HIGHWOODS PROPERTIES, INC., 10-K filed on 2/10/2015
Annual Report
Document and Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Jan. 30, 2015
Jun. 30, 2014
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-K 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
92,917,429 
 
Entity Public Float
 
 
$ 3.7 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
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-K 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Real estate assets, at cost:
 
 
Land
$ 388,807 
$ 393,602 
Buildings and tenant improvements
3,840,379 
3,748,869 
Development in process
205,971 
44,621 
Land held for development
79,355 
110,374 
Total real estate assets
4,514,512 
4,297,466 
Less-accumulated depreciation
(1,033,106)
(985,244)
Net real estate assets
3,481,406 
3,312,222 
Real estate and other assets, net, held for sale
1,038 
Cash and cash equivalents
8,832 
10,184 
Restricted cash
14,595 
14,169 
Accounts receivable, net of allowance of $1,314 and $1,648, respectively
48,557 
26,430 
Mortgages and notes receivable, net of allowance of $275 and $302, respectively
13,116 
26,409 
Accrued straight-line rents receivable, net of allowance of $600 and $1,063, respectively
142,037 
126,014 
Investments in and advances to unconsolidated affiliates
27,071 
29,901 
Deferred financing and leasing costs, net of accumulated amortization of $112,804 and $92,220, respectively
228,768 
222,211 
Prepaid expenses and other assets, net of accumulated amortization of $14,259 and $12,905, respectively
39,489 
39,561 
Total Assets
4,004,909 
3,807,101 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
Mortgages and notes payable
2,071,389 
1,956,299 
Accounts payable, accrued expenses and other liabilities
237,633 
218,962 
Financing obligations
23,519 
26,664 
Total Liabilities
2,332,541 
2,201,925 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
130,048 
106,480 
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), 29,060 and 29,077 shares issued and outstanding, respectively
29,060 
29,077 
Common Stock, $.01 par value, 200,000,000 authorized shares; 92,907,310 and 89,920,915 shares issued and outstanding, respectively
929 
899 
Additional paid-in capital
2,464,275 
2,370,368 
Distributions in excess of net income available for common stockholders
(966,141)
(920,433)
Accumulated other comprehensive loss
(3,912)
(2,611)
Total Stockholders’ Equity
1,524,211 
1,477,300 
Noncontrolling interests in consolidated affiliates
18,109 
21,396 
Total Equity/Capital:
1,542,320 
1,498,696 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital
4,004,909 
3,807,101 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
388,807 
393,602 
Buildings and tenant improvements
3,840,379 
3,748,869 
Development in process
205,971 
44,621 
Land held for development
79,355 
110,374 
Total real estate assets
4,514,512 
4,297,466 
Less-accumulated depreciation
(1,033,106)
(985,244)
Net real estate assets
3,481,406 
3,312,222 
Real estate and other assets, net, held for sale
1,038 
Cash and cash equivalents
8,938 
10,281 
Restricted cash
14,595 
14,169 
Accounts receivable, net of allowance of $1,314 and $1,648, respectively
48,557 
26,430 
Mortgages and notes receivable, net of allowance of $275 and $302, respectively
13,116 
26,409 
Accrued straight-line rents receivable, net of allowance of $600 and $1,063, respectively
142,037 
126,014 
Investments in and advances to unconsolidated affiliates
27,071 
29,901 
Deferred financing and leasing costs, net of accumulated amortization of $112,804 and $92,220, respectively
228,768 
222,211 
Prepaid expenses and other assets, net of accumulated amortization of $14,259 and $12,905, respectively
39,489 
39,561 
Total Assets
4,005,015 
3,807,198 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
Mortgages and notes payable
2,071,389 
1,956,299 
Accounts payable, accrued expenses and other liabilities
237,547 
218,887 
Financing obligations
23,519 
26,664 
Total Liabilities
2,332,455 
2,201,850 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units:
 
 
Common Units, 2,936,955 and 2,943,872 outstanding, respectively
130,048 
106,480 
Series A Preferred Units (liquidation preference $1,000 per unit), 29,060 and 29,077 units issued and outstanding, respectively
29,060 
29,077 
Total Redeemable Operating Partnership Units
159,108 
135,557 
Equity/Capital:
 
 
General partner Common Units, 954,355 and 924,560 outstanding, respectively
14,990 
14,508 
Limited partner Common Units, 91,544,146 and 88,587,546 outstanding, respectively
1,484,265 
1,436,498 
Accumulated other comprehensive loss
(3,912)
(2,611)
Noncontrolling interests in consolidated affiliates
18,109 
21,396 
Total Equity/Capital:
1,513,452 
1,469,791 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital
$ 4,005,015 
$ 3,807,198 
Consolidated Balance Sheets (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Assets:
 
 
Accounts receivable allowance
$ 1,314 
$ 1,648 
Mortgages and notes receivable allowance
275 
302 
Accrued straight-line rents receivable allowance
600 
1,063 
Deferred financing and leasing costs, accumulated amortization
112,804 
92,220 
Prepaid expenses and other assets, accumulated amortization
14,259 
12,905 
Equity/Capital:
 
 
Preferred Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred Stock, authorized shares (in shares)
50,000,000 
50,000,000 
Preferred Stock, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Preferred Stock, shares issued (in shares)
29,060 
29,077 
Preferred Stock, shares outstanding (in shares)
29,060 
29,077 
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)
92,907,310 
89,920,915 
Common Stock, shares outstanding (in shares)
92,907,310 
89,920,915 
Highwoods Realty Limited Partnership [Member]
 
 
Assets:
 
 
Accounts receivable allowance
1,314 
1,648 
Mortgages and notes receivable allowance
275 
302 
Accrued straight-line rents receivable allowance
600 
1,063 
Deferred financing and leasing costs, accumulated amortization
112,804 
92,220 
Prepaid expenses and other assets, accumulated amortization
$ 14,259 
$ 12,905 
Redeemable Operating Partnership Units:
 
 
Redeemable Common Units, outstanding (in shares)
2,936,955 
2,943,872 
Preferred Units liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Units, issued (in shares)
29,060 
29,077 
Series A Preferred Units, outstanding (in shares)
29,060 
29,077 
Common Units:
 
 
General partners' capital account, units outstanding (in shares)
954,355 
924,560 
Limited partners' capital account, units outstanding (in shares)
91,544,146 
88,587,546 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Rental and other revenues
$ 608,468 
$ 556,810 
$ 485,046 
Operating expenses:
 
 
 
Rental property and other expenses
225,504 
203,344 
176,744 
Depreciation and amortization
196,023 
176,957 
146,357 
Impairments of real estate assets
588 
General and administrative
36,223 
37,193 
37,377 
Total operating expenses
458,338 
417,494 
360,478 
Interest expense:
 
 
 
Contractual
82,287 
88,838 
92,838 
Amortization of deferred financing costs
3,082 
3,802 
3,685 
Financing obligations
483 
63 
(409)
Total interest expense
85,852 
92,703 
96,114 
Other income:
 
 
 
Interest and other income
5,439 
6,597 
7,353 
Losses on debt extinguishment
(308)
(199)
(973)
Total other income
5,131 
6,398 
6,380 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
69,409 
53,011 
34,834 
Gains/(losses) on disposition of property
44,352 
(3)
Gains on for-sale residential condominiums
444 
Gain on acquisition of controlling interest in unconsolidated affiliate
7,451 
Equity in earnings of unconsolidated affiliates
1,827 
2,264 
5,035 
Income from continuing operations
115,588 
62,723 
40,313 
Discontinued operations:
 
 
 
Income from discontinued operations
6,776 
14,467 
Impairments of real estate assets
(2,194)
Net gains on disposition of discontinued operations
384 
63,792 
29,455 
Total discontinued operations
384 
68,374 
43,922 
Net income
115,972 
131,097 
84,235 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,542)
(4,691)
(3,854)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(1,466)
(949)
(786)
Dividends on Preferred Stock
(2,507)
(2,508)
(2,508)
Net income available for common stockholders
108,457 
122,949 
77,087 
Earnings per Common Share - basic:
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 1.20 
$ 0.67 
$ 0.47 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.77 
$ 0.55 
Net income available for common stockholders (in dollars per share)
$ 1.20 
$ 1.44 
$ 1.02 
Weighted average Common Shares outstanding - basic (in shares)
90,743 
85,335 
75,811 
Earnings per Common Share - diluted:
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 1.19 
$ 0.67 
$ 0.47 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.77 
$ 0.55 
Net income available for common stockholders (in dollars per share)
$ 1.19 
$ 1.44 
$ 1.02 
Weighted average Common Shares outstanding - diluted (in shares)
93,800 1 2
88,836 1 2
79,678 1 2
Net income available for common stockholders:
 
 
 
Income from continuing operations available for common stockholders
108,085 
57,081 
35,252 
Income from discontinued operations available for common stockholders
372 
65,868 
41,835 
Net income available for common stockholders
108,457 
122,949 
77,087 
Highwoods Realty Limited Partnership [Member]
 
 
 
Rental and other revenues
608,468 
556,810 
485,046 
Operating expenses:
 
 
 
Rental property and other expenses
225,455 
203,303 
176,495 
Depreciation and amortization
196,023 
176,957 
146,357 
Impairments of real estate assets
588 
General and administrative
36,272 
37,234 
37,626 
Total operating expenses
458,338 
417,494 
360,478 
Interest expense:
 
 
 
Contractual
82,287 
88,838 
92,838 
Amortization of deferred financing costs
3,082 
3,802 
3,685 
Financing obligations
483 
63 
(409)
Total interest expense
85,852 
92,703 
96,114 
Other income:
 
 
 
Interest and other income
5,439 
6,597 
7,353 
Losses on debt extinguishment
(308)
(199)
(973)
Total other income
5,131 
6,398 
6,380 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
69,409 
53,011 
34,834 
Gains/(losses) on disposition of property
44,352 
(3)
Gains on for-sale residential condominiums
444 
Gain on acquisition of controlling interest in unconsolidated affiliate
7,451 
Equity in earnings of unconsolidated affiliates
1,827 
2,213 
5,095 
Income from continuing operations
115,588 
62,672 
40,373 
Discontinued operations:
 
 
 
Income from discontinued operations
6,776 
14,467 
Impairments of real estate assets
(2,194)
Net gains on disposition of discontinued operations
384 
63,792 
29,455 
Total discontinued operations
384 
68,374 
43,922 
Net income
115,972 
131,046 
84,295 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(1,466)
(949)
(786)
Distributions on Preferred Units
(2,507)
(2,508)
(2,508)
Net income available for common unitholders
111,999 
127,589 
81,001 
Earnings per Common Unit - basic:
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 1.20 
$ 0.67 
$ 0.47 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.77 
$ 0.55 
Net income available for common unitholders (in dollars per share)
$ 1.20 
$ 1.44 
$ 1.02 
Weighted average Common Units outstanding - basic (in shares)
93,272 
88,313 
79,147 
Earnings per Common Unit - diluted:
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 1.20 
$ 0.67 
$ 0.47 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.77 
$ 0.55 
Net income available for common unitholders (in dollars per share)
$ 1.20 
$ 1.44 
$ 1.02 
Weighted average Common Units outstanding - diluted (in shares)
93,391 1 2
88,427 1 2
79,269 1 2
Net income available for common unitholders:
 
 
 
Income from continuing operations available for common unitholders
111,615 
59,215 
37,079 
Total discontinued operations
384 
68,374 
43,922 
Net income available for common unitholders
$ 111,999 
$ 127,589 
$ 81,001 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Comprehensive income/(loss):
 
 
 
Net income
$ 115,972 
$ 131,097 
$ 84,235 
Other comprehensive income/(loss):
 
 
 
Unrealized gains on tax increment financing bond
584 
869 
411 
Unrealized gains/(losses) on cash flow hedges
(5,662)
5,778 
(10,358)
Amortization of cash flow hedges
3,777 
3,370 
3,053 
Total other comprehensive income/(loss)
(1,301)
10,017 
(6,894)
Total comprehensive income
114,671 
141,114 
77,341 
Less-comprehensive (income) attributable to noncontrolling interests
(5,008)
(5,640)
(4,640)
Comprehensive income attributable to common stockholders
109,663 
135,474 
72,701 
Highwoods Realty Limited Partnership [Member]
 
 
 
Comprehensive income/(loss):
 
 
 
Net income
115,972 
131,046 
84,295 
Other comprehensive income/(loss):
 
 
 
Unrealized gains on tax increment financing bond
584 
869 
411 
Unrealized gains/(losses) on cash flow hedges
(5,662)
5,778 
(10,358)
Amortization of cash flow hedges
3,777 
3,370 
3,053 
Total other comprehensive income/(loss)
(1,301)
10,017 
(6,894)
Total comprehensive income
114,671 
141,063 
77,401 
Less-comprehensive (income) attributable to noncontrolling interests
(1,466)
(949)
(786)
Comprehensive income attributable to common stockholders
$ 113,205 
$ 140,114 
$ 76,615 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Highwoods Realty Limited Partnership [Member]
Common Stock [Member]
Series A Cumulative Redeemable Preferred Shares [Member]
General Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Limited Partner 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 at Dec. 31, 2011
$ 986,859 
$ 956,674 
$ 726 
$ 29,077 
$ 9,575 
$ 948,187 
$ 1,803,997 
$ (5,734)
$ (5,734)
$ 4,646 
$ 4,646 
$ (845,853)
Balance (in shares) at Dec. 31, 2011
 
 
72,647,697 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of issuance costs and tax withholdings
 
245,467 
 
 
2,455 
243,012 
 
 
 
 
Distributions paid on Common Units
 
(134,291)
 
 
(1,343)
(132,948)
 
 
 
 
Distributions paid on Preferred Units
 
(2,508)
 
 
(25)
(2,483)
 
 
 
 
Issuances of Common Stock - Shares
 
 
7,441,489 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of issuance costs and tax withholdings
243,168 
 
74 
 
 
243,094 
 
 
Conversion of Common Units to Common Stock - Shares
 
 
63,366 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
2,096 
 
 
 
2,096 
 
 
Dividends on Common Stock
(128,652)
 
 
 
 
 
(128,652)
Dividends on Preferred Stock
(2,508)
 
 
 
 
 
(2,508)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(16,491)
 
 
 
(16,491)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(679)
(679)
(679)
(679)
Issuances of restricted stock - Shares
 
 
158,885 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense, net of forfeitures
7,613 
7,613 
76 
7,537 
7,610 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(14,644)
 
 
(146)
(14,498)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,854)
 
 
 
 
 
(3,854)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(8)
(778)
786 
786 
(786)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
84,235 
84,295 
843 
83,452 
84,235 
Other comprehensive income/(loss)
(6,894)
(6,894)
(6,894)
(6,894)
Total comprehensive income
77,341 
77,401 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2012
1,164,893 
1,135,033 
803 
29,077 
11,427 
1,131,481 
2,040,306 
(12,628)
(12,628)
4,753 
4,753 
(897,418)
Balance (in shares) at Dec. 31, 2012
 
 
80,311,437 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(581)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
13,760 
13,707 
 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2012
1,164,893 
1,135,033 
803 
29,077 
11,427 
1,131,481 
2,040,306 
(12,628)
(12,628)
4,753 
4,753 
(897,418)
Balance (in shares) at Dec. 31, 2012
 
 
80,311,437 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of issuance costs and tax withholdings
 
305,846 
 
 
3,058 
302,788 
 
 
 
 
Distributions paid on Common Units
 
(150,936)
 
 
(1,509)
(149,427)
 
 
 
 
Distributions paid on Preferred Units
 
(2,508)
 
 
(25)
(2,483)
 
 
 
 
Issuances of Common Stock - Shares
 
 
8,670,517 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of issuance costs and tax withholdings
305,846 
 
87 
 
 
305,759 
 
 
Conversion of Common Units to Common Stock - Shares
 
 
789,144 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
28,788 
 
 
 
28,788 
 
 
Dividends on Common Stock
(145,964)
 
 
 
 
 
(145,964)
Dividends on Preferred Stock
(2,508)
 
 
 
 
 
(2,508)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(11,375)
 
 
 
(11,375)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(546)
(546)
(546)
(546)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
16,240 
16,240 
16,240 
Issuances of restricted stock - Shares
 
 
151,630 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense, net of forfeitures - Shares
 
 
(1,813)
 
 
 
 
 
 
 
 
 
Share-based compensation expense, net of forfeitures
6,899 
6,899 
69 
6,830 
6,890 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
18,700 
 
 
187 
18,513 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(4,691)
 
 
 
 
 
(4,691)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(9)
(940)
949 
949 
(949)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
131,097 
131,046 
1,310 
129,736 
131,097 
Other comprehensive income/(loss)
10,017 
10,017 
10,017 
10,017 
Total comprehensive income
141,114 
141,063 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2013
1,498,696 
1,469,791 
899 
29,077 
14,508 
1,436,498 
2,370,368 
(2,611)
(2,611)
21,396 
21,396 
(920,433)
Balance (in shares) at Dec. 31, 2013
89,920,915 
 
89,920,915 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(978)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
31,690 
31,690 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2013
1,498,696 
1,469,791 
 
 
 
 
 
 
 
 
 
 
Balance (in shares) at Dec. 31, 2013
89,920,915 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(398)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
13,576 
13,576 
 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2013
1,498,696 
1,469,791 
899 
29,077 
14,508 
1,436,498 
2,370,368 
(2,611)
(2,611)
21,396 
21,396 
(920,433)
Balance (in shares) at Dec. 31, 2013
89,920,915 
 
89,920,915 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of issuance costs and tax withholdings
 
112,624 
 
 
1,126 
111,498 
 
 
 
 
Redemptions of Common Units
 
(93)
 
 
(1)
(92)
 
 
 
 
Distributions paid on Common Units
 
(158,464)
 
 
(1,585)
(156,879)
 
 
 
 
Distributions paid on Preferred Units
 
(2,507)
 
 
(25)
(2,482)
 
 
 
 
Issuances of Common Stock - Shares
 
 
2,812,477 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of issuance costs and tax withholdings
112,624 
 
28 
 
 
112,596 
 
 
Conversion of Common Units to Common Stock - Shares
 
 
4,417 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
162 
 
 
 
162 
 
 
Dividends on Common Stock
(154,165)
 
 
 
 
 
(154,165)
Dividends on Preferred Stock
(2,507)
 
 
 
 
 
(2,507)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(25,275)
 
 
 
(25,275)
 
 
Acquisition of noncontrolling interest in consolidated affiliate
(4,126)
(4,126)
(5)
(508)
(513)
(3,613)
(3,613)
Distributions to noncontrolling interests in consolidated affiliates
(1,140)
(1,140)
(1,140)
(1,140)
Issuances of restricted stock - Shares
 
 
169,501 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Redemptions/repurchases of Preferred Stock
(17)
 
(17)
 
 
 
 
Share-based compensation expense, net of forfeitures
6,939 
6,939 
   
69 
6,870 
6,937 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(24,243)
 
 
(242)
(24,001)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,542)
 
 
 
 
 
(3,542)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(15)
(1,451)
1,466 
1,466 
(1,466)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
115,972 
115,972 
1,160 
114,812 
115,972 
Other comprehensive income/(loss)
(1,301)
(1,301)
(1,301)
(1,301)
Total comprehensive income
114,671 
114,671 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2014
1,542,320 
1,513,452 
929 
29,060 
14,990 
1,484,265 
2,464,275 
(3,912)
(3,912)
18,109 
18,109 
(966,141)
Balance (in shares) at Dec. 31, 2014
92,907,310 
 
92,907,310 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(729)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
23,585 
23,585 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2014
$ 1,542,320 
$ 1,513,452 
 
 
 
 
 
 
 
 
 
 
Balance (in shares) at Dec. 31, 2014
92,907,310 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Operating activities:
 
 
 
Net income
$ 115,972 
$ 131,097 
$ 84,235 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
196,023 
182,710 
158,327 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
442 
345 
355 
Share-based compensation expense
6,939 
6,899 
7,613 
Allowance for losses on accounts and accrued straight-line rents receivable
2,182 
1,516 
1,059 
Accrued interest on mortgages and notes receivable
(477)
(485)
Amortization of deferred financing costs
3,082 
3,802 
3,685 
Amortization of cash flow hedges
3,777 
3,370 
3,053 
Amortization of mortgages and notes payable fair value adjustments
(788)
(1,825)
Impairments of real estate assets
588 
2,194 
Losses on debt extinguishment
308 
199 
973 
Net gains on disposition of property
(44,736)
(63,789)
(29,455)
Gains on for-sale residential condominiums
(444)
Gain on acquisition of controlling interest in unconsolidated affiliate
(7,451)
Equity in earnings of unconsolidated affiliates
(1,827)
(2,264)
(5,035)
Changes in financing obligations
(241)
(753)
(1,282)
Distributions of earnings from unconsolidated affiliates
2,687 
3,985 
4,618 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(3,114)
(920)
3,132 
Prepaid expenses and other assets
(615)
684 
(1,129)
Accrued straight-line rents receivable
(21,685)
(18,253)
(17,919)
Accounts payable, accrued expenses and other liabilities
8,394 
15,376 
(18,370)
Net cash provided by operating activities
266,911 
256,437 
193,416 
Investing activities:
 
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(163,641)
(418,796)
(269,847)
Investments in development in process
(183,873)
(34,474)
(13,288)
Investments in tenant improvements and deferred leasing costs
(113,747)
(103,243)
(79,639)
Investments in building improvements
(50,033)
(53,189)
(35,799)
Investment in acquired noncontrolling interest in consolidated affiliate
(4,126)
Investment in acquired controlling interest in unconsolidated affiliate
(32,818)
Net proceeds from disposition of real estate assets
172,442 
254,022 
152,456 
Net proceeds from disposition of for-sale residential condominiums
5,195 
Distributions of capital from unconsolidated affiliates
3,806 
27,486 
1,311 
Investments in mortgages and notes receivable
(864)
(902)
(8,648)
Repayments of mortgages and notes receivable
17,239 
405 
1,776 
Investments in and advances/repayments to/from unconsolidated affiliates
(6,489)
(429)
8,291 
Redemption of investment In unconsolidated affiliate
4,660 
Changes in restricted cash and other investing activities
(3,552)
5,335 
(620)
Net cash (used in) investing activities
(328,178)
(356,603)
(238,812)
Financing activities:
 
 
 
Dividends on Common Stock
(154,165)
(145,964)
(128,652)
Redemptions/repurchases of Preferred Stock
(17)
Redemptions of Common Units
(93)
Dividends on Preferred Stock
(2,507)
(2,508)
(2,508)
Distributions to noncontrolling interests in the Operating Partnership
(4,994)
(5,667)
(6,334)
Distributions to noncontrolling interests in consolidated affiliates
(1,140)
(546)
(679)
Proceeds from the issuance of Common Stock
117,716 
316,081 
249,489 
Costs paid for the issuance of Common Stock
(1,586)
(7,678)
(3,600)
Repurchase of shares related to tax withholdings
(3,506)
(2,557)
(2,721)
Borrowings on revolving credit facility
506,900 
837,000 
524,100 
Repayments of revolving credit facility
(513,600)
(644,300)
(863,100)
Borrowings on mortgages and notes payable
296,949 
507,350 
Repayments of mortgages and notes payable
(174,302)
(259,202)
(219,530)
Borrowings on financing obligations
1,839 
Payments on financing obligations
(2,904)
(1,941)
(1,316)
Payments of debt extinguishment costs
(369)
(908)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
Additions to deferred financing costs and other financing activities
(2,467)
(2,391)
(5,439)
Net cash provided by financing activities
59,915 
96,567 
47,991 
Net increase/(decrease) in cash and cash equivalents
(1,352)
(3,599)
2,595 
Cash and cash equivalents at beginning of the period
10,184 
13,783 
11,188 
Cash and cash equivalents at end of the period
8,832 
10,184 
13,783 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amounts capitalized
83,086 
85,919 
93,547 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Unrealized gains/(losses) on cash flow hedges
(5,662)
5,778 
(10,358)
Conversions of Common Units to Common Stock
162 
28,788 
2,096 
Changes in accrued capital expenditures
5,283 
18,384 
8,116 
Write-off of fully depreciated real estate assets
42,633 
31,008 
48,978 
Write-off of fully amortized deferred financing and leasing costs
25,286 
27,347 
19,176 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
235 
803 
475 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
25,275 
11,375 
16,491 
Unrealized gains on tax increment financing bond
584 
869 
411 
Assumption of mortgages and notes payable related to acquisition activities
165,515 
7,837 
Reduction of advances to unconsolidated affiliates related to acquisition activities
26,000 
Issuances of Common Units to acquire real estate assets
2,299 
Reclass of aggregate differences between historical cost basis and the basis reflected at the joint venture level for assets acquired
8,206 
Contingent consideration in connection with the acquisition of land
3,300 
Option deposit applied upon acquisition of real estate assets
5,000 
Highwoods Realty Limited Partnership [Member]
 
 
 
Operating activities:
 
 
 
Net income
115,972 
131,046 
84,295 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
196,023 
182,710 
158,327 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
442 
345 
355 
Share-based compensation expense
6,939 
6,899 
7,613 
Allowance for losses on accounts and accrued straight-line rents receivable
2,182 
1,516 
1,059 
Accrued interest on mortgages and notes receivable
(477)
(485)
Amortization of deferred financing costs
3,082 
3,802 
3,685 
Amortization of cash flow hedges
3,777 
3,370 
3,053 
Amortization of mortgages and notes payable fair value adjustments
(788)
(1,825)
Impairments of real estate assets
588 
2,194 
Losses on debt extinguishment
308 
199 
973 
Net gains on disposition of property
(44,736)
(63,789)
(29,455)
Gains on for-sale residential condominiums
(444)
Gain on acquisition of controlling interest in unconsolidated affiliate
(7,451)
Equity in earnings of unconsolidated affiliates
(1,827)
(2,213)
(5,095)
Changes in financing obligations
(241)
(753)
(1,282)
Distributions of earnings from unconsolidated affiliates
2,687 
3,965 
4,592 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(3,114)
(920)
3,132 
Prepaid expenses and other assets
(615)
684 
(1,129)
Accrued straight-line rents receivable
(21,685)
(18,253)
(17,919)
Accounts payable, accrued expenses and other liabilities
8,383 
15,421 
(18,490)
Net cash provided by operating activities
266,900 
256,462 
193,270 
Investing activities:
 
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(163,641)
(418,796)
(269,847)
Investments in development in process
(183,873)
(34,474)
(13,288)
Investments in tenant improvements and deferred leasing costs
(113,747)
(103,243)
(79,639)
Investments in building improvements
(50,033)
(53,189)
(35,799)
Investment in acquired noncontrolling interest in consolidated affiliate
(4,126)
Investment in acquired controlling interest in unconsolidated affiliate
(32,818)
Net proceeds from disposition of real estate assets
172,442 
254,022 
152,456 
Net proceeds from disposition of for-sale residential condominiums
5,195 
Distributions of capital from unconsolidated affiliates
3,806 
27,486 
1,311 
Investments in mortgages and notes receivable
(864)
(902)
(8,648)
Repayments of mortgages and notes receivable
17,239 
405 
1,776 
Investments in and advances/repayments to/from unconsolidated affiliates
(6,489)
(429)
8,291 
Redemption of investment In unconsolidated affiliate
4,660 
Changes in restricted cash and other investing activities
(3,552)
5,335 
(620)
Net cash (used in) investing activities
(328,178)
(356,603)
(238,812)
Financing activities:
 
 
 
Distributions on Common Units
(158,464)
(150,936)
(134,291)
Redemptions/repurchases of Preferred Units
(17)
Redemptions of Common Units
(93)
Distributions on Preferred Units
(2,507)
(2,508)
(2,508)
Distributions to noncontrolling interests in consolidated affiliates
(1,140)
(546)
(679)
Proceeds from the issuance of Common Units
117,716 
316,081 
249,489 
Costs paid for the issuance of Common Units
(1,586)
(7,678)
(3,600)
Repurchase of units related to tax withholdings
(3,506)
(2,557)
(2,721)
Borrowings on revolving credit facility
506,900 
837,000 
524,100 
Repayments of revolving credit facility
(513,600)
(644,300)
(863,100)
Borrowings on mortgages and notes payable
296,949 
507,350 
Repayments of mortgages and notes payable
(174,302)
(259,202)
(219,530)
Borrowings on financing obligations
1,839 
Payments on financing obligations
(2,904)
(1,941)
(1,316)
Payments of debt extinguishment costs
(369)
(908)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
Additions to deferred financing costs and other financing activities
(3,142)
(3,098)
(5,867)
Net cash provided by financing activities
59,935 
96,555 
48,258 
Net increase/(decrease) in cash and cash equivalents
(1,343)
(3,586)
2,716 
Cash and cash equivalents at beginning of the period
10,281 
13,867 
11,151 
Cash and cash equivalents at end of the period
8,938 
10,281 
13,867 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, net of amounts capitalized
83,086 
85,919 
93,547 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Unrealized gains/(losses) on cash flow hedges
(5,662)
5,778 
(10,358)
Changes in accrued capital expenditures
5,283 
18,384 
8,116 
Write-off of fully depreciated real estate assets
42,633 
31,008 
48,978 
Write-off of fully amortized deferred financing and leasing costs
25,286 
27,347 
19,176 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
235 
803 
475 
Adjustment of Redeemable Common Units to fair value
23,568 
(18,389)
11,915 
Unrealized gains on tax increment financing bond
584 
869 
411 
Assumption of mortgages and notes payable related to acquisition activities
165,515 
7,837 
Reduction of advances to unconsolidated affiliates related to acquisition activities
26,000 
Issuances of Common Units to acquire real estate assets
2,299 
Reclass of aggregate differences between historical cost basis and the basis reflected at the joint venture level for assets acquired
8,206 
Contingent consideration in connection with the acquisition of land
3,300 
Option deposit applied upon acquisition of real estate assets
$ 0 
$ 5,000 
$ 0 
Description of Business and Significant Accounting Policies
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 December 31, 2014, we owned or had an interest in 31.2 million rentable square feet of in-service properties, 1.7 million rentable square feet of properties under development and approximately 500 acres of development land.

The Company is the sole general partner of the Operating Partnership. At December 31, 2014, the Company owned all of the Preferred Units and 92.5 million, or 96.9%, of the Common Units in the Operating Partnership. Limited partners own the remaining 2.9 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds of the issuance are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company, at its option, may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During 2014, the Company redeemed 2,500 Common Units for less than $0.1 million in cash and redeemed 4,417 Common Units for a like number of shares of Common Stock. As a result of this activity, in conjunction with the proceeds from issuances of Common Stock (see Note 12), the percentage of Common Units owned by the Company increased from 96.8% at December 31, 2013 to 96.9% at December 31, 2014.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Statement of Income for the year ended December 31, 2012 was retrospectively revised from previously reported amounts to reflect in discontinued operations the operations for those properties classified as discontinued operations.

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. We consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of the entity through majority ownership or in our capacity as general partner or managing member. Four of the 50.0% or less owned in-service office properties in two joint ventures are consolidated. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At December 31, 2014 and 2013, we had involvement with, but are not the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3). All intercompany transactions and accounts have been eliminated.

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.


1.    Description of Business and Significant Accounting Policies – Continued

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 $154.4 million, $138.2 million and $118.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.

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

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

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

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

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

In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.

1.    Description of Business and Significant Accounting Policies – Continued
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the sale of the asset has been duly approved by the Company, a legally enforceable contract has been executed and the buyer's due diligence period, if any, has expired.

Impairments of Real Estate Assets and Investments in Unconsolidated Affiliates

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

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

1.    Description of Business and Significant Accounting Policies – Continued

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

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 common area maintenance (“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.
 
Allowance for Doubtful Accounts
 
Accounts receivable, accrued straight-line rents receivable and mortgages and notes receivable are reduced by an allowance for amounts that may become uncollectible in the future. We regularly evaluate the adequacy of our allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of our customer, historical trends of the customer and changes in customer payment terms. Additionally, with respect to customers in bankruptcy, we estimate the probable recovery through bankruptcy claims and adjust the allowance for amounts deemed uncollectible. If our assumptions regarding the collectability of receivables prove incorrect, we could experience losses in excess of our allowance for doubtful accounts. The allowance and its related receivable are written-off when we have concluded there is a low probability of collection and we have discontinued collection efforts.

Lease Incentives
 
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 financing and leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.

Investments in Unconsolidated Affiliates
 
We account for our investments in less than majority owned joint ventures, partnerships and limited liability companies using the equity method of accounting when our interests represent a general partnership interest but substantive participating rights or substantive kick out rights have been granted to the limited partners or when our interests do not represent a general partnership interest and we do not control the major operating and financial policies of the entity. These investments are initially recorded at cost in investments in unconsolidated affiliates and are subsequently adjusted for our share of earnings and cash contributions and distributions. To the extent our cost basis at formation of the joint venture is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in our share of equity in earnings of unconsolidated affiliates.
 

1.    Description of Business and Significant Accounting Policies – Continued

Cash Equivalents
 
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Restricted Cash
 
Restricted cash represents cash deposits that are legally restricted or held by third parties on our behalf, such as construction-related escrows, property disposition proceeds set aside and designated or intended to fund future tax-deferred exchanges of qualifying real estate investments, escrows and reserves for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements and any deposits made with lenders to unencumber secured properties.

Redeemable Common Units and Preferred Units
 
Limited partners holding Common Units other than the Company (“Redeemable Common Units”) have the right to put any and all of the Common Units to the Operating Partnership and the Company has the right to put any and all of the Preferred Units to the Operating Partnership in exchange for their liquidation preference plus accrued and unpaid distributions in the event of a corresponding redemption by the Company of the underlying Preferred Stock. Consequently, these Redeemable Common Units and Preferred Units are classified outside of permanent partners’ capital in the Operating Partnership's accompanying balance sheets. The recorded value of the Redeemable Common Units is based on fair value at the balance sheet date as measured by the closing price of Common Stock on that date multiplied by the total number of Redeemable Common Units outstanding. The recorded value of the Preferred Units is based on their redemption value.
 
Income Taxes
 
The Company has elected and expects to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). A corporate REIT is a legal entity that holds real estate assets and, through the payment of dividends to stockholders, is generally permitted to reduce or avoid the payment of federal and state income taxes at the corporate level. To maintain qualification as a REIT, the Company is required to pay dividends to its stockholders equal to at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to pay economically equivalent distributions on outstanding Common Units at the same time that the Company pays dividends on its outstanding Common Stock.

Other than income taxes related to its taxable REIT subsidiary, the Operating Partnership does not reflect any federal income taxes in its financial statements, since as a partnership the taxable effects of its operations are attributed to its partners. The Operating Partnership does record state income tax for states that tax partnership income directly.
 
We conduct certain business activities through a taxable REIT subsidiary, as permitted under the Code. The taxable REIT subsidiary is subject to federal, state and local income taxes on its taxable income. We record provisions for income taxes based on its income recognized for financial statement purposes, including the effects of temporary differences between such income and the amount recognized for tax purposes.
 
Concentration of Credit Risk
 
At December 31, 2014, properties that we wholly own were leased to 1,767 customers. The geographic locations that comprise greater than 10.0% of our rental and other revenues are Raleigh, NC, Atlanta, GA, Tampa, FL and Nashville, TN. Our customers engage in a wide variety of businesses. No single customer of the properties that we wholly own generated more than 7.0% of our consolidated revenues during 2014.
 
We maintain our cash and cash equivalents and our restricted cash at financial or other intermediary institutions. The combined account balances at each institution may exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Additionally, from time to time in connection with tax-deferred 1031 transactions, our restricted cash balances may be commingled with other funds being held by any such intermediary institution, which would subject our balance to the credit risk of the institution.
 

1.    Description of Business and Significant Accounting Policies – Continued

Derivative Financial Instruments
 
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility and bank term loans bear interest at variable rates. Our long-term debt typically bears interest at fixed rates. Our interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes. The interest rate on all of our variable rate debt is generally adjusted at one or three month intervals, subject to settlements under these interest rate hedge contracts.
 
Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss ("AOCL") and is subsequently reclassified into interest expense in the period that the hedged forecasted transaction affects earnings.
 
We account for terminated derivative instruments by recognizing the related accumulated comprehensive income/loss balance in current earnings, unless the hedged forecasted transaction continues as originally planned, in which case we continue to amortize the accumulated comprehensive income/loss into earnings over the originally designated hedge period.

Earnings Per Share and Per Unit
 
Basic earnings per share of the Company is computed by dividing net income available for common stockholders by the weighted Common Shares outstanding - basic. Diluted earnings per share is computed by dividing net income available to common stockholders plus noncontrolling interests in the Operating Partnership by the weighted Common Shares outstanding - basic plus the dilutive effect of options, warrants and convertible securities outstanding, including Common Units, using the treasury stock method. Weighted Common Shares outstanding - basic includes all unvested restricted stock where dividends received on such restricted stock are non-forfeitable.

Basic earnings per unit of the Operating Partnership is computed by dividing net income available for common unitholders by the weighted Common Units outstanding - basic. Diluted earnings per unit is computed by dividing net income available to common unitholders by the weighted Common Units outstanding - basic plus the dilutive effect of options and warrants, using the treasury stock method. Weighted Common Units outstanding - basic includes all of the Company's unvested restricted stock where dividends received on such restricted stock are non-forfeitable.

Recently Issued Accounting Standards

The Financial Accounting Standards Board ("FASB") recently issued an accounting standard update that requires only those real estate asset sales representing a strategic shift in operations (e.g., a disposal of a major geographic area or a major line of business) to be reflected in discontinued operations. This accounting standard update is required to be adopted in 2015. Early adoption is permitted, but only for real estate asset sales that have not been previously reflected as discontinued operations. We elected to early adopt the accounting standard update in the second quarter of 2014, resulting in the operations of current period dispositions and property classified as held for sale being included in continuing operations on our Consolidated Statements of Income.  Prior to adoption, we were generally required to reflect all real estate asset sales as discontinued operations, which required reclassification of the earnings of the sold assets from continuing operations for all periods presented.

The FASB recently issued an accounting standard update that requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that we identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when we satisfy the performance obligations. We will also be required to disclose information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The accounting standard update is required to be adopted in 2017. Retrospective application is required either to all periods presented or with the cumulative effect of initial adoption recognized in the period of adoption. We are in the process of evaluating this accounting standard update.
Real Estate Assets
Real Estate Assets
Real Estate Assets

Acquisitions

During 2014, we acquired:

an office property in Orlando, FL encompassing 246,000 rentable square feet for a purchase price of $67.4 million;

our partner's 50.0% interest in an office property owned by our consolidated Highwoods-Markel Associates, LLC joint venture in Richmond, VA encompassing 66,000 rentable square feet for a purchase price of $4.2 million, which is recorded as acquisition of noncontrolling interest in consolidated affiliate;

a land parcel in Nashville, TN for a purchase price and related transaction costs of $15.8 million (including contingent consideration of $3.3 million); and

an office property in Raleigh, NC encompassing 374,000 rentable square feet for a purchase price of $83.8 million.

We expensed $0.5 million of acquisition costs (included in general and administrative expenses) in 2014 related to these acquisitions. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.  

During 2013, we acquired:

our joint venture partner's 60.0% interest in our HIW-KC Orlando, LLC joint venture, which owned five office properties in Orlando, FL encompassing 1.3 million rentable square feet, for a net purchase price of $112.8 million. We previously accounted for our 40.0% interest in this joint venture using the equity method of accounting. The assets and liabilities of the joint venture are now wholly owned and are recorded in our Consolidated Financial Statements, including assets recorded at fair value of $188.0 million and secured debt recorded at fair value of $127.9 million, with an effective interest rate of 3.11%. This debt has since been repaid. As a result of acquiring a controlling interest in this joint venture, our previously held equity interest was remeasured at a fair value of $75.2 million resulting in a gain of $7.5 million, which represents the difference between the fair market value of our previously held equity interest and the carrying value of our investment on the date of acquisition. The fair market value of our previously held equity interest was determined by management based on information available at the acquisition date and on current assumptions as to future operations;

an office property in Nashville, TN encompassing 520,000 rentable square feet for a net purchase price of $150.1 million;

our Highwoods DLF 97/26 DLF 99/32, LP joint venture partner's 57.0% interest in two office properties in Atlanta, GA encompassing 505,000 rentable square feet for a net purchase price of $44.5 million, including the assumption of secured debt recorded at fair value of $37.6 million, with an effective interest rate of 3.34%. This debt has since been repaid;

an office property in Atlanta, GA encompassing 553,000 rentable square feet for a purchase price of $140.1 million;

two office properties in Tampa, FL encompassing 372,000 rentable square feet for a purchase price of $52.5 million;

two office properties in Greensboro, NC encompassing 195,000 rentable square feet for a purchase price of $30.8 million; and

a land parcel in Memphis, TN for a purchase price of $4.8 million.
 
We expensed $1.8 million of acquisition costs (included in general and administrative expenses) in 2013 related to these acquisitions. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.  
 

2.     Real Estate Assets - Continued
 
The following table sets forth a summary of the fair value of the major assets acquired and liabilities assumed relating to the 2013 acquisitions in Orlando, FL and Nashville, TN and the 553,000 rentable square foot office property in Atlanta, GA discussed in the preceding paragraphs:
 
 
Total
Purchase Price Allocation
Real estate assets
$
445,396

Acquisition-related intangible assets (in deferred financing and leasing costs)
50,595

Mortgages and notes payable
(127,891
)
Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)
(17,818
)
Total allocation
$
350,282



The following table sets forth our revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations, acquisition costs and equity in earnings of unconsolidated affiliates previously recognized as income assuming the Orlando, FL, Nashville, TN and Atlanta, GA acquisitions discussed in the preceding paragraph had been completed as of January 1, 2012:
 
 
Year Ended December 31,
 
2013
 
(unaudited)
Pro forma revenues
$
593,778

Pro forma net income
$
121,754

Pro forma earnings per share - basic
$
1.33

Pro forma earnings per share - diluted
$
1.33


 
The 2013 acquisitions in Orlando, FL, Nashville, TN and Atlanta, GA discussed in the preceding paragraphs resulted in revenues of $25.0 million and net losses of $0.2 million recorded in the Consolidated Statements of Income for the year ended December 31, 2013.

During 2012, we acquired:
 
a 492,000 rentable square foot office property in Atlanta, GA for a purchase price of $144.9 million;
 
a 616,000 rentable square foot office property in Pittsburgh, PA for a purchase price of $91.2 million;
 
three medical office properties in Greensboro, NC for a purchase price of $29.6 million, which consisted of the issuance of 66,864 Common Units to noncontrolling interests, contingent consideration with fair value at the acquisition date of $0.7 million, and the assumption of secured debt recorded at fair value of $7.9 million, with an effective interest rate of 4.06%. This debt has since been repaid;
 
a 178,300 rentable square foot office property in Cary, NC from our Highwoods DLF 98/29, LLC joint venture for an agreed upon value of $26.0 million, the net proceeds of which were used to reduce the balance of the advance due to us from the joint venture; and
 
a land parcel currently zoned for 1.3 million rentable square feet of future office development in Nashville, TN for a purchase price of $15.0 million.
 
We expensed $1.5 million of acquisition costs (included in general and administrative expenses) in 2012 related to these acquisitions. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.  

2.     Real Estate Assets - Continued

Dispositions

During 2014, we sold:

an office property in Winston-Salem, NC for a sale price of $9.9 million (before closing credits to buyer of $1.6 million for unfunded building and tenant improvements and $0.7 million for free rent) and recorded a loss on disposition of property of $0.1 million;

two land parcels in Raleigh, NC for a sale price of $1.7 million and recorded a gain on disposition of property of $0.5 million;

an industrial property and a land parcel in Atlanta, GA for a sale price of $11.4 million and recorded a gain on disposition of property of $1.7 million;

five office properties and a land parcel in a single transaction in Raleigh, NC for a sale price of $58.7 million and recorded a gain on disposition of property of $11.7 million;

11 office properties in Richmond, VA in separate transactions for an aggregate sale price of $40.7 million and recorded aggregate gains on disposition of property of $17.6 million;

six office and eight industrial properties in Greensboro, NC for a sale price of $28.2 million (before closing credits to buyer of $1.2 million for unfunded tenant improvements and $0.4 million for free rent) and recorded a gain on disposition of property of $4.7 million;

an office property in Greenville, SC for a sale price of $27.2 million (before closing credits to buyer of $5.8 million for unfunded building and tenant improvements and $1.8 million for free rent) and recorded a gain on disposition of property of $2.2 million; and

two land parcels in Atlanta, GA in separate transactions for an aggregate sale price of $9.5 million and recorded aggregate gains on disposition of property of $5.9 million.

During 2013, we sold:

eight office properties in Greenville, SC for a sale price of $57.9 million (before $0.1 million in closing credits to buyer for unfunded tenant improvements and after $0.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of $3.1 million;

an office property in Tampa, FL for a sale price of $11.5 million (before $0.6 million in closing credits to buyer for unfunded tenant improvements) and recorded a gain on disposition of discontinued operations of $2.8 million;

an office property in Atlanta, GA for a sale price of $13.8 million and recorded a gain on disposition of discontinued operations of $3.0 million;

four office properties in Winston-Salem, NC for a sale price of $6.2 million and recorded a gain on disposition of discontinued operations of $0.1 million;

an office property in Winston-Salem, NC for a sale price of $5.3 million and recorded a gain on disposition of discontinued operations of $2.5 million;

an office property in Tampa, FL for a sale price of $11.6 million and recorded a gain on disposition of discontinued operations of $1.2 million;

2.     Real Estate Assets - Continued

16 industrial properties and a land parcel in a single transaction in Atlanta, GA for a sale price of $91.6 million (before $0.3 million in closing credits to buyer for unfunded tenant improvements and after $0.3 million in closing credits to buyer for free rent). We recorded gains on disposition of discontinued operations of $36.7 million related to the industrial properties and a gain on disposition of property of less than $0.1 million related to the land parcel;

five industrial properties in Atlanta, GA for a sale price of $4.5 million (after $0.1 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of less than $0.1 million;

six industrial properties and a land parcel in a single transaction in Atlanta, GA for a sale price of $38.7 million (before $1.8 million in closing credits to buyer for unfunded tenant improvements and after $1.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of $13.2 million;

two industrial properties in Atlanta, GA for a sale price of $4.8 million and recorded a loss on disposition of discontinued operations of less than $0.1 million; and

two office properties in Orlando, FL for a sale price of $14.6 million (before $0.8 million in closing credits to buyer for unfunded tenant improvements) and recorded a loss on disposition of discontinued operations of $0.3 million.

Additionally, in connection with the disposition of an office property in Jackson, MS in the third quarter of 2012, we had the right to receive additional cash consideration of up to $1.5 million upon the satisfaction of a certain post-closing requirement. The post-closing requirement was satisfied and the cash consideration was received during 2013. Accordingly, we recognized $1.5 million in additional gain on disposition of discontinued operations in 2013.

During 2012, we sold:

three buildings in Jackson, MS and Atlanta, GA for a sale price of $86.5 million and recorded a gain on disposition of discontinued operations of $14.0 million;

five office properties in Nashville, TN for a sale price of $41.0 million and recorded a gain on disposition of discontinued operations of $7.0 million;

an office property in Pinellas County, FL for a sale price of $9.5 million and recorded a gain on disposition of discontinued operations of $1.4 million;

an office property in Kansas City, MO for a sale price of $6.5 million and recorded a gain on disposition of discontinued operations of $1.9 million;

96 vacant rental residential units in Kansas City, MO for a sale price of $11.0 million and recorded a gain on disposition of discontinued operations of $5.1 million; and

17 for-sale residential condominiums in Raleigh, NC for a sale price of $5.5 million and recorded a net gain of $0.4 million. All for-sale residential condominiums were sold as of December 31, 2012.

Impairments

During 2014, we recorded an impairment of real estate assets of $0.6 million on an office property in Greensboro, NC. During 2013, we recorded impairments of real estate assets of $1.1 million on four properties in a single office park in Winston-Salem, NC and $1.1 million on seven industrial properties in Atlanta, GA. These impairments were due to a change in the assumed timing of future dispositions and leasing assumptions, which reduced the future expected cash flows from the impaired properties.
Mortgages and Notes Receivable
Mortgages and Notes Receivable
Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
December 31,
 
2014
 
2013
Seller financing (first mortgages)
$

 
$