HIGHWOODS PROPERTIES, INC., 10-Q filed on 5/2/2011
Quarterly Report
Consolidated Balance Sheets (USD $)
In Thousands
3 Months Ended
Mar. 31, 2011
Year Ended
Dec. 31, 2010
Real estate assets, at cost:
 
 
Land
$ 347,876 
$ 347,876 
Buildings and tenant improvements
2,897,791 
2,895,779 
Development in process
6,882 
4,524 
Land held for development
107,837 
108,067 
Total real estate assets, at cost
3,360,386 
3,356,246 
Less-accumulated depreciation
(854,423)
(835,165)
Net real estate assets
2,505,963 
2,521,081 
For-sale residential condominiums
7,753 
8,225 
Real estate and other assets, net, held for sale
1,863 
1,852 
Cash and cash equivalents
30,810 
14,206 
Restricted cash
6,509 
4,399 
Accounts receivable, net of allowance of $3,274 and $3,595, respectively
21,862 
20,716 
Mortgages and notes receivable, net of allowance of $497 and $868, respectively
18,911 
19,044 
Accrued straight-line rents receivable, net of allowance of $1,397 and $2,209, respectively
96,927 
93,435 
Investment in unconsolidated affiliates
63,983 
63,607 
Deferred financing and leasing costs, net of accumulated amortization of $61,015 and $59,383, respectively
86,040 
85,059 
Prepaid expenses and other assets
36,608 
40,211 
Total Assets
2,877,229 
2,871,835 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
 
 
Mortgages and notes payable
1,552,577 
1,522,945 
Accounts payable, accrued expenses and other liabilities
93,775 
106,716 
Financing obligations
33,040 
33,114 
Total Liabilities
1,679,392 
1,662,775 
Commitments and contingencies
 
 
Noncontrolling interests in the Operating Partnership
132,630 
120,838 
Equity:
 
 
Common Stock, $.01 par value, 200,000,000 authorized shares; 72,130,214 and 71,690,487 shares issued and outstanding, respectively
721 
717 
Additional paid-in capital
1,764,404 
1,766,886 
Distributions in excess of net income available for common stockholders
(782,060)
(761,785)
Accumulated other comprehensive loss
(3,812)
(3,648)
Total Stockholders' Equity
1,060,845 
1,083,762 
Noncontrolling interests in consolidated affiliates
4,362 
4,460 
Total Equity
1,065,207 
1,088,222 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
2,877,229 
2,871,835 
Series A Cumulative Redeemable Preferred Shares [Member]
 
 
Equity:
 
 
Preferred Stock, $.01 par value, 50,000,000 authorized shares
29,092 
29,092 
Series B Cumulative Redeemable Preferred Shares [Member]
 
 
Equity:
 
 
Preferred Stock, $.01 par value, 50,000,000 authorized shares
$ 52,500 
$ 52,500 
Parenthetical Data to The Consolidated Balance Sheets (USD $)
In Thousands, except Share data
Mar. 31, 2011
Dec. 31, 2010
Assets:
 
 
Accounts receivable, allowance
$ 3,274 
$ 3,595 
Mortgages and notes receivable, allowance
497 
868 
Accrued straight-line rents receivable, allowance
1,397 
2,209 
Deferred financing and leasing costs, accumulated amortization
61,015 
59,383 
Equity:
 
 
Preferred Stock, par value
0.01 
0.01 
Preferred Stock, shares authorized
50,000,000 
50,000,000 
Common stock, par value
0.01 
0.01 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares issued
72,130,214 
71,690,487 
Common stock, shares outstanding
72,130,214 
71,690,487 
Series A Cumulative Redeemable Preferred Shares [Member]
 
 
Equity:
 
 
Preferred stock, liquidation preference
1,000 
1,000 
Preferred stock, shares outstanding
29,092 
29,092 
Preferred stock, shares issued
29,092 
29,092 
Series B Cumulative Redeemable Preferred Shares [Member]
 
 
Equity:
 
 
Preferred stock, liquidation preference
$ 25 
$ 25 
Preferred stock, shares outstanding
2,100,000 
2,100,000 
Preferred stock, shares issued
2,100,000 
2,100,000 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data
3 Months Ended
Mar. 31,
2011
2010
Income Statement [Abstract]
 
 
Rental and other revenues
$ 115,592 
$ 115,054 
Operating expenses:
 
 
Rental property and other expenses
41,379 
41,715 
Depreciation and amortization
33,812 
32,729 
General and administrative
7,793 
8,507 
Total operating expenses
82,984 
82,951 
Interest expense:
 
 
Contractual
22,431 
21,802 
Amortization of deferred financing costs
821 
835 
Financing obligations
291 
476 
Total interest expense
23,543 
23,113 
Other income:
 
 
Interest and other income
1,873 
1,700 
Total other income
1,873 
1,700 
Income from continuing operations before disposition of property and condominiums and equity in earnings of unconsolidated affiliates
10,938 
10,690 
Gains on disposition of property
0 
19 
Gains on disposition of for-sale residential condominiums
38 
190 
Equity in earnings of unconsolidated affiliates
1,467 
795 
Income from continuing operations
12,443 
11,694 
Discontinued operations:
 
 
Income from discontinued operations
0 
214 
Net gains on disposition of discontinued operations
0 
174 
Total discontinued operations
0 
388 
Net income
12,443 
12,082 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(507)
(520)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(123)
(214)
Dividends on Preferred Stock
(1,677)
(1,677)
Net income available for common stockholders
10,136 
9,671 
Earnings per common share - basic:
 
 
Income from continuing operations available for common stockholders
0.14 
0.13 
Income from discontinued operations available for common stockholders
0 
0.01 
Net income available for common stockholders
0.14 
0.14 
Weighted average Common Shares outstanding - basic
71,817 
71,414 
Earnings per common share - diluted:
 
 
Income from continuing operations available for common stockholders
0.14 
0.13 
Income from discontinued operations available for common stockholders
0 
0.01 
Net income available for common stockholders
0.14 
0.14 
Weighted average Common Shares outstanding - diluted
75,792 
75,397 
Net income available for common stockholders:
 
 
Income from continuing operations available for common stockholders
10,136 
9,303 
Income from discontinued operations available for common stockholders
0 
368 
Net income available for common stockholders
$ 10,136 
$ 9,671 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data
Common Stock
Series A Cumulative Redeemable Preferred Shares [Member]
Series B Cumulative Redeemable Preferred Shares [Member]
Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Non-Controlling Interests in Consolidated Affiliates
Distributions in Excess of Net Income Available for Common Stockholders [Member]
Total
Balance - Shares at Dec. 31, 2009
71,285,303 
 
 
 
 
 
 
 
Balance at Dec. 31, 2009
$ 713 
$ 29,092 
$ 52,500 
$ 1,751,398 
$ (3,811)
$ 5,183 
$ (701,932)
$ 1,133,143 
Issuances of Common Stock - Shares
68,886 
 
 
 
 
 
 
 
Issuances of Common Stock, net
1 
0 
0 
1,141 
0 
0 
0 
1,142 
Conversion of Common Units to Common Stock - Shares
92,971 
 
 
 
 
 
 
 
Conversion of Common Units to Common Stock
1 
0 
0 
2,924 
0 
0 
0 
2,925 
Dividends on Common Stock
0 
0 
0 
0 
0 
0 
(30,323)
(30,323)
Dividends on Preferred Stock
0 
0 
0 
0 
0 
0 
(1,677)
(1,677)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
0 
0 
0 
5,235 
0 
0 
0 
5,235 
Distributions to noncontrolling interests in consolidated affiliates
0 
0 
0 
0 
0 
(204)
0 
(204)
Issuances of restricted stock, net - Shares
154,897 
 
 
 
 
 
 
 
Issuances of restricted stock, net
0 
0 
0 
0 
0 
0 
0 
0 
Share-based compensation expense
1 
0 
0 
2,054 
0 
0 
0 
2,055 
Net (income) attributable to noncontrolling interests in the Operating Partnership
0 
0 
0 
0 
0 
0 
(520)
(520)
Net (income) attributable to noncontrolling interests in consolidated affiliates
0 
0 
0 
0 
0 
214 
(214)
0 
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
0 
0 
0 
0 
0 
0 
12,082 
12,082 
Other comprehensive income
0 
0 
0 
0 
458 
0 
0 
458 
Total comprehensive income
 
 
 
 
 
 
 
12,540 
Balance at Mar. 31, 2010
716 
29,092 
52,500 
1,762,752 
(3,353)
5,193 
(722,584)
1,124,316 
Balance - Shares at Mar. 31, 2010
71,602,057 
 
 
 
 
 
 
 
Balance - Shares at Dec. 31, 2010
71,690,487 
 
 
 
 
 
 
71,690,487 
Balance at Dec. 31, 2010
717 
29,092 
52,500 
1,766,886 
(3,648)
4,460 
(761,785)
1,088,222 
Issuances of Common Stock - Shares
307,060 
 
 
 
 
 
 
 
Issuances of Common Stock, net
3 
0 
0 
8,388 
0 
0 
0 
8,391 
Conversion of Common Units to Common Stock - Shares
5,641 
 
 
 
 
 
 
 
Conversion of Common Units to Common Stock
0 
0 
0 
186 
0 
0 
0 
186 
Dividends on Common Stock
0 
0 
0 
0 
0 
0 
(30,411)
(30,411)
Dividends on Preferred Stock
0 
0 
0 
0 
0 
0 
(1,677)
(1,677)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
0 
0 
0 
(13,081)
0 
0 
0 
(13,081)
Distributions to noncontrolling interests in consolidated affiliates
0 
0 
0 
0 
0 
(221)
0 
(221)
Issuances of restricted stock, net - Shares
127,026 
 
 
 
 
 
 
 
Issuances of restricted stock, net
0 
0 
0 
0 
0 
0 
0 
0 
Share-based compensation expense
1 
0 
0 
2,025 
0 
0 
0 
2,026 
Net (income) attributable to noncontrolling interests in the Operating Partnership
0 
0 
0 
0 
0 
0 
(507)
(507)
Net (income) attributable to noncontrolling interests in consolidated affiliates
0 
0 
0 
0 
0 
123 
(123)
0 
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
0 
0 
0 
0 
0 
0 
12,443 
12,443 
Other comprehensive income
0 
0 
0 
0 
(164)
0 
0 
(164)
Total comprehensive income
 
 
 
 
 
 
 
12,279 
Balance at Mar. 31, 2011
$ 721 
$ 29,092 
$ 52,500 
$ 1,764,404 
$ (3,812)
$ 4,362 
$ (782,060)
$ 1,065,207 
Balance - Shares at Mar. 31, 2011
72,130,214 
 
 
 
 
 
 
72,130,214 
Consolidated Statements of Cash Flows (USD $)
In Thousands
3 Months Ended
Mar. 31,
2011
2010
Operating activities:
 
 
Net income
$ 12,443 
$ 12,082 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
33,812 
32,912 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
499 
261 
Share-based compensation expense
2,026 
2,055 
Additions to allowance for doubtful accounts
298 
1,331 
Amortization of deferred financing costs
821 
835 
Amortization of settled cash-flow hedges
(29)
239 
Net gains on disposition of property
0 
193 
Gains on disposition of for-sale residential condominiums
(38)
(190)
Equity in earnings of unconsolidated affiliates
(1,467)
(795)
Changes in financing obligations
(74)
52 
Distributions of earnings from unconsolidated affiliates
1,137 
681 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(993)
(3,928)
Prepaid expenses and other assets
(1,446)
(509)
Accrued straight-line rents receivable
(3,214)
(1,407)
Accounts payable, accrued expenses and other liabilities
(15,291)
(3,676)
Net cash provided by operating activities
28,484 
39,750 
Investing activities:
 
 
Additions to real estate assets and deferred leasing costs
(16,835)
(16,814)
Net proceeds from disposition of for-sale residential condominiums
510 
1,943 
Distributions of capital from unconsolidated affiliates
408 
730 
Repayments of mortgages and notes receivable
133 
59 
Contributions to unconsolidated affiliates
(422)
(36)
Changes in restricted cash and other investing activities
1,966 
596 
Net cash used in investing activities
(14,240)
(13,522)
Financing activities:
 
 
Dividends on Common Stock
(30,411)
(30,323)
Dividends on Preferred Stock
(1,677)
(1,677)
Distributions to noncontrolling interests in the Operating Partnership
(1,610)
(1,614)
Distributions to noncontrolling interests in consolidated affiliates
(221)
(204)
Net proceeds from the issuance of Common Stock
8,391 
1,142 
Borrowings on revolving credit facility
5,000 
4,000 
Repayments of revolving credit facility
(35,000)
(4,000)
Borrowings on mortgages and notes payable
200,000 
0 
Repayments of mortgages and notes payable
(140,491)
(2,725)
Additions to deferred financing costs and other financing activities
(1,621)
(188)
Net cash provided by/(used in) financing activities
2,360 
(35,589)
Net increase/(decrease) in cash and cash equivalents
16,604 
(9,361)
Cash and cash equivalents at beginning of the period
14,206 
23,699 
Cash and cash equivalents at end of the period
30,810 
14,338 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
23,602 
23,541 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Conversion of Common Units to Common Stock
186 
2,925 
Change in accrued capital expenditures
2,641 
(3,456)
Write-off of fully depreciated real estate assets
9,912 
10,194 
Write-off of fully amortized deferred financing and leasing costs
4,023 
2,652 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
177 
204 
Settlement of financing obligation
0 
4,184 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
13,081 
(5,235)
Unrealized gain/(loss) on tax increment financing bond
$ (135)
$ 219 
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies
1.      Description of Business and Significant Accounting Policies

Description of Business

The Company is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that operates in the Southeastern and Midwestern United States. The Company conducts virtually all of its activities through the Operating Partnership. At March 31, 2011, the Company and/or the Operating Partnership wholly owned: 294 in-service office, industrial and retail properties, comprising 27.1 million square feet; 96 rental residential units; 24 for-sale residential condominiums; 610 acres of undeveloped land suitable for future development, of which 523 acres are considered core holdings; and an additional three office properties that are considered completed but not yet stabilized.

The Company is the sole general partner of the Operating Partnership. At March 31, 2011, the Company owned all of the Preferred Units and 71.7 million, or 95.0%, of the Common Units. Limited partners (including one officer and two directors of the Company) own the remaining 3.8 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, $.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 the three months ended March 31, 2011, the Company redeemed 5,641 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 (“GAAP”). Our Consolidated Statements of Income for the three months ended March 31, 2010 were revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale subsequent to that date which required discontinued operations presentation.

Our Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which we have the controlling financial interest. All significant intercompany transactions and accounts have been eliminated. At March 31, 2011 and December 31, 2010, we were not involved with any entities that were determined to be variable interest entities.

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 omitted certain notes and other information from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2010 Annual Report on Form 10-K.

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.
Mortgages and Notes Receivable
Mortgages and Notes Receivable
2.      Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

   
March 31,
2011
 
December 31,
2010
 
Seller financing (first mortgages)
 
$
17,180
 
$
17,180
 
Less allowance
   
—
   
—
 
     
17,180
   
17,180
 
Promissory notes
   
2,228
   
2,732
 
Less allowance
   
(497
)
 
(868
)
     
1,731
   
1,864
 
Mortgages and notes receivable, net
 
$
18,911
 
$
19,044
 

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

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Beginning notes receivable allowance
 
$
868
 
$
698
 
Bad debt expense
   
22
   
63
 
Write-offs
   
(364
)
 
—
 
Recoveries/other
   
(29
)
 
(29
)
Total notes receivable allowance
 
$
497
 
$
732
 

Our mortgages and notes receivable consists primarily of seller financing issued in conjunction with two disposition transactions in the second quarter of 2010. As of March 31, 2011, the interest payments on both mortgages receivable were current and there were no indications of impairment on the receivables.
Investments in Affiliates
Investments in Unconsolidated Affiliates
3.      Investment in Unconsolidated Affiliates

We have equity interests ranging from 10.0% to 50.0% in various joint ventures with unrelated third parties. The following table sets forth the combined, summarized income statements for our unconsolidated joint ventures:

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Income Statements:
             
Revenues
 
$
25,217
 
$
35,588
 
Expenses:
             
Rental property and other expenses
   
11,997
   
17,167
 
Depreciation and amortization
   
6,616
   
9,600
 
Interest expense
   
6,007
   
8,565
 
Total expenses
   
24,620
   
35,332
 
Net income
 
$
597
 
$
256
 
Our share of:
             
Depreciation and amortization of real estate assets
 
$
2,093
 
$
3,341
 
Interest expense
 
$
2,161
 
$
3,423
 
Net income
 
$
921
 
$
212
 
               
Our share of net income
 
$
921
 
$
212
 
Purchase accounting and management, leasing and other fees adjustments
   
546
   
583
 
Equity in earnings of unconsolidated affiliates
 
$
1,467
 
$
795
 

During the second quarter of 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. For information regarding this sale, see Note 3 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.
Intangible Assets and Liabilities
Intangible Assets and Liabilities
4.      Intangible Assets and Liabilities

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

   
March 31,
2011
 
December 31,
2010
 
Assets:
             
Deferred financing costs
 
$
17,399
 
$
16,412
 
Less accumulated amortization
   
(7,249
)
 
(7,054
)
     
10,150
   
9,358
 
Deferred leasing costs (including lease incentives and acquisition-related intangible assets)
   
129,656
   
128,030
 
Less accumulated amortization
   
(53,766
)
 
(52,329
)
     
75,890
   
75,701
 
Deferred financing and leasing costs, net
 
$
86,040
 
$
85,059
 
               
Liabilities:
             
Acquisition-related intangible liabilities (in accounts payable, accrued expenses and other liabilities)
 
$
709
 
$
658
 
Less accumulated amortization
   
(201
)
 
(125
)
   
$
508
 
$
533
 

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

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Amortization of deferred financing costs
 
$
821
 
$
835
 
Amortization of acquisition-related intangible assets (in depreciation and amortization)
 
$
4,356
 
$
3,766
 
Amortization of lease incentives (in rental and other revenues)
 
$
338
 
$
261
 
Amortization of acquisition-related intangible assets and liabilities (in rental and other revenues)
 
$
161
 
$
40
 

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

   
Amortization of Deferred Financing Costs
 
Amortization of Acquisition-Related Intangible Assets (in Depreciation and Amortization)
 
Amortization of Lease Incentives (in Rental and Other Revenues)
 
Amortization of Acquisition-Related Intangible Assets and Liabilities (in Rental and Other Revenues)
 
April 1, 2011 through December 31, 2011
 
$
2,546
 
$
12,632
 
$
864
 
$
461
 
2012                                                             
   
3,092
   
14,302
   
1,056
   
533
 
2013                                                             
   
1,484
   
11,475
   
898
   
377
 
2014                                                             
   
1,098
   
8,812
   
739
   
285
 
2015                                                             
   
1,098
   
6,457
   
529
   
182
 
Thereafter                                                             
   
832
   
13,494
   
1,813
   
473
 
   
$
10,150
 
$
67,172
 
$
5,899
 
$
2,311
 
 
The weighted average remaining amortization periods for deferred financing costs, acquisition-related intangible assets (in depreciation and amortization), lease incentives and acquisition-related intangible assets and liabilities (in rental and other revenues) were 3.5 years, 6.1 years, 7.9 years and 6.5 years, respectively, as of March 31, 2011.
Mortgages and Notes Payable
Mortgages and Notes Payable
5.      Mortgages and Notes Payable

The following table sets forth our consolidated mortgages and notes payable:

   
March 31,
2011
 
December 31,
2010
 
Secured indebtedness                                                                                                      
 
$
751,501
 
$
754,399
 
Unsecured indebtedness                                                                                                      
   
801,076
   
768,546
 
Total mortgages and notes payable
 
$
1,552,577
 
$
1,522,945
 

At March 31, 2011, our secured mortgage loans were secured by real estate assets with an aggregate undepreciated book value of $1.2 billion.

Our $400.0 million unsecured revolving credit facility is scheduled to mature on February 21, 2013 and includes an accordion feature that allows for an additional $50.0 million of borrowing capacity subject to additional lender commitments. Assuming we continue to have three publicly announced ratings from the credit rating agencies, the interest rate and facility fee under our revolving credit facility are based on the lower of the two highest publicly announced ratings. Based on our current credit ratings, the interest rate is LIBOR plus 290 basis points and the annual facility fee is 60 basis points. There were no amounts and $33.0 million outstanding under our revolving credit facility at March 31, 2011 and April 25, 2011, respectively. At March 31, 2011 and April 25, 2011, we had $0.5 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 March 31, 2011 and April 25, 2011 was $399.5 million and $366.5 million, respectively.

Our $70.0 million secured construction facility, of which $52.1 million was outstanding at March 31, 2011, is scheduled to mature on December 20, 2011. Assuming no defaults have occurred, we have the option to extend the maturity date for an additional one-year period. The interest rate is LIBOR plus 85 basis points. This facility had $17.9 million of availability at both March 31, 2011 and April 25, 2011.

In the first quarter of 2011, we 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.

We are currently in compliance with the debt covenants and other requirements with respect to our outstanding debt.
Noncontrolling Interests
Noncontrolling Interests
6.      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. The following table sets forth noncontrolling interests in the Operating Partnership:

   
Three Months Ended
March 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
   
13,081
   
(5,235
)
Conversion of Common Units to Common Stock
   
(186
)
 
(2,925
)
Net income attributable to noncontrolling interests in the Operating Partnership
   
507
   
520
 
Distributions to noncontrolling interests in the Operating Partnership
   
(1,610
)
 
(1,614
)
Total noncontrolling interests in the Operating Partnership
 
$
132,630
 
$
120,515
 

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

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Net income available for common stockholders                                                                                                           
 
$
10,136
 
$
9,671
 
Increase in additional paid in capital from conversion of Common Units to Common Stock
   
186
   
2,924
 
Change from net income available for common stockholders and transfers from noncontrolling interests
 
$
10,322
 
$
12,595
 

Noncontrolling Interests in Consolidated Affiliates

At March 31, 2011, noncontrolling interests in consolidated affiliates, a component of equity, 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.
Disclosure About Fair Value of Financial Instruments
Disclosure About Fair Value of Financial Instruments
7.      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 which 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.

We had no Level 2 assets or liabilities at March 31, 2011 and December 31, 2010.

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 asset is our tax increment financing bond, which is not routinely traded but whose fair value is determined using an estimate of projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds.

The following tables set forth the assets, noncontrolling interests in the Operating Partnership and liability 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.

   
March 31,
2011
 
Level 1
 
Level 3
 
Assets:
                   
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
 
$
4,100
 
$
4,100
 
$
—
 
Tax increment financing bond (in prepaid expenses and other assets)
   
15,564
   
—
   
15,564
 
Total Assets
 
$
19,664
 
$
4,100
 
$
15,564
 
                     
Noncontrolling Interests in the Operating Partnership
 
$
132,630
 
$
132,630
 
$
—
 
                     
Liability:
                   
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
 
$
4,100
 
$
4,100
 
$
—
 


   
December 31,
2010
 
Level 1
 
Level 3
 
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 our Level 3 asset:

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Asset:
             
Tax Increment Financing Bond
             
Beginning balance
 
$
15,699
 
$
16,871
 
Unrealized gain/(loss) (in AOCL)
   
(135
)
 
219
 
Ending balance
 
$
15,564
 
$
17,090
 

We own a tax increment financing bond associated with a property developed by us. This bond amortizes to maturity in 2020. The estimated fair value at March 31, 2011 was $2.7 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 $0.7 million higher, respectively, as of March 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 each of the three months ended March 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
 
March 31, 2011
             
Mortgages and notes receivable
 
$
18,911
 
$
19,068
 
Mortgages and notes payable
 
$
1,552,577
 
$
1,638,968
 
Financing obligations
 
$
33,040
 
$
21,632
 
               
December 31, 2010
             
Mortgages and notes receivable                                                                                                
 
$
19,044
 
$
19,093
 
Mortgages and notes payable                                                                                                
 
$
1,522,945
 
$
1,581,518
 
Financing obligations                                                                                                
 
$
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.
Share-Based Payments
Share-Based Payments
8.      Share-Based Payments

During the three months ended March 31, 2011, we granted 146,581 stock options with an exercise price equal to the closing market price of a share of our Common Stock on the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $6.47. During the three months ended March 31, 2011, we also granted 69,640 shares of time-based restricted stock and 57,386 shares of total return-based restricted stock with weighted average grant date fair values per share of $33.72 and $41.02, respectively. We recorded stock-based compensation expense of $2.0 million and $2.1 million during the three months ended March 31, 2011 and 2010, respectively. At March 31, 2011, there was $9.1 million of total unrecognized stock-based compensation costs, which will be recognized over a weighted average remaining contractual term of 2.9 years.
Comprehensive Income and Accumulated Other Comprehensive Loss
Comprehensive Income and Accumulated Other Comprehensive Loss
9.      Comprehensive Income and Accumulated Other Comprehensive Loss

The following table sets forth the components of comprehensive income:

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Net income                                                                                                         
 
$
12,443
 
$
12,082
 
Other comprehensive income/(loss):
             
Unrealized gain/(loss) on tax increment financing bond
   
(135
)
 
219
 
Amortization of settled cash-flow hedges
   
(29
)
 
239
 
Total other comprehensive income/(loss)
   
(164
)
 
458
 
Total comprehensive income
 
$
12,279
 
$
12,540
 

The following table sets forth the components of AOCL:

   
March 31,
2011
 
December 31,
2010
 
Tax increment financing bond                                                                                                      
 
$
2,678
 
$
2,543
 
Settled cash-flow hedges                                                                                                      
   
1,134
   
1,105
 
Total accumulated other comprehensive loss
 
$
3,812
 
$
3,648
 

Discontinued Operations
Discontinued Operations
10.   Discontinued Operations

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

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Rental and other revenues                                                                                                           
 
$
—
 
$
779
 
Operating expenses:
   
—
       
Rental property and other expenses
   
—
   
382
 
Depreciation and amortization
   
—
   
183
 
Total operating expenses
   
—
   
565
 
Income from discontinued operations
   
—
   
214
 
Net gains on disposition of discontinued operations
   
—
   
174
 
Total discontinued operations                                                                                                           
 
$
—
 
$
388
 

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

   
March 31,
2011
 
December 31,
2010
 
Assets:
             
Buildings and tenant improvements
 
$
20
 
$
20
 
Land held for development
   
1,800
   
1,800
 
Net real estate assets
   
1,820
   
1,820
 
Prepaid expenses and other assets
   
43
   
32
 
Real estate and other assets, net, held for sale
 
$
1,863
 
$
1,852
 

Earnings Per Share
Earnings Per Share
11.    Earnings Per Share

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

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Earnings per Common Share – basic:
             
Numerator:
             
Income from continuing operations
 
$
12,443
 
$
11,694
 
Net (income) attributable to noncontrolling  interests in the Operating Partnership from continuing operations
   
(507
)
 
(500
)
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
(123
)
 
(214
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
Income from continuing operations available for common stockholders
   
10,136
   
9,303
 
Income from discontinued operations
   
—
   
388
 
Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations
   
—
   
(20
)
Income from discontinued operations available for common stockholders
   
—
   
368
 
Net income available for common stockholders
 
$
10,136
 
$
9,671
 
Denominator:
             
Denominator for basic earnings per Common Share – weighted average shares (1) (2)
   
71,817
   
71,414
 
Earnings per Common Share – basic:
             
Income from continuing operations available for common stockholders
 
$
0.14
 
$
0.13
 
Income from discontinued operations available for common stockholders
   
—
   
0.01
 
Net income available for common stockholders
 
$
0.14
 
$
0.14
 
Earnings per Common Share – diluted:
             
Numerator:
             
Income from continuing operations
 
$
12,443
 
$
11,694
 
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
(123
)
 
(214
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
   
10,643
   
9,803
 
Income from discontinued operations available for common stockholders
   
—
   
388
 
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
 
$
10,643
 
$
10,191
 
Denominator:
             
Denominator for basic earnings per Common Share –weighted average shares (1) (2)
   
71,817
   
71,414
 
Add:
             
Stock options using the treasury method
   
185
   
164
 
Noncontrolling interests partnership units
   
3,790
   
3,819
 
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1)
   
75,792
   
75,397
 
Earnings per Common Share – diluted:
             
Income from continuing operations available for common stockholders
 
$
0.14
 
$
0.13
 
Income from discontinued operations available for common stockholders
   
—
   
0.01
 
Net income available for common stockholders
 
$
0.14
 
$
0.14
 
__________
 
(1)
Options aggregating approximately 0.3 million shares and options and warrants aggregating approximately 0.7 million shares were outstanding during the three months ended March 31, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the impact of including such shares would be anti-dilutive.
 
(2)
Includes all unvested restricted stock since dividends on such restricted stock are non-forfeitable.

Segment Information
Segment Information
12.    Segment Information

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:

   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Rental and Other Revenues: (1)
             
Office:
             
Atlanta, GA
 
$
11,903
 
$
12,133
 
Greenville, SC
   
3,506
   
3,677
 
Kansas City, MO
   
3,657
   
3,708
 
Memphis, TN
   
10,103
   
7,868
 
Nashville, TN
   
14,617
   
15,114
 
Orlando, FL
   
2,318
   
3,006
 
Piedmont Triad, NC
   
5,973
   
5,945
 
Raleigh, NC
   
19,324
   
18,805
 
Richmond, VA
   
11,380
   
11,794
 
Tampa, FL
   
16,794
   
17,941
 
Total Office Segment
   
99,575
   
99,991
 
Industrial:
             
Atlanta, GA
   
3,935
   
3,975
 
Piedmont Triad, NC
   
2,977
   
3,021
 
Total Industrial Segment
   
6,912
   
6,996
 
Retail:
             
Kansas City, MO
   
8,898
   
7,688
 
Total Retail Segment
   
8,898
   
7,688
 
Residential:
             
Kansas City, MO
   
207
   
379
 
Total Residential Segment
   
207
   
379
 
Total Rental and Other Revenues                                                                                                         
 
$
115,592
 
$
115,054
 


   
Three Months Ended
March 31,
 
   
2011
 
2010
 
Net Operating Income: (1)
             
Office:
             
Atlanta, GA
 
$
7,495
 
$
7,634
 
Greenville, SC
   
2,075
   
2,281
 
Kansas City, MO
   
2,115
   
2,213
 
Memphis, TN
   
5,761
   
5,278
 
Nashville, TN
   
9,654
   
9,869
 
Orlando, FL
   
1,167
   
1,614
 
Piedmont Triad, NC
   
4,029
   
3,638
 
Raleigh, NC
   
13,207
   
12,629
 
Richmond, VA
   
7,862
   
7,950
 
Tampa, FL
   
10,392
   
10,819
 
Total Office Segment                                                                                       
   
63,757
   
63,925
 
Industrial:
             
Atlanta, GA
   
2,840
   
2,770
 
Piedmont Triad, NC
   
2,224
   
2,048
 
Total Industrial Segment
   
5,064
   
4,818
 
Retail:
             
Kansas City, MO
   
5,288
   
4,359
 
Total Retail Segment
   
5,288
   
4,359
 
Residential:
             
Kansas City, MO
   
104
   
237
 
Total Residential Segment
   
104
   
237
 
Total Net Operating Income                                                                                                         
   
74,213
   
73,339
 
Reconciliation to income from continuing operations before disposition of property and condominiums and equity in earnings of unconsolidated affiliates:
             
Depreciation and amortization
   
(33,812
)
 
(32,729
)
General and administrative expense
   
(7,793
)
 
(8,507
)
Interest expense
   
(23,543
)
 
(23,113
)
Interest and other income
   
1,873
   
1,700
 
Income from continuing operations before disposition of property and condominiums and equity in earnings of unconsolidated affiliates
 
$
10,938
 
$
10,690
 
__________
 
(1)
Net of discontinued operations.

Subsequent Events
Subsequent Events
13.    Subsequent Events

On April 1, 2011, we repaid the remaining $10.0 million of a three-year unsecured term loan. We incurred no penalties related to this early repayment.

On April 1, 2011, we provided a one-year $38.3 million interest only secured loan to an unconsolidated joint venture, which was used to repay a secured loan to a third party lender at maturity. The new loan bears interest at LIBOR plus 500 basis points, but 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 this loan.

On April 6, 2011, we acquired a 48,000 square foot medical office property in Raleigh, NC for an investment of approximately $9.0 million in cash and incurred $0.1 million of acquisition-related costs.
Document Information
3 Months Ended
Mar. 31, 2011
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
2011-03-31 
Entity Information
3 Months Ended
Mar. 31, 2011
Jun. 30, 2010
Entity Registrant Name
HIGHWOODS PROPERTIES INC 
 
Entity Central Index Key
0000921082 
 
Current Fiscal Year End Date
12/31 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Public Float
 
1,963,562,043 
Entity Common Stock, Shares Outstanding
72,130,214 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q1