primarily commissions, related to the leasing of our office properties are included in deferred 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 and our in-house personnel for new leases or lease renewals are capitalized. Capitalized leasing costs are amortized on a straight-line basis over the initial fixed terms of the respective leases. All other costs to negotiate or arrange a lease are expensed as incurred.
 
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign a lease, are capitalized in deferred leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
 
Lease related receivables, which include accounts receivable and accrued straight-line rents receivable, are reduced for credit losses. Such amounts are recognized as a reduction to rental and other revenues. We regularly evaluate the collectability of our lease related receivables. Our evaluation of collectability 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 reduce the related receivable balance for amounts deemed uncollectible. If our assumptions regarding the collectability of lease related receivables prove incorrect, we could experience credit losses in excess of what was recognized in rental and other revenues.
 
We recognized $169.4 million of rental and other revenues related to operating lease payments of which $15.5 million was for variable lease payments for the three months ended March 31, 2019. The following table sets forth the undiscounted cash flows for future minimum base rents to be received from customers for leases in effect at March 31, 2019 for the properties that we wholly own:
 
April 1 through December 31, 2019
 
$
466,042

2020
 
586,386

2021
 
530,336

2022
 
494,060

2023
 
433,593

2024
 
372,614

Thereafter
 
1,679,410

 
 
$
4,562,441


 
Information as Lessor Under ASC 840
 
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.
 
Cost recovery income is determined on a calendar year and a lease-by-lease basis. The most common types of cost recovery income in our leases are CAM and real estate taxes, for which a customer typically pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of the costs incurred during a contractually specified base year. The computation of cost recovery income is complex and involves numerous judgments, including the interpretation of lease provisions. Leases are not uniform in dealing with such cost recovery income 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. After the end of the calendar year, we compute each customer's final cost recovery income 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.
  
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.
 
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign a lease, are capitalized in deferred leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
 
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 provide that we receive cost recovery income from customers for increases in certain costs above the costs incurred during a contractually specified base year.  
 
The following table sets forth our scheduled future minimum base rents to be received from customers for leases in effect at December 31, 2018 for the properties that we wholly own:
 
2019
 
$
618,014

2020
 
581,399

2021
 
524,381

2022
 
488,157

2023
 
428,461

Thereafter
 
2,068,891

 
 
$
4,709,303


 
Information as Lessee Under ASC 842
 
We have 20 properties subject to operating ground leases in Atlanta, Nashville, Orlando, Raleigh and Tampa with a weighted average remaining term of 52 years. Rental payments on these leases are adjusted periodically based on either the CPI or on a pre-determined schedule. The monthly payments on a pre-determined schedule are recognized on a straight-line basis over the terms of the respective leases. Changes in the CPI are not estimated as part of our measurement of straight-line rental expense. Upon initial adoption of ASC 842, we recognized a lease liability of $35.3 million (in accounts payable, accrued expenses and other liabilities) and a related right of use asset of $29.7 million (in prepaid expenses and other assets) on our Consolidated Balance Sheets equal to the present value of the minimum lease payments required under each ground lease. The difference between the recorded lease liability and right of use asset represents the accrued straight-line rent liability previously recognized under ASC 840. We used a discount rate of approximately 4.5%, which was derived from our assessment of the credit quality of the Company and adjusted to reflect secured borrowing, estimated yield curves and long-term spread adjustments over appropriate tenors. Some of our ground leases contain extension options; however, these did not impact our calculation of the right of use asset and liability as they extend beyond the useful life of the properties subject to the operating ground leases. We recognized $0.6 million of ground lease expense, of which $0.5 million was paid in cash, during the three months ended March 31, 2019.
 
The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on operating ground leases at March 31, 2019 and a reconciliation of those cash flows to the operating lease liability at March 31, 2019:
 
April 1 through December 31, 2019
 
$
1,539

2020
 
2,086

2021
 
2,127

2022
 
2,169

2023
 
2,167

2024
 
2,123

Thereafter
 
83,697

 
 
95,908

Discount
 
(60,668
)
Lease liability
 
$
35,240


 
Information as Lessee Under ASC 840
 
Certain of our properties are subject to operating ground leases. Rental payments on these leases are adjusted periodically based on either the CPI or on a pre-determined schedule. Total rental property expense recorded for operating ground leases was $2.5 million, $2.5 million and $2.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.
 
The following table sets forth our scheduled obligations for future minimum payments on operating ground leases at December 31, 2018:
 
2019
 
$
2,184

2020
 
2,223

2021
 
2,263

2022
 
2,305

2023
 
2,308

Thereafter
 
86,577

 
 
$
97,860

v3.19.1
Intangible Assets and Below Market Lease Liabilities
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Below Market Lease Liabilities
Intangible Assets and Below Market Lease Liabilities
 
The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:
 
 
March 31,
2019
 
December 31,
2018
Assets:
 
 
 
Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
$
344,711

 
$
344,548

Less accumulated amortization
(149,863
)
 
(149,275
)
 
$
194,848

 
$
195,273

Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
56,865

 
$
57,955

Less accumulated amortization
(32,870
)
 
(32,307
)
 
$
23,995

 
$
25,648

 
The following table sets forth amortization of intangible assets and below market lease liabilities:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
10,315

 
$
9,495

Amortization of lease incentives (in rental and other revenues)
$
2,848

 
$
429

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
357

 
$
448

Amortization of acquisition-related intangible assets (in rental property and other expenses)
$
137

 
$
137

Amortization of acquisition-related below market lease liabilities (in rental and other revenues)
$
(1,653
)
 
$
(1,523
)

The following table sets forth scheduled future amortization of intangible assets and below market lease liabilities:
 
 
 
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 Assets (in Rental Property and Other Expenses)
 
Amortization of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues)
April 1 through December 31, 2019
 
$
28,419

 
$
1,222

 
$
903

 
$
416

 
$
(4,649
)
2020
 
32,940

 
1,300

 
957

 
514

 
(5,005
)
2021
 
28,377

 
1,060

 
631

 

 
(4,204
)
2022
 
24,053

 
836

 
462

 

 
(3,133
)
2023
 
20,650

 
763

 
308

 

 
(2,753
)
Thereafter
 
46,416

 
3,521

 
1,100

 

 
(4,251
)
 
 
$
180,855

 
$
8,702

 
$
4,361

 
$
930

 
$
(23,995
)
Weighted average remaining amortization periods as of March 31, 2019 (in years)
 
7.1

 
9.2

 
6.5

 
1.7

 
5.5

v3.19.1
Mortgages and Notes Payable
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Mortgages and Notes Payable
Mortgages and Notes Payable
 
The following table sets forth our mortgages and notes payable:
 
 
March 31,
2019
 
December 31,
2018
Secured indebtedness
$
96,717

 
$
97,179

Unsecured indebtedness
2,075,211

 
1,997,816

Less-unamortized debt issuance costs
(11,334
)
 
(9,164
)
Total mortgages and notes payable, net
$
2,160,594

 
$
2,085,831


 
At March 31, 2019, our secured mortgage loan was collateralized by real estate assets with an undepreciated book value of $146.4 million.
 
Our $600.0 million unsecured revolving credit facility is scheduled to mature in January 2022 and includes an accordion feature that allows for an additional $400.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. The interest rate at our current credit ratings is LIBOR plus 100 basis points and the annual facility fee is 20 basis points. There was $135.0 million and $97.0 million outstanding under our revolving credit facility at March 31, 2019 and April 16, 2019, respectively. At March 31, 2019 and April 16, 2019, we had $0.2 million and $0.1 million, respectively, 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 March 31, 2019 and April 16, 2019 was $464.8 million and $502.9 million, respectively.
 
During the first quarter of 2019, we prepaid without penalty our $225.0 million, seven-year unsecured bank term loan, which was scheduled to mature in June 2020. The interest rate on the term loan was LIBOR plus 110 basis points. We recorded $0.4 million of loss on debt extinguishment related to this prepayment.

During the first quarter of 2019, the Operating Partnership issued $350.0 million aggregate principal amount of 4.20% notes due April 2029, less original issuance discount of $1.0 million. These notes were priced to yield 4.234%. Underwriting fees and other expenses were incurred that aggregated $3.1 million; these costs were deferred and will be amortized over the term of the notes.
 
We are currently in compliance with financial covenants with respect to our consolidated debt.
 
We have considered our short-term liquidity needs and the adequacy of our estimated cash flows from operating activities and other available financing sources to meet these needs. We intend to meet these short-term liquidity requirements through a combination of the following:
 
available cash and cash equivalents;
 
cash flows from operating activities;
 
issuance of debt securities by the Operating Partnership;
 
issuance of secured debt;
 
bank term loans;
 
borrowings under our revolving credit facility;
 
issuance of equity securities by the Company or the Operating Partnership; and
 
the disposition of non-core assets.
v3.19.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
 
During 2018, we entered into an aggregate of $225.0 million notional amount of forward-starting swaps that effectively locked the underlying 10-year treasury rate at a weighted average of 2.86% with respect to a planned issuance of debt securities by the Operating Partnership. Upon issuance of the $350.0 million aggregate principal amount of 4.20% notes due April 2029 during the first quarter of 2019, we terminated the forward-starting swaps and paid cash upon settlement. The unrealized loss of $5.1 million in accumulated other comprehensive income will be reclassified to interest expense as interest payments are made on the debt.

The counterparties under our swaps are major financial institutions. The swap agreements contain a provision whereby if we default on certain of our indebtedness and which default results in repayment of such indebtedness being, or becoming capable of being, accelerated by the lender, then we could also be declared in default on our swaps.

Our interest rate swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income/(loss) each reporting period. We have no collateral requirements related to our interest rate swaps.
 
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our debt. During the period from April 1, 2019 through March 31, 2020, we estimate that $1.3 million will be reclassified as a net decrease to interest expense.

The following table sets forth the gross fair value of our derivatives:
 
 
March 31,
2019
 
December 31,
2018
Derivatives:
 
 
 
Derivatives designated as cash flow hedges in prepaid expenses and other assets:
 
 
 
Interest rate swaps
$
659

 
$
1,146

Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:
 
 
 
Interest rate swaps
$

 
$
3,581


 
The following table sets forth the effect of our cash flow hedges on accumulated other comprehensive income and interest expense:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Derivatives Designated as Cash Flow Hedges:
 
 
 
Amount of unrealized gains/(losses) recognized in accumulated other comprehensive income on derivatives:
 
 
 
Interest rate swaps
$
(1,904
)
 
$
7,877

Amount of gains reclassified out of accumulated other comprehensive income into interest expense:
 
 
 
Interest rate swaps
$
(515
)
 
$
(106
)
v3.19.1
Noncontrolling Interests
3 Months Ended
Mar. 31, 2019
Noncontrolling Interest [Abstract]  
Noncontrolling Interests
Noncontrolling Interests

Noncontrolling Interests in Consolidated Affiliates
 
At March 31, 2019, our noncontrolling interests in consolidated affiliates relate to our joint venture partner's 50.0% interest in office properties in Richmond. Our joint venture partner is an unrelated third party.

Noncontrolling Interests in the Operating Partnership

The following table sets forth the Company's noncontrolling interests in the Operating Partnership:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Beginning noncontrolling interests in the Operating Partnership
$
105,960

 
$
144,009

Adjustment of noncontrolling interests in the Operating Partnership to fair value
23,254

 
(19,582
)
Conversions of Common Units to Common Stock
(131
)
 
(902
)
Net income attributable to noncontrolling interests in the Operating Partnership
193

 
888

Distributions to noncontrolling interests in the Operating Partnership
(1,300
)
 
(1,300
)
Total noncontrolling interests in the Operating Partnership
$
127,976

 
$
123,113


The following table sets forth net income available for common stockholders and transfers from the Company's noncontrolling interests in the Operating Partnership:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Net income available for common stockholders
$
7,255

 
$
32,449

Increase in additional paid in capital from conversions of Common Units to Common Stock
131

 
902

Change from net income available for common stockholders and transfers from noncontrolling interests
$
7,386

 
$
33,351

v3.19.1
Disclosure About Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Disclosure About Fair Value of Financial Instruments
Disclosure About Fair Value of Financial Instruments

The following summarizes the levels of inputs that we use to measure fair value.
 
Level 1.  Quoted prices in active markets for identical assets or liabilities.

Our Level 1 asset is our investment 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. The Company's Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company.

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 assets include the fair value of our mortgages and notes receivable and certain interest rate swaps. Our Level 2 liabilities include the fair value of our mortgages and notes payable and remaining interest rate swaps.

The fair value of mortgages and notes receivable and mortgages and notes payable is estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. The fair value of interest rate swaps 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 of interest rate swaps are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are considered in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.

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 include any real estate assets recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which are valued using the terms of definitive sales contracts or the sales comparison approach.

The following table sets forth our assets and liabilities and the Company's noncontrolling interests in the Operating Partnership that are measured or disclosed at fair value within the fair value hierarchy.
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
Total
 
Quoted Prices
in Active
Markets for Identical Assets or Liabilities
 
Significant Observable Inputs
 
Significant Unobservable Inputs
Fair Value at March 31, 2019:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Mortgages and notes receivable, at fair value (1)
 
$
1,623

 
$

 
$
1,623

 
$

Interest rate swaps (in prepaid expenses and other assets)
 
659

 

 
659

 

Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
 
2,074

 
2,074

 

 

Total Assets
 
$
4,356

 
$
2,074

 
$
2,282

 
$

Noncontrolling Interests in the Operating Partnership
 
$
127,976

 
$
127,976

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
 
Mortgages and notes payable, net, at fair value (1)
 
$
2,170,931

 
$

 
$
2,170,931

 
$

Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
 
2,074

 
2,074

 

 

Total Liabilities
 
$
2,173,005

 
$
2,074

 
$
2,170,931

 
$

Fair Value at December 31, 2018:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Mortgages and notes receivable, at fair value (1)
 
$
5,599

 
$

 
$
5,599

 
$

Interest rate swaps (in prepaid expenses and other assets)
 
1,146

 

 
1,146

 

Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
 
1,849

 
1,849

 

 

Impaired real estate assets
 
10,252

 

 

 
10,252

Total Assets
 
$
18,846

 
$
1,849

 
$
6,745

 
$
10,252

Noncontrolling Interests in the Operating Partnership
 
$
105,960

 
$
105,960

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
 
Mortgages and notes payable, net, at fair value (1)
 
$
2,056,248

 
$

 
$
2,056,248

 
$

Interest rate swaps (in accounts payable, accrued expenses and other liabilities)
 
3,581

 

 
3,581

 

Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
 
1,849

 
1,849

 

 

Total Liabilities
 
$
2,061,678

 
$
1,849

 
$
2,059,829

 
$


__________
(1)    Amounts recorded at historical cost on our Consolidated Balance Sheets at March 31, 2019 and December 31, 2018.
v3.19.1
Share-Based Payments
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Payments
Share-Based Payments
 
During the three months ended March 31, 2019, the Company granted 90,218 shares of time-based restricted stock and 73,972 shares of total return-based restricted stock with weighted average grant date fair values per share of $46.31 and $41.13, respectively. We recorded share-based compensation expense of $4.6 million and $4.3 million during the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019, there was $7.4 million of total unrecognized share-based compensation costs, which will be recognized over a weighted average remaining contractual term of 2.5 years.
v3.19.1
Accumulated Other Comprehensive Income
3 Months Ended
Mar. 31, 2019
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income
 
The following table sets forth the components of accumulated other comprehensive income:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Cash flow hedges:
 
 
 
Beginning balance
$
9,913

 
$
7,838

Unrealized gains/(losses) on cash flow hedges
(1,904
)
 
7,877

Amortization of cash flow hedges (1)
(515
)
 
(106
)
Total accumulated other comprehensive income
$
7,494

 
$
15,609

__________
(1)    Amounts reclassified out of accumulated other comprehensive income into interest expense.
v3.19.1
Real Estate and Other Assets Held For Sale
3 Months Ended
Mar. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Real Estate and Other Assets Held For Sale
Real Estate and Other Assets Held For Sale
The following table sets forth the assets held for sale at March 31, 2019 and December 31, 2018, which are considered non-core:
 
 
March 31,
2019
 
December 31,
2018
Assets:
 
 
 
Land
$
5,148

 
$

Buildings and tenant improvements
22,007

 

Land held for development
1,886

 

Less-accumulated depreciation
(6,539
)
 

Net real estate assets
22,502

 

Accrued straight-line rents receivable
1,604

 

Deferred leasing costs, net
656

 

Prepaid expenses and other assets
131

 

Real estate and other assets, net, held for sale
$
24,893

 
$

v3.19.1
Earnings Per Share and Per Unit
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Earnings Per Share and Per Unit
Earnings Per Share and Per Unit

The following table sets forth the computation of basic and diluted earnings per share of the Company:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Earnings per Common Share - basic:
 
 
 
Numerator:
 
 
 
Net income
$
8,386

 
$
34,246

Net (income) attributable to noncontrolling interests in the Operating Partnership
(193
)
 
(888
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(316
)
 
(286
)
Dividends on Preferred Stock
(622
)
 
(623
)
Net income available for common stockholders
$
7,255

 
$
32,449

Denominator:
 
 
 
Denominator for basic earnings per Common Share – weighted average shares
103,600

 
103,324

Net income available for common stockholders
$
0.07

 
$
0.31

Earnings per Common Share - diluted:
 
 
 
Numerator:
 
 
 
Net income
$
8,386

 
$
34,246

Net (income) attributable to noncontrolling interests in consolidated affiliates
(316
)
 
(286
)
Dividends on Preferred Stock
(622
)
 
(623
)
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
$
7,448

 
$
33,337

Denominator:
 
 
 
Denominator for basic earnings per Common Share – weighted average shares
103,600

 
103,324

Add:
 
 
 
Stock options using the treasury method
20

 
26

Noncontrolling interests Common Units
2,737

 
2,815

Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1)
106,357

 
106,165

Net income available for common stockholders
$
0.07

 
$
0.31

__________
(1)
Includes all unvested restricted stock where dividends on such restricted stock are non-forfeitable.
 
The following table sets forth the computation of basic and diluted earnings per unit of the Operating Partnership:
 
 
Three Months Ended
March 31,
 
2019
 
2018
Earnings per Common Unit - basic:
 
 
 
Numerator:
 
 
 
Net income
$
8,386

 
$
34,246

Net (income) attributable to noncontrolling interests in consolidated affiliates
(316
)
 
(286
)
Distributions on Preferred Units
(622
)
 
(623
)
Net income available for common unitholders
$
7,448

 
$
33,337

Denominator:
 
 
 
Denominator for basic earnings per Common Unit – weighted average units
105,928

 
105,730

Net income available for common unitholders
$
0.07

 
$
0.32

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