UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K

[X]	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the fiscal year ended December 31, 2012
 
OR

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

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

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

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

		
Title of Each Class	Name of Each Exchange on Which Registered	
Common Stock, $.01 par value, of Highwoods Properties, Inc.	New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act:
NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Highwoods Properties, Inc.   Yes   S     No £      Highwoods Realty Limited Partnership   Yes   S     No £
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.
Highwoods Properties, Inc.   Yes   £     No S      Highwoods Realty Limited Partnership   Yes   £     No S
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Highwoods Properties, Inc.   Yes   S     No £      Highwoods Realty Limited Partnership   Yes   S     No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Highwoods Properties, Inc.   Yes   S     No £      Highwoods Realty Limited Partnership   Yes   S     No £
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of such registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    S
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of ‘large accelerated filer,’ ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Securities Exchange Act.
 
Highwoods Properties, Inc.
Large accelerated filer S     Accelerated filer £       Non-accelerated filer £       Smaller reporting company £
 
Highwoods Realty Limited Partnership
Large accelerated filer £     Accelerated filer £       Non-accelerated filer S       Smaller reporting company £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
Highwoods Properties, Inc.   Yes   £     No S      Highwoods Realty Limited Partnership   Yes   £     No S
 
The aggregate market value of shares of Common Stock of Highwoods Properties, Inc. held by non-affiliates (based upon the closing sale price on the New York Stock Exchange) on June 30, 2012 was approximately $2.5 billion . At February 1, 2013 , there were 80,555,117 shares of Common Stock outstanding.
 
There is no public trading market for the Common Units of Highwoods Realty Limited Partnership. As a result, an aggregate market value of the Common Units of Highwoods Realty Limited Partnership cannot be determined.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Proxy Statement of Highwoods Properties, Inc. to be filed in connection with its Annual Meeting of Stockholders to be held May 15, 2013 are incorporated by reference in Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14.

	

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

TABLE OF CONTENTS

	
			
Item No.	 	Page	
 	PART I	 	
1.	BUSINESS	4	
1A.	RISK FACTORS	5	
1B.	UNRESOLVED STAFF COMMENTS	13	
2.	PROPERTIES	14	
3.	LEGAL PROCEEDINGS	20	
X.	EXECUTIVE OFFICERS OF THE REGISTRANT	21	
 	 	 	
 	PART II	 	
5.	MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	23	
6.	SELECTED FINANCIAL DATA	26	
7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28	
7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46 	
8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	46	
9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	46	
9A.	CONTROLS AND PROCEDURES	47	
9B.	OTHER INFORMATION	50	
 	 	 	
 	PART III	 	
10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	52	
11.	EXECUTIVE COMPENSATION	52	
12.	SECURITY OWNERSIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	52	
13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	52	
14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	52	
 	 	 	
 	PART IV	 	
15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	53	

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PART I

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

The Company conducts virtually all of its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

ITEM 1. BUSINESS
 
General
 
Highwoods Properties, Inc., headquartered in Raleigh, North Carolina, is a publicly-traded real estate investment trust ("REIT") and its Common Stock is included in the S&P MidCap 400 Index. The Company is a fully integrated, self-administered REIT that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. Our Common Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "HIW." At December 31, 2012 , we owned or had an interest in 333 in-service office, industrial and retail properties, encompassing 34.6 million square feet, two development properties and 649 acres of development land. Our properties and development land are located in Florida, Georgia, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia.

At December 31, 2012 , the Company owned all of the Preferred Units and 79.9 million , or 95.6% , of the Common Units. Limited partners, including two directors of the Company, own the remaining 3.7 million Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption provided that the Company, at its option, may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable.
 
The Company was incorporated in Maryland in 1994. The Operating Partnership was formed in North Carolina in 1994. Our executive offices are located at 3100 Smoketree Court, Suite 600, Raleigh, NC 27604, and our telephone number is (919) 872-4924.
 
Our business is the operation, acquisition and development of rental real estate properties. We operate office, industrial and retail properties. There are no material inter-segment transactions. See Note 19 to our Consolidated Financial Statements for a summary of the rental and other revenues, net operating income and assets for each reportable segment.

Our website is www.highwoods.com. In addition to this Annual Report, all quarterly and current reports, proxy statements, interactive data and other information are made available, without charge, on our website as soon as reasonably practicable after they are filed or furnished with the Securities and Exchange Commission ("SEC"). The information on our website does not constitute part of this Annual Report. Reports filed or furnished with the SEC may also be viewed at www.sec.gov or obtained at the SEC's public reference facilities. Please call the SEC at (800) 732-0330 for further information about the public reference facilities.
 
During 2012 , the Company filed unqualified Section 303A certifications with the NYSE. The Company and the Operating Partnership have also filed the CEO and CFO certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report.

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Business and Operating Strategy
 
Our Strategic Plan focuses on:

•	owning high-quality, differentiated real estate assets in the key infill business districts in our core markets;	

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

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

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

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

Local Market Leadership . We focus our real estate activities in markets where we have extensive local knowledge and own a significant amount of assets. In each of our core markets, we maintain offices that are led by division officers with significant real estate experience. Our real estate professionals are seasoned and cycle-tested. Our senior leadership team has significant experience and maintains important relationships with market participants in each of our core markets.
 
Customer Service-Oriented Organization . We provide a complete line of real estate services to our customers. We believe that our in-house leasing and asset management, development, acquisition and construction management services generally allow us to respond to the many demands of our existing and potential customer base. We provide our customers with cost-effective services such as build-to-suit construction and space modification, including tenant improvements and expansions. In addition, the breadth of our capabilities and resources provides us with market information not generally available. We believe that operating efficiencies achieved through our fully integrated organization and the strength of our balance sheet also provide a competitive advantage in retaining existing customers and attracting new customers as well as setting our lease rates and pricing other services. In addition, our relationships with our customers may lead to development projects when these customers seek new space.
 
Geographic Diversification . Our core portfolio consists primarily of office properties in Raleigh, Tampa, Nashville, Memphis, Pittsburgh, Richmond and Orlando, office and industrial properties in Atlanta and Greensboro and retail and office properties in Kansas City. We do not believe that our operations are significantly dependent upon any particular geographic market.
 
Conservative and Flexible Balance Sheet . We are committed to maintaining a conservative and flexible balance sheet that allows us to capitalize on favorable development and acquisition opportunities as they arise. Our balance sheet also allows us to proactively assure our existing and prospective customers that we are able to fund tenant improvements and maintain our properties in good condition.
 
Competition
 
Our properties compete for customers with similar properties located in our markets primarily on the basis of location, rent, services provided and the design, quality and condition of the facilities. We also compete with other REITs, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire, develop and operate properties.
 
Employees
 
At December 31, 2012 , we had 415 full-time employees.

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

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Adverse economic conditions in our markets that negatively impact the demand for office space, such as high unemployment, may result in lower occupancy and rental rates for our portfolio, which would adversely affect our operating results . While we own and operate a limited number of industrial, retail and residential properties, our operating results depend heavily on successfully leasing and operating our office properties, which represent nearly 90% of rental and other revenues. Economic growth and employment levels in our core markets are and will continue to be important determinative factors in predicting our future operating results.

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

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

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

Difficulties or delays in renewing leases with large customers or re-leasing space vacated by large customers could materially impact our operating results. The 20 largest customers of our Wholly Owned Properties account for a significant portion of our revenues. See “Item 2. Properties - Customers” and “Item 2. Properties - Lease Expirations.” There are no assurances that these customers, or any of our other large customers, will renew all or any of their space upon expiration of their current leases.

Some of our leases provide customers with the right to terminate their leases early, which could have an adverse effect on our cash flow and results of operations . Certain of our leases permit our customers to terminate their leases as to all or a portion of the leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice by a certain date and, in most cases, paying a termination fee. To the extent that our customers exercise early termination rights, our cash flow and earnings will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net effective rent by leasing the vacated space to new third party customers.

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

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

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

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

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

Discovery of previously undetected environmentally hazardous conditions may decrease our operating results and limit our ability to make distributions . Under various federal, state and local environmental laws and regulations, a current or previous property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on such property. These costs could be significant. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require significant expenditures or prevent us from entering into leases with prospective customers that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce our operating results.
Our operating results may suffer if costs of operating our properties, such as real estate taxes, utilities, insurance, maintenance and other costs, rise faster than our ability to increase rental revenues and/or cost recovery income . While we receive additional rent from our customers that is based on recovering a portion of operating expenses, increased operating expenses will negatively impact our operating results. Our revenues, including cost recovery income, are subject to longer-term leases and may not be quickly increased sufficient to recover an increase in operating costs and expenses. Furthermore, the costs associated with owning and operating a property are not necessarily reduced when circumstances such as market factors and competition cause a reduction in rental revenues from the property. Increases in same property operating expenses would reduce

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our operating results unless offset by higher rental rates, higher cost recovery income, the impact of any newly acquired or developed properties, or lower general and administrative expenses and/or interest expense.

Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates. In the normal course of business, we typically evaluate potential acquisitions, enter into non-binding letters of intent, and may, at any time, enter into contracts to acquire additional properties. Acquired properties may fail to perform in accordance with our expectations due to lease-up risk, renovation cost risks and other factors. In addition, the renovation and improvement costs we incur in bringing an acquired property up to market standards may exceed our estimates. We may not have the financial resources to make suitable acquisitions or renovations on favorable terms or at all.

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

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

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

•	construction costs exceeding original estimates;	

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

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

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

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

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

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

Because holders of Common Units, including two of the Company's directors, may suffer adverse tax consequences upon the sale of some of our properties, they may seek to influence us not to sell certain properties even if such a sale would otherwise be in our best interest . Holders of Common Units may suffer adverse tax consequences upon the sale of certain properties. Therefore, holders of Common Units, including two of our directors, may have different objectives than our stockholders regarding the appropriate pricing and timing of a property's sale. Although the Company is the sole general partner of the Operating Partnership and has the exclusive authority to sell any of our Wholly Owned Properties, those who hold Common Units may seek

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to influence us not to sell certain properties even if such sale might be financially advantageous to stockholders, creditors, bondholders or our business as a whole or influence us to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest.

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

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

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

Increases in interest rates would increase our interest expense. From time to time, we may manage our exposure to interest rate risk by a combination of interest rate hedge contracts to effectively fix or cap a portion of our variable rate debt. In addition, we refinance fixed rate debt at times when we believe rates and terms are appropriate. Our efforts to manage these exposures may not be successful. Our use of interest rate hedge contracts to manage risk associated with interest rate volatility may expose us to additional risks, including a risk that a counterparty to a hedge contract may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of interest rate hedge contracts typically involves costs, such as transaction fees or breakage costs.

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

We depend on our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt upon maturity. Our ability to borrow under the revolving credit facility also allows us to quickly capitalize on accretive opportunities at short-term interest rates. If our lenders

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default under their obligations under the revolving credit facility or we become unable to borrow additional funds under the facility for any reason, we would be required to seek alternative equity or debt capital, which could be more costly and adversely impact our financial condition. If such alternative capital were unavailable, we may not be able to make new investments and could have difficulty repaying other debt.

Failure to comply with Federal government contractor requirements could result in substantial costs and loss of substantial revenue. We are subject to compliance with a wide variety of complex legal requirements because we are a Federal government contractor. These laws regulate how we conduct business, require us to administer various compliance programs and require us to impose compliance responsibilities on some of our contractors. Our failure to comply with these laws could subject us to fines and penalties, cause us to be in default of our leases and other contracts with the Federal government and bar us from entering into future leases and other contracts with the Federal government. There can be no assurance that these costs and loss of revenue will not have a material adverse effect on our properties, operations or business.

The Company may be subject to taxation as a regular corporation if it fails to maintain its REIT status, which w ould also have a material adverse effect on the Company's stockholders and on the Operating Partnership. We may be subject to adverse consequences if the Company fails to continue to qualify as a REIT for federal income tax purposes. While we intend to operate in a manner that will allow the Company to continue to qualify as a REIT, we cannot provide any assurances that the Company will remain qualified as such in the future, which would have particularly adverse consequences to the Company's stockholders. Many of the requirements for taxation as a REIT are highly technical and complex and depend upon various factual matters and circumstances that may not be entirely within our control. The fact that the Company holds virtually all of its assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the Internal Revenue Service might change the tax laws and regulations and the courts might issue new rulings that make it more difficult, or impossible, for the Company to remain qualified as a REIT. If the Company fails to qualify as a REIT, it would (a) not be allowed a deduction for dividends paid to stockholders in computing its taxable income, (b) be subject to federal income tax at regular corporate rates (and potentially the alternative minimum tax and increased state and local taxes) and (c) unless entitled to relief under the tax laws, not be able to re-elect REIT status until the fifth calendar year after it failed to qualify as a REIT. Additionally, the Company would no longer be required to make distributions. As a result of these factors, the Company's failure to qualify as a REIT would likely impair our ability to expand our business and would adversely affect the price of the Common Stock.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flows. Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, our taxable REIT subsidiary is subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. To remain qualified as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities, securities of taxable REIT subsidiaries and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of taxable REIT subsidiaries and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by the securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

The prohibited transactions tax may limit our ability to dispose of our properties. A REIT's net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. We may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can in all cases comply with the safe harbor or that we will

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avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties or may conduct such sales through our taxable REIT subsidiary, which would be subject to federal and state income taxation.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends. The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our stock.

We face possible state and local tax audits. Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but are subject to certain state and local taxes. In the normal course of business, certain entities through which we own real estate have undergone tax audits. Collectively, tax deficiency notices received to date from the jurisdictions conducting previous audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.

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

•	the level of institutional interest in us;	

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

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

•	our financial condition and performance;	

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

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

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

•	changes in our credit ratings; and	

•	any negative change in the level or stability of our dividend.	

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

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

•	scheduled increases in base rents of existing leases;	

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

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

•	changes in operating expenses;	

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

•	anticipated building improvements; and	

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•	expected cash flows from financing and investing activities.	

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

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

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

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

•	Preferred Stock . The Company's charter authorizes the board of directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without stockholder approval. The issuance of preferred stock could have the effect of delaying or preventing someone from taking control of the Company, even if a change in control were in our best interest.	

•	Business combinations. Pursuant to the Company's charter and Maryland law, the Company cannot merge into or consolidate with another corporation or enter into a statutory share exchange transaction in which the Company is not the surviving entity or sell all or substantially all of its assets unless the board of directors adopts a resolution declaring the proposed transaction advisable and a majority of the stockholders voting together as a single class approve the transaction. Maryland law prohibits stockholders from taking action by written consent unless all stockholders consent in writing. The practical effect of this limitation is that any action required or permitted to be taken by the Company's stockholders may only be taken if it is properly brought before an annual or special meeting of stockholders. The Company's bylaws further provide that in order for a stockholder to properly bring any matter before a meeting, the stockholder must comply with requirements regarding advance notice. The foregoing provisions could have the effect of delaying until the next annual meeting stockholder actions that the holders of a majority of the Company's outstanding voting securities favor. These provisions may also discourage another person from making a tender offer for the Company's common stock, because such person or entity, even if it acquired a majority of the Company's outstanding voting securities, would likely be able to take action as a stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting. Maryland law also establishes special requirements with respect to business combinations between Maryland corporations and interested stockholders unless exemptions apply. Among other things, the law prohibits for five years a merger and other similar transactions between a company and an interested stockholder and requires a supermajority vote for such transactions after the end of the five-year period. The Company's charter contains a provision exempting the Company from the Maryland business combination statute. However, we cannot assure you that this charter provision will not be amended or repealed at any point in the future.	

•	Control share acquisitions.  Maryland general corporation law also provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquirer or by officers or employee directors. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted by the corporation's charter or bylaws. The Company's bylaws contain a provision exempting from the control share acquisition statute any stock acquired by any person. However, we cannot assure you that this bylaw provision will not be amended or repealed at any point in the future.	

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Wholly Owned Properties

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

	
												
 	December 31, 2012	 	December 31, 2011	
 	Rentable
Square Feet	 	Percent
Occupied/
Leased/
Pre-Leased	 	Rentable
Square Feet	 	Percent
Occupied/
Leased/
Pre-Leased	
In-Service (Occupied) :	 	 	 	 	 	 	 	
Office	23,361,000		 	90.0	%	 	22,612,000		 	89.2	%	
Industrial	5,474,000		 	93.2		 	5,827,000		 	91.6		
Retail	853,000		 	98.6		 	853,000		 	98.7		
Total or Weighted Average	29,688,000		 	90.9	%	 	29,292,000		 	90.0	%	
 	 	 	 	 	 	 	 	
Development (Leased/pre-leased) :	 	 	 	 	 	 	 	
Completed—Not Stabilized (1)	 	 	 	 	 	 	 	
Office	—		 	—	%	 	117,000		 	100.0	%	
Total or Weighted Average	—		 	—	%	 	117,000		 	100.0	%	
In Process (1)	 	 	 	 	 	 	 	
Office	246,000		 	89.9	%	 	228,000		 	88.9	%	
Total or Weighted Average	246,000		 	89.9	%	 	228,000		 	88.9	%	
 	 	 	 	 	 	 	 	
Total:	 	 	 	 	 	 	 	
Office	23,607,000		 	 	 	22,957,000		 	 	
Industrial	5,474,000		 	 	 	5,827,000		 	 	
Retail	853,000		 	 	 	853,000		 	 	
Total	29,934,000		 	 	 	29,637,000		 	 	
__________
		
(1)	We consider a development project to be stabilized upon the earlier of the original projected stabilization date or the date such project is generally more than 90% occupied. None of these properties qualified for development in process as reflected in our Consolidated Balance Sheets since substantial development activity is not underway.	

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

	
									
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
 	(rentable square feet in thousands)	
Office, Industrial and Retail Properties:	 	 	 	 	 	
Dispositions	(1,179	)	 	(136	)	 	(1,309	)	
Developments Placed In-Service	116		 	208		 	413		
Redevelopment/Other	23		 	(53	)	 	(35	)	
Acquisitions	1,436		 	2,091		 	336		
Net Change in Square Footage of In-Service Wholly Owned Properties	396		 	2,110		 	(595	)	

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The following table sets forth information about our in-service Wholly Owned Properties by segment and by geographic location at December 31, 2012 :

	
																			
 	 	Rentable
Square Feet	 	Occupancy	 	Percentage of Annualized Cash Rental Revenue (1)	
Market	 					Office	 	Industrial	 	Retail	 	Total	
Raleigh	 	4,428,000		 	88.7	%	 	15.8	%	 	—	%	 	—	%	 	15.8	%	
Atlanta	 	6,439,000		 	89.0		 	12.0		 	2.5		 	—		 	14.5		
Tampa	 	2,912,000		 	91.5		 	12.7		 	—		 	—		 	12.7		
Nashville	 	2,610,000		 	95.6		 	11.4		 	—		 	—		 	11.4		
Kansas City	 	1,465,000		 	95.0		 	2.8		 	—		 	6.7		 	9.5		
Richmond	 	2,229,000		 	94.9		 	8.1		 	—		 	—		 	8.1		
Piedmont Triad	 	4,176,000		 	91.8		 	4.8		 	2.5		 	—		 	7.3		
Memphis	 	1,960,000		 	86.5		 	7.1		 	—		 	—		 	7.1		
Pittsburgh	 	2,156,000		 	91.0		 	9.5		 	—		 	—		 	9.5		
Greenville	 	897,000		 	85.2		 	2.3		 	—		 	—		 	2.3		
Orlando	 	416,000		 	94.5		 	1.8		 	—		 	—		 	1.8		
Total	 	29,688,000		 	90.9	%	 	88.3	%	 	5.0	%	 	6.7	%	 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December 2012 multiplied by 12.	

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

	
											
 	Average
Occupancy	 	Annualized GAAP Rent
Per Square
Foot (1)	 	Annualized Cash Rent
Per Square
Foot (2)	
2008	91.2	%	 	$	17.41		 	$	17.18		
2009	88.2	%	 	$	17.75		 	$	17.53		
2010	88.6	%	 	$	18.03		 	$	17.40		
2011	89.6	%	 	$	18.58		 	$	17.84		
2012	90.3	%	 	$	17.90		 	$	18.42		
__________
		
(1)	Annualized GAAP Rent Per Square Foot is rental revenue (base rent plus cost recovery income, including straight-line rent) for the month of December of the respective year multiplied by 12, divided by total occupied square footage.	
		
(2)	Annualized Cash Rent Per Square Foot is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December of the respective year multiplied by 12, divided by total occupied square footage.	

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Customers

The following table sets forth information concerning the 20 largest customers of our Wholly Owned Properties at December 31, 2012 :

	
														
Customer	 	Rental Square
Feet	 	Annualized
Cash Rental
Revenue (1)	 	Percent of
Total
Annualized
Cash Rental
Revenue (1)	 	Weighted
Average
Remaining
Lease Term in
Years	
 	 	 	 	(in thousands)	 	 	 	 	
Federal Government	 	1,489,871		 	$	34,660		 	6.97	%	 	5.3		
AT&T	 	579,906		 	11,507		 	2.32		 	1.2		
PricewaterhouseCoopers	 	318,647		 	9,137		 	1.84		 	2.3		
PPG Industries	 	340,483		 	8,735		 	1.76		 	8.5		
Healthways	 	290,689		 	6,739		 	1.36		 	9.3		
HCA Corporation	 	278,207		 	6,483		 	1.30		 	3.0		
State of Georgia	 	358,620		 	6,469		 	1.30		 	6.7		
Metropolitan Life Insurance	 	297,189		 	6,143		 	1.24		 	5.3		
EQT Corporation	 	280,592		 	5,600		 	1.13		 	11.8		
T-Mobile USA	 	210,971		 	5,509		 	1.11		 	1.6		
Marsh USA	 	188,719		 	5,154		 	1.04		 	6.6		
Lockton Companies	 	190,800		 	4,878		 	0.98		 	17.2		
Aon	 	190,683		 	4,442		 	0.89		 	6.8		
Vanderbilt University	 	198,783		 	4,385		 	0.88		 	2.7		
BB&T	 	275,266		 	4,356		 	0.88		 	3.7		
PNC Bank	 	169,840		 	4,326		 	0.87		 	13.5		
Syniverse Technologies	 	198,750		 	4,267		 	0.86		 	3.8		
SCI Services	 	162,784		 	3,897		 	0.78		 	4.6		
Volvo	 	294,437		 	3,841		 	0.77		 	4.3		
Jacobs Engineering Group	 	210,126		 	3,730		 	0.75		 	3.4		
Total	 	6,525,363		 	$	144,258		 	29.03	%	 	5.7		
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December 2012 multiplied by 12.	

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Land Held for Development

We wholly owned 649 acres of development land at December 31, 2012 . We estimate that we can develop approximately 6.6 million and 2.4 million rentable square feet of office and industrial space, respectively, on the 566 acres that we consider core assets for our future development needs. Our development land is zoned and available for office and industrial development, and nearly all of the land has utility infrastructure in place. We believe that our commercially zoned and unencumbered land in existing business parks gives us a development advantage over other commercial real estate development companies in many of our markets.
 
We consider 83 acres of our wholly owned development land at December 31, 2012 to be non-core assets that are not necessary for our foreseeable future development needs. We intend to dispose of such non-core development land through sales to third parties or contributions to joint ventures.

Other Properties

The following table sets forth information about our stabilized in-service office properties in which we own an interest (50.0% or less) by geographic location at December 31, 2012 :

	
													
 	 	Rentable
Square Feet	 	Weighted
Average
Ownership
Interest (1)	 	Occupancy	 	Percentage of
Annualized
Cash Rental
Revenue (2)	
Market	 							Office	
Orlando, FL	 	1,793,000		 	36.4	%	 	82.8	%	 	39.8	%	
Kansas City, MO (3)	 	719,000		 	36.1		 	82.1		 	17.8		
Atlanta, GA	 	840,000		 	38.7		 	80.7		 	16.0		
Raleigh, NC	 	635,000		 	25.0		 	95.2		 	10.5		
Richmond, VA (4)	 	411,000		 	50.0		 	98.5		 	9.7		
Piedmont Triad, NC	 	208,000		 	46.9		 	68.8		 	2.6		
Tampa, FL (4)	 	205,000		 	20.0		 	76.7		 	2.4		
Charlotte, NC	 	148,000		 	22.8		 	100.0		 	1.2		
Total	 	4,959,000		 	35.8	%	 	84.9	%	 	100.0	%	
__________
		
(1)	Weighted Average Ownership Interest is calculated using Rentable Square Feet.	
		
(2)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December 2012 multiplied by 12.	
		
(3)	Includes a 12.5% interest in a 261,000 square foot office property owned directly by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).	
		
(4)	This joint venture is consolidated.	

Lease Expirations

The following tables set forth scheduled lease expirations for existing leases at our in-service and completed – not stabilized Wholly Owned Properties at December 31, 2012 :

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Office Properties:

	
																					
Lease Expiring	 	Number of Leases Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	 	 	($ in thousands)	 	 	 	
2013 (2)	 	390		 	1,922,614		 	9.1	%	 	$	42,295		 	$	22.00		 	9.6	%	
2014	 	344		 	2,536,761		 	12.1		 	56,448		 	22.25		 	12.9		
2015	 	302		 	2,693,824		 	12.9		 	58,135		 	21.58		 	13.3		
2016	 	237		 	2,336,954		 	11.1		 	47,277		 	20.23		 	10.8		
2017	 	226		 	2,644,134		 	12.6		 	57,112		 	21.60		 	13.0		
2018	 	140		 	1,956,686		 	9.3		 	37,730		 	19.28		 	8.6		
2019	 	65		 	1,396,259		 	6.6		 	27,721		 	19.85		 	6.3		
2020	 	39		 	973,477		 	4.6		 	22,101		 	22.70		 	5.0		
2021	 	37		 	1,384,808		 	6.6		 	29,976		 	21.65		 	6.8		
2022	 	33		 	590,919		 	2.8		 	10,420		 	17.63		 	2.4		
Thereafter	 	130		 	2,595,360		 	12.3		 	49,605		 	19.11		 	11.3		
 	 	1,943		 	21,031,796		 	100.0	%	 	$	438,820		 	$	20.86		 	100.0	%	

Industrial Properties:

	
																					
Lease Expiring	 	Number of Leases Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under
Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	 	 	($ in thousands)	 	 	 	
2013 (3)	 	53		 	745,142		 	14.6	%	 	$	4,310		 	$	5.78		 	17.2	%	
2014	 	37		 	1,067,898		 	20.9		 	5,791		 	5.42		 	23.0		
2015	 	22		 	416,241		 	8.2		 	2,254		 	5.42		 	9.0		
2016	 	31		 	795,334		 	15.6		 	4,004		 	5.03		 	16.0		
2017	 	20		 	552,545		 	10.8		 	2,820		 	5.10		 	11.2		
2018	 	5		 	105,600		 	2.1		 	377		 	3.57		 	1.5		
2019	 	6		 	253,455		 	5.0		 	1,034		 	4.08		 	4.1		
2020	 	8		 	205,678		 	4.0		 	603		 	2.93		 	2.4		
2021	 	1		 	117,805		 	2.3		 	299		 	2.54		 	1.2		
2022	 	5		 	336,606		 	6.6		 	1,619		 	4.81		 	6.5		
Thereafter	 	17		 	505,004		 	9.9		 	1,970		 	3.90		 	7.9		
 	 	205		 	5,101,308		 	100.0	%	 	$	25,081		 	$	4.92		 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December 2012 multiplied by 12.	
		
(2)	Includes 50,000 square feet of leases that are on a month-to-month basis, which represent 0.2% of total annualized cash rental revenue.	
		
(3)	Includes 166,000 square feet of leases that are on a month-to-month basis, which represent 0.1% of total annualized cash rental revenue.	

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Retail Properties:

	
																					
Lease Expiring	 	Number of Leases Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under
Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	 	 	($ in thousands)	 	 	 	
2013 (2)	 	36		 	99,351		 	11.8	%	 	$	2,227		 	$	22.42		 	6.7	%	
2014	 	11		 	36,819		 	4.4		 	1,862		 	50.57		 	5.6		
2015	 	18		 	101,923		 	12.0		 	3,561		 	34.94		 	10.8		
2016	 	10		 	60,706		 	7.2		 	3,074		 	50.64		 	9.3		
2017	 	10		 	94,937		 	11.3		 	2,630		 	27.70		 	8.0		
2018	 	16		 	87,051		 	10.4		 	4,426		 	50.84		 	13.4		
2019	 	9		 	86,740		 	10.3		 	2,869		 	33.08		 	8.7		
2020	 	10		 	50,103		 	6.0		 	2,231		 	44.53		 	6.7		
2021	 	12		 	83,786		 	10.0		 	3,585		 	42.79		 	10.8		
2022	 	16		 	91,196		 	10.9		 	4,507		 	49.42		 	13.6		
Thereafter	 	5		 	47,751		 	5.7		 	2,104		 	44.06		 	6.4		
 	 	153		 	840,363		 	100.0	%	 	$	33,076		 	$	39.36		 	100.0	%	

Total:

	
																					
Lease Expiring	 	Number of Leases Expiring	 	Rentable
Square Feet
Subject to
Expiring
Leases	 	Percentage of
Leased Square
Footage
Represented
by Expiring
Leases	 	Annualized
Cash Rental
Revenue
Under
Expiring
Leases (1)	 	Average
Annual Cash
Rental Rate
Per Square
Foot for
Expirations	 	Percent of
Annualized
Cash Rental
Revenue
Represented
by Expiring
Leases (1)	
 	 	 	 	 	 	 	($ in thousands)	 	 	 	
2013 (3)	 	479		 	2,767,107		 	10.3	%	 	$	48,832		 	$	17.65		 	9.8	%	
2014	 	392		 	3,641,478		 	13.4		 	64,101		 	17.60		 	12.9		
2015	 	342		 	3,211,988		 	11.9		 	63,950		 	19.91		 	12.9		
2016	 	278		 	3,192,994		 	11.8		 	54,355		 	17.02		 	10.9		
2017	 	256		 	3,291,616		 	12.2		 	62,562		 	19.01		 	12.6		
2018	 	161		 	2,149,337		 	8.0		 	42,533		 	19.79		 	8.6		
2019	 	80		 	1,736,454		 	6.4		 	31,624		 	18.21		 	6.4		
2020	 	57		 	1,229,258		 	4.6		 	24,935		 	20.28		 	5.0		
2021	 	50		 	1,586,399		 	5.9		 	33,860		 	21.34		 	6.8		
2022	 	54		 	1,018,721		 	3.8		 	16,546		 	16.24		 	3.3		
Thereafter	 	152		 	3,148,115		 	11.7		 	53,679		 	17.05		 	10.8		
 	 	2,301		 	26,973,467		 	100.0	%	 	$	496,977		 	$	18.42		 	100.0	%	
__________
		
(1)	Annualized Cash Rental Revenue is cash rental revenue (base rent plus cost recovery income, excluding straight-line rent) for the month of December 2012 multiplied by 12.	
		
(2)	Includes 7,000 square feet of leases that are on a month-to-month basis, which represent less than 0.1% of total annualized cash rental revenue.	
		
(3)	Includes 223,000 square feet of leases that are on a month-to-month basis, which represent 0.4% of total annualized cash rental revenue.	

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ITEM 3. LEGAL PROCEEDINGS

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

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ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT

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

	
					
Name	 	Age	 	Position and Background	
Edward J. Fritsch	 	54	 	Director, President and Chief Executive Officer.
Mr. Fritsch has been a director since January 2001. Mr. Fritsch became our chief executive officer and chair of the investment committee of our board of directors on July 1, 2004 and our president in December 2003. Prior to that, Mr. Fritsch was our chief operating officer from January 1998 to July 2004 and was a vice president and secretary from June 1994 to January 1998. Mr. Fritsch joined our predecessor in 1982 and was a partner of that entity at the time of our initial public offering in June 1994. Mr. Fritsch currently serves as a director and member of the audit and compensation committees of National Retail Properties, Inc., a publicly-traded REIT. Mr. Fritsch is also a member of NAREIT Board of Governors executive committee, director and president of the YMCA of the Triangle, director and audit committee member of Capital Associated Industries, Inc., Ravenscroft board of trustees, member of Wells Fargo's central regional advisory board, member of the University of North Carolina at Chapel Hill Foundation Board; director of the University of North Carolina at Chapel Hill Real Estate Holdings; member of the University of North Carolina Kenan-Flagler’s Business School Board of Visitors and past chair of the University of North Carolina’s board of visitors.
 	
Michael E. Harris	 	63	 	Executive Vice President and Chief Operating Officer.
Mr. Harris became chief operating officer in July 2004. Prior to that, Mr. Harris was a senior vice president and was responsible for our operations in Memphis, Nashville, Kansas City, Baltimore and Charlotte. Mr. Harris was executive vice president of Crocker Realty Trust prior to its merger with us in 1996. Before joining Crocker Realty Trust, Mr. Harris served as senior vice president, general counsel and chief financial officer of Towermarc Corporation, a privately owned real estate development firm. Mr. Harris is past president of the Memphis Chapter of Lambda Alpha International Land Economics Society. Mr. Harris currently serves on the Advisory Board of the Graduate School of Real Estate at the University of Mississippi and is a past member of the Advisory Boards of Wachovia Bank- Memphis and Allen & Hoshall Engineering, Inc .
 	
Terry L. Stevens	 	64	 	Senior Vice President and Chief Financial Officer.
Prior to joining us in December 2003, Mr. Stevens was executive vice president, chief financial officer and trustee for Crown American Realty Trust, a public REIT. Before joining Crown American Realty Trust, Mr. Stevens was director of financial systems development at AlliedSignal, Inc., a large multi-national manufacturer. Mr. Stevens was also an audit partner with Price Waterhouse for seven years. Mr. Stevens currently serves as trustee, chairman of the Audit Committee and member of the Investment and Finance Committee of First Potomac Realty Trust, a public REIT. Mr. Stevens is a member of the American and the Pennsylvania Institutes of Certified Public Accountants.
 	
Jeffrey D. Miller	 	42	 	Vice President, General Counsel and Secretary.
Prior to joining us in March 2007, Mr. Miller was a partner with DLA Piper US, LLP, where he practiced since 2005. Previously, Mr. Miller had been a partner with Alston & Bird LLP. Mr. Miller is admitted to practice in North Carolina. Mr. Miller currently serves as lead independent director of Hatteras Financial Corp., a publicly-traded mortgage REIT.

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Theodore J. Klinck	 	47	 	Vice President and Chief Investment Officer.
Prior to joining us in March 2012, Mr. Klinck served as principal and chief investment officer with Goddard Investment Group, a privately owned real estate investment firm, since September 2009. Previously, Mr. Klinck had been a managing director at Morgan Stanley Real Estate.

Kevin E. Penn	 	41	 	Vice President, Chief Strategy and Administration Officer.
Mr. Penn became chief strategy and administration officer in January 2012. Mr. Penn joined us in 1997 and was our vice president of strategy from August 2005 to January 2012 and chief information officer from April 2002 to August 2005. Mr. Penn is a member of the Urban Land Institute, executive committee member of the Office, Technology and Operations Consortium and board member for the North Carolina Leukemia Lymphoma Society.

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PART II

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

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

	
																									
 	 	2012	 	2011	
Quarter Ended	 	High	 	Low	 	Dividend	 	High	 	Low	 	Dividend	
March 31	 	$	33.90		 	$	29.34		 	$	0.425		 	$	35.15		 	$	31.25		 	$	0.425		
June 30	 	$	35.78		 	$	31.14		 	$	0.425		 	$	37.51		 	$	31.71		 	$	0.425		
September 30	 	$	34.92		 	$	32.30		 	$	0.425		 	$	35.15		 	$	26.43		 	$	0.425		
December 31	 	$	34.24		 	$	30.62		 	$	0.425		 	$	32.27		 	$	25.64		 	$	0.425		

On December 31, 2012 , the last reported stock price of the Common Stock on the NYSE was $33.45 per share and the Company had 990 common stockholders of record. There is no public trading market for the Common Units. On December 31, 2012 , the Operating Partnership had 112 holders of record of Common Units (other than the Company). At December 31, 2012 , there were 80.3 million shares of Common Stock outstanding and 3.7 million Common Units outstanding, not owned by the Company.

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

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

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

•	scheduled increases in base rents of existing leases;	

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

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

•	changes in operating expenses;	

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

•	anticipated building improvements; and	

•	expected cash flows from financing and investing activities.	

The following stock price performance graph compares the performance of our Common Stock to the S&P 500, the Russell 2000 and the FTSE NAREIT All Equity REITs Index. The stock price performance graph assumes an investment of $100 in our Common Stock and the three indices on December 31, 2007 and further assumes the reinvestment of all dividends. Equity REITs are defined as those that derive more than 75.0% of their income from equity investments in real estate assets. The FTSE NAREIT All Equity REITs Index includes all equity REITs not designated as Timber REITs listed on the NYSE, the American Stock Exchange or the NASDAQ National Market System. Stock price performance is not necessarily indicative of future results.

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 	 	For the Period from December 31, 2007 to December 31,	
Index	 	2008	 	2009	 	2010	 	2011	 	2012	
Highwoods Properties, Inc.	 	98.56		 	128.53		 	129.85		 	127.54		 	151.44		
S&P 500	 	63.00		 	79.68		 	91.68		 	93.61		 	108.59		
Russell 2000	 	66.21		 	84.20		 	106.82		 	102.36		 	119.09		
FTSE NAREIT All Equity REITs Index	 	62.27		 	79.70		 	101.99		 	110.45		 	130.39		

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

During 2012 , cash dividends on Common Stock totaled $1.70 per share, approximately $0.18 of which represented return of capital and approximately $0.24 of which represented capital gains for income tax purposes. The minimum dividend per share of Common Stock required for the Company to maintain its REIT status was $1.07 per share in 2012 .

During the fourth quarter of 2012 , the Company issued an aggregate of 42,000 shares of Common Stock to holders of Common Units in the Operating Partnership upon the redemption of a like number of Common Units in private offerings exempt from the registration requirements pursuant to Section 4(2) of the Securities Act. Each of the holders of Common Units was an accredited investor under Rule 501 of the Securities Act. The resale of such shares was registered by the Company under the Securities Act.

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

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

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Information about the Company’s equity compensation plans and other related stockholder matters is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2013 .

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ITEM 6. SELECTED FINANCIAL DATA

The operating results and certain liabilities of the Company as of and for the years ended December 31, 2011 , 2010 , 2009 and 2008 were retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale and liabilities held for sale those properties which qualified as held for sale, and in discontinued operations the operations for those properties that qualified for discontinued operations. The information in the following tables should be read in conjunction with the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein ($ in thousands, except per share data):

	
																				
 	Year Ended December 31,	
 	2012	 	2011	 	2010	 	2009	 	2008	
Rental and other revenues	$	516,102		 	$	463,444		 	$	440,836		 	$	429,212		 	$	425,775		
Income from continuing operations	$	50,718		 	$	39,006		 	$	64,092		 	$	40,060		 	$	31,778		
Income from discontinued operations	$	33,517		 	$	8,965		 	$	8,211		 	$	21,634		 	$	3,832		
Income from continuing operations available for common stockholders	$	45,164		 	$	30,158		 	$	53,994		 	$	31,362		 	$	18,490		
Net income	$	84,235		 	$	47,971		 	$	72,303		 	$	61,694		 	$	35,610		
Net income available for common stockholders	$	77,087		 	$	38,677		 	$	61,790		 	$	51,778		 	$	22,080		
Earnings per Common Share – basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.60		 	$	0.42		 	$	0.75		 	$	0.46		 	$	0.31		
Net income	$	1.02		 	$	0.54		 	$	0.86		 	$	0.76		 	$	0.37		
Earnings per Common Share – diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.60		 	$	0.42		 	$	0.75		 	$	0.46		 	$	0.31		
Net income	$	1.02		 	$	0.54		 	$	0.86		 	$	0.76		 	$	0.37		
Dividends declared and paid per Common Share	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		

	
																				
 	December 31,	
 	2012	 	2011	 	2010	 	2009	 	2008	
Total assets	$	3,350,428		 	$	3,180,992		 	$	2,871,835		 	$	2,887,101		 	$	2,946,170		
Mortgages and notes payable	$	1,859,162		 	$	1,868,906		 	$	1,488,638		 	$	1,443,500		 	$	1,588,080		
Financing obligations	$	29,358		 	$	30,150		 	$	31,874		 	$	36,515		 	$	33,022		

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The operating results and certain liabilities of the Operating Partnership as of and for the years ended December 31, 2011 , 2010 , 2009 and 2008 were retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale and liabilities held for sale those properties which qualified as held for sale, and in discontinued operations the operations for those properties that qualified for discontinued operations. The information in the following tables should be read in conjunction with the Operating Partnership’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein ($ in thousands, except per unit data):

	
																				
 	Year Ended December 31,	
 	2012	 	2011	 	2010	 	2009	 	2008	
Rental and other revenues	$	516,102		 	$	463,444		 	$	440,836		 	$	429,212		 	$	425,775		
Income from continuing operations	$	50,778		 	$	39,067		 	$	64,065		 	$	40,006		 	$	31,651		
Income from discontinued operations	$	33,517		 	$	8,965		 	$	8,211		 	$	21,634		 	$	3,832		
Income from continuing operations available for common unitholders	$	47,484		 	$	31,864		 	$	56,872		 	$	33,287		 	$	19,698		
Net income	$	84,295		 	$	48,032		 	$	72,276		 	$	61,640		 	$	35,483		
Net income available for common unitholders	$	81,001		 	$	40,829		 	$	65,083		 	$	54,921		 	$	23,530		
Earnings per Common Unit – basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.60		 	$	0.42		 	$	0.76		 	$	0.47		 	$	0.31		
Net income	$	1.02		 	$	0.54		 	$	0.87		 	$	0.77		 	$	0.37		
Earnings per Common Unit – diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.60		 	$	0.42		 	$	0.76		 	$	0.47		 	$	0.31		
Net income	$	1.02		 	$	0.54		 	$	0.87		 	$	0.77		 	$	0.37		
Distributions declared and paid per Common Unit	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		 	$	1.70		

	
																				
 	December 31,	
 	2012	 	2011	 	2010	 	2009	 	2008	
Total assets	$	3,349,525		 	$	3,179,884		 	$	2,870,671		 	$	2,885,738		 	$	2,944,856		
Mortgages and notes payable	$	1,859,162		 	$	1,868,906		 	$	1,488,638		 	$	1,443,500		 	$	1,588,080		
Financing obligations	$	29,358		 	$	30,150		 	$	31,874		 	$	36,515		 	$	33,022		

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

The Company is a fully integrated, self-administered and self-managed equity REIT that provides leasing, management, development, construction and other customer-related services for our properties and for third parties. The Company conducts virtually all of its activities through the Operating Partnership. The Operating Partnership is managed by the Company, its sole general partner. At December 31, 2012 , we owned or had an interest in 333 in-service office, industrial and retail properties, encompassing 34.6 million square feet, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership's Consolidated Financial Statements), two development properties and 649 acres of development land. We are based in Raleigh, NC, and our properties and development land are located in Florida, Georgia, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia.

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

Disclosure Regarding Forward-Looking Statements

Some of the information in this Annual Report may contain forward-looking statements. Such statements include, in particular, statements about our plans, strategies and prospects under this section and under the heading “Item 1. Business.” You can identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. When considering such forward-looking statements, you should keep in mind the following important factors that could cause our actual results to differ materially from those contained in any forward-looking statement:

•	the financial condition of our customers could deteriorate;	

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

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

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

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

•	our markets may suffer declines in economic growth;	

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

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

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

•	the Company could lose key executive officers.	

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

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Executive Summary
 
Our Strategic Plan focuses on:

•	owning high-quality, differentiated real estate assets in the key infill business districts in our core markets;	

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

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

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

•	maintaining a conservative, flexible balance sheet with ample liquidity to meet our funding needs and growth prospects.	
 
While we own and operate a limited number of industrial, retail and residential properties, our operating results depend heavily on successfully leasing and operating our office properties. Economic growth and employment levels in our core markets are and will continue to be important determinative factors in predicting our future operating results.
 
The key components affecting our rental and other revenues are average occupancy, rental rates, levels of cost recovery income, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower economic growth, when new vacancies tend to outpace our ability to lease space. Asset acquisitions, dispositions and new developments placed in service directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also must concentrate our leasing efforts on renewing leases on expiring space. For more information regarding our lease expirations, see “Item 2. Properties - Lease Expirations.” We expect average occupancy to be slightly lower in 2013 compared to 2012.
 
Whether or not our rental revenue tracks average occupancy proportionally depends upon whether rents under new leases signed are higher or lower than the rents under the previous leases. Annualized rental revenues from second generation leases signed during any particular year are generally less than 15% of our total annual rental revenues. During the fourth quarter of 2012 , we leased 1.2 million square feet of second generation office space, defined as space previously occupied under our ownership that becomes available for lease or acquired vacant space, with a weighted average term of 5.4 years. On average, tenant improvements for such leases were $12.73 per square foot, lease commissions were $3.61 per square foot and rent concessions were $3.68 per square foot. Annualized GAAP rents under such leases were $21.18 per square foot, or 3.0% higher than under previous leases.

We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our revenues are periodically reviewed with the Company's Board of Directors. Currently, no customer accounts for more than 3% of our revenues other than the Federal Government, which accounted for 7.0% of our revenues on an annualized basis as of December 31, 2012 . See “Item 2. Properties - Customers.”
 
Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. From time to time, expenses also include impairments of real estate assets. Rental property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy levels, such as common area maintenance and utilities, and expenses that do not vary based on occupancy, such as property taxes and insurance. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy, place in service or sell assets, since we depreciate our properties and related building and tenant improvement assets on a straight-line basis over a fixed life. General and administrative expenses, net of amounts capitalized, consist primarily of management and employee salaries and other personnel costs, corporate overhead and long-term incentive compensation.

We intend to maintain a conservative and flexible balance sheet that allows us to capitalize on favorable development and acquisition opportunities as they arise. We anticipate commencing up to $200 million of new development in 2013 . Any such

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projects would not be placed in service until 2014 or beyond. We also anticipate acquiring up to $325 million of new properties and selling up to $150 million of non-core properties in 2013 . We generally seek to acquire and develop assets that are consistent with our Strategic Plan, improve the average quality of our overall portfolio and deliver consistent and sustainable value for our stockholders over the long-term. Whether or not an asset acquisition or new development results in higher per share net income or FFO in any given period depends upon a number of factors, including whether the capitalization rate using projected GAAP net operating income for any such period exceeds the actual cost of capital used to finance the acquisition. We generally intend to grow our company on a leverage-neutral basis by maintaining a leverage ratio, defined as the percentage of mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, of 42-48%. As of December 31, 2012 , this ratio was 43.9% . Forward-looking information regarding 2013 operating performance contained below under "Results of Operations" excludes the impact of any potential acquisitions or dispositions.

Results of Operations

Comparison of 2012 to 2011

Rental and Other Revenues

Rental and other revenues from continuing operations were $52.7 million, or 11.4%, higher in 2012 as compared to 2011 primarily due to recent acquisitions, which accounted for $43.8 million of the increase, and higher same property revenues of $9.4 million, partly offset by lower construction income of $1.7 million. Same property revenues were higher primarily due to an increase in average occupancy to 90.7% in 2012 from 89.9% in 2011, an increase in annualized GAAP rent per square foot to $18.73 in 2012 from $18.48 in 2011, higher cost recovery income, higher net termination fees and lower bad debt expense. We expect 2013 rental and other revenues to increase over 2012 primarily due to the full year contribution of acquisitions closed in 2012, partly offset by slightly lower average occupancy in our same property portfolio.

Operating Expenses

Rental property and other expenses were $19.6 million, or 11.7%, higher in 2012 as compared to 2011 primarily due to recent acquisitions, which accounted for $18.8 million of the increase and higher same property operating expenses of $1.5 million, partly offset by $1.7 million lower cost of construction expense. Same property operating expenses were higher primarily due to higher repairs and maintenance and insurance costs, partly offset by lower utilities and real estate taxes. We expect 2013 rental property and other expenses to increase over 2012 primarily due to the full year contribution of acquisitions closed in 2012 and slightly higher same property operating expenses.

Operating margin, defined as rental and other revenues less rental property and other expenses expressed as a percentage of rental and other revenues, was lower at 63.7% in 2012 as compared to 63.8% in 2011. Operating margin is expected to be slightly lower in 2013 as compared to 2012.

Depreciation and amortization was $18.4 million, or 13.4%, higher in 2012 as compared to 2011 primarily due to recent acquisitions, which accounted for $16.5 million of the increase, and higher same property depreciation and amortization of $1.6 million. We expect 2013 depreciation and amortization to increase over 2012 primarily due to the full year contribution of acquisitions closed in 2012.

We recorded impairments of real estate assets of $2.4 million in 2011 related to two office properties located in Orlando, FL which resulted from a change in the assumed timing of future dispositions. We recorded no such impairments in 2012. Impairments can arise from a number of factors; accordingly, there can be no assurances that we will not be required to record additional impairment charges in the future.

General and administrative expenses were $1.7 million, or 4.6%, higher in 2012 as compared to 2011 primarily due to higher salaries and incentive compensation, partly offset by lower acquisition and dead deal costs. We expect 2013 general and administrative expenses to decrease over 2012 primarily due to lower incentive compensation and acquisition costs.

Interest Expense

Interest expense was $0.6 million, or 0.6%, higher in 2012 as compared to 2011 primarily due to higher average debt balances, partly offset by lower average interest rates and lower financing obligation interest expense. We expect 2013 interest expense to slightly decrease over 2012 primarily due to lower average interest rates.

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Other Income

Other income was $1.0 million, or 13.4%, lower in 2012 as compared to 2011 primarily due to recording a loss on debt extinguishment in 2012. We expect other income to remain consistent in 2013 as compared to 2012.

Gains on Disposition of Investments in Unconsolidated Affiliates

Gains on disposition of investments in unconsolidated affiliates were $2.3 million lower in 2012 as compared to 2011 due to our partner exercising its option to acquire our 10.0% equity interest in one of our unconsolidated joint ventures in 2011.

Net Gains on Disposition of Discontinued Operations

Net gains on disposition of discontinued operations were $26.9 million higher in 2012 as compared to 2011 due to higher disposition activity in 2012.

Dividends on Preferred Stock and Excess of Preferred Stock Redemption/Repurchase Cost Over Carrying Value

Dividends on Preferred Stock and excess of Preferred Stock redemption/repurchase cost over carrying value were $2.0 million and $1.9 million lower, respectively, in 2012 as compared to 2011 due to the redemption of all remaining Series B Preferred Shares in 2011.

Comparison of 2011 to 2010

Rental and Other Revenues

Rental and other revenues from continuing operations were $22.6 million, or 5.1%, higher in 2011 as compared to 2010 primarily due to acquisitions, which accounted for $20.0 million of the increase, and the contribution of development properties placed in service at various times throughout the two-year period, which accounted for $1.8 million of the increase. In addition, same property revenues were virtually unchanged in 2011 as compared to 2010 primarily due to an increase in average occupancy to 90.2% in 2011 from 89.7% in 2010, offset by a slight decrease in annualized GAAP rents per square foot to $18.38 in 2011 from $18.46 in 2010.

Operating Expenses

Rental property and other expenses were $12.1 million, or 7.8%, higher in 2011 as compared to 2010 primarily due to acquisition activity, which accounted for $9.4 million of the increase, the contribution of development properties placed in service and higher real estate taxes and utilities in our same property portfolio.

Operating margin, defined as rental and other revenues less rental property and other expenses expressed as a percentage of rental and other revenues, was lower at 63.8% in 2011 as compared to 64.7% in 2010.

Depreciation and amortization was $7.7 million, or 5.9%, higher in 2011 as compared to 2010 primarily due to acquisition activity and the contribution of development properties placed in service.

We recorded impairments of real estate assets of $2.4 million in 2011 related to two office properties located in Orlando, FL which resulted from a change in the assumed timing of future dispositions. We recorded no such impairments in 2010.

General and administrative expenses were $2.8 million, or 8.4%, higher in 2011 as compared to 2010 primarily due to acquisition costs, offset by lower general and administrative expenses.

Interest Expense

Interest expense was $2.6 million, or 2.8%, higher in 2011 as compared to 2010 primarily due to higher average debt balances from acquisitions, offset by lower average interest rates and lower financing obligation interest expense in 2011.

Other Income

Other income was $1.7 million, or 30.2%, higher in 2011 as compared to 2010 primarily due to interest income on an advance to an unconsolidated affiliate in 2011 and loss on debt extinguishment in 2010.

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Gains on Disposition of Investments in Unconsolidated Affiliates

Gains on disposition of investments in unconsolidated affiliates were $23.0 million lower in 2011 as compared to 2010 due to the disposition of our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA in 2010.

Net Gains on Disposition of Discontinued Operations

Net gains on disposition of discontinued operations were $2.7 million higher in 2011 as compared to 2010 due to the disposition of an office property in Winston Salem, NC in 2011.

Dividends on Preferred Stock and Excess of Preferred Stock Redemption/Repurchase Cost Over Carrying Value

Dividends on Preferred Stock were $2.2 million lower in 2011 as compared to 2010 and excess of Preferred Stock redemption/repurchase cost over carrying value was $1.9 million higher in 2011 as compared to 2010 due to the redemption of all remaining Series B Preferred Shares in 2011.

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Liquidity and Capital Resources

Overview

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

Statements of Cash Flows

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

	
												
 	Year Ended December 31,	 	 	
 	2012	 	2011	 	Change	
Net Cash Provided By Operating Activities	$	193,416		 	$	195,396		 	$	(1,980	)	
Net Cash Used In Investing Activities	(238,812	)	 	(215,479	)	 	(23,333	)	
Net Cash Provided By Financing Activities	47,991		 	17,065		 	30,926		
Total Cash Flows	$	2,595		 	$	(3,018	)	 	$	5,613		

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

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

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

The change in net cash related to operating activities in 2012 as compared to 2011 was primarily due to higher cash paid for operating expenses, partly offset by higher net cash from acquired properties.

The change in net cash related to investing activities in 2012 as compared to 2011 was primarily due to higher acquisition activity in 2012, partly offset by higher net proceeds from disposition of real estate assets in 2012 and an advance to an unconsolidated affiliate in 2011.

The change in net cash related to financing activities in 2012 as compared to 2011 was primarily due to higher proceeds from the issuance of Common Stock in 2012 and redemptions/repurchases of Preferred Stock in 2011, partly offset by higher net repayments of borrowings in 2012.

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Capitalization

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

	
								
 	December 31,	
 	2012	 	2011	
Mortgages and notes payable, at recorded book value (1)	$	1,859,162		 	$	1,903,213		
Financing obligations (1)	$	29,358		 	$	31,444		
Preferred Stock, at liquidation value	$	29,077		 	$	29,077		
Common Stock outstanding	80,311		 	72,648		
Common Units outstanding (not owned by the Company)	3,733		 	3,730		
Per share stock price at year end	$	33.45		 	$	29.67		
Market value of Common Stock and Common Units	$	2,811,272		 	$	2,266,135		
Total market capitalization	$	4,728,869		 	$	4,229,869		
__________
		
(1)	Amounts have not been retrospectively revised to reflect liabilities held for sale at December 31, 2011.	

At December 31, 2012 , our mortgages and notes payable represented 39.3% of our total market capitalization and, together with our outstanding preferred stock, represented 43.9% of the undepreciated book value of our assets.

Our mortgages and notes payable as of December 31, 2012 consisted of $549.6 million of secured indebtedness with a weighted average interest rate of 5.75% and $1,309.6 million of unsecured indebtedness with a weighted average interest rate of 4.54% . The secured indebtedness was collateralized by real estate assets with an aggregate undepreciated book value of $966.9 million .
 
Current and Future Cash Needs
 
Rental and other revenues are our principal source of funds to meet our short-term liquidity requirements. Other sources of funds for short-term liquidity needs include available working capital and borrowings under our existing revolving credit facility, which had $ 449.9 million of availability at February 1, 2013 . Our short-term liquidity requirements primarily consist of operating expenses, interest and principal amortization on our debt, dividends and distributions and capital expenditures, including building improvement costs, tenant improvement costs and lease commissions. Building improvements are capital costs to maintain existing buildings not typically related to a specific customer. Tenant improvements are the costs required to customize space for the specific needs of customers. We anticipate that our available cash and cash equivalents and cash provided by operating activities, together with cash available from borrowings under our revolving credit facility, will be adequate to meet our short-term liquidity requirements.
 
Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity (including mortgage debt, our revolving credit facility, term loans and other unsecured debt), funding of existing and new building development or land infrastructure projects and funding acquisitions of buildings and development land. Additionally, we may, from time to time, retire some or all of our remaining outstanding Preferred Stock and/or unsecured debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.
 
We expect to meet our long-term liquidity needs through a combination of:

•	cash flow from operating activities;	

•	bank term loans and borrowings under our revolving credit facility;	

•	the issuance of unsecured debt;	

•	the issuance of secured debt;	

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

•	the disposition of non-core assets.	

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

During 2012, we acquired:

•	a 492,000 square foot office property in Atlanta, GA for a purchase price of $144.9 million ;	

•	a 616,000 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, contingent consideration with fair value at the acquisition date of $0.7 million , and the assumption of secured debt due August 2014 recorded at fair value of $7.9 million , with an effective interest rate of 4.06% ; and	

•	a 178,300 square foot office property in Cary, NC from our DLF I 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.	

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. We have invested or intend to invest an additional $10.4 million in the aggregate of planned building improvements and future tenant improvements committed under existing leases acquired in the building acquisitions. Based on the total anticipated investment of $302.1 million , the weighted average capitalization rate for these building acquisitions is 8.3% using projected GAAP net operating income for our first year of ownership. These forward-looking statements are subject to risks and uncertainties. See “Disclosure Regarding Forward-Looking Statements.”

We also acquired 68 acres of development land currently zoned for 1.3 million square feet of future office development in Nashville, TN for a purchase price of $15.0 million . See "Other Recent Activity."

On January 9, 2013, we acquired two office buildings encompassing 195,000 square feet in Greensboro, NC for a total purchase price of $30.9 million. We intend to invest an additional $2.0 million of planned building improvements and expect to expense $0.2 million of costs related to this acquisition.

During 2012, we sold:

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

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

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

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

•	96 vacant non-core rental residential units in Kansas City, MO for a sale price of $11.0 million and recorded 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 condominiums were sold as of December 31, 2012.	

Recent Financing Activity
 
During 2011, we entered into separate equity sales agreements with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Mitsubishi UFJ Securities (USA), Inc. and RBC Capital Markets. During 2012 , the Company issued 4,103,926 shares of Common Stock under these equity sales agreements at an average gross price of $33.31 per share and received net proceeds, after sales commissions and expenses, of $134.7 million . We paid an aggregate of $2.1 million in sales commissions to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Mitsubishi UFJ Securities (USA), Inc. and RBC Capital Markets during 2012 .

During 2012, we entered into separate equity sales agreements with each of Wells Fargo Securities, LLC, BB&T Capital Markets, a division of Scott & Stringfellow, LLC, Jefferies & Company, Inc., Morgan Stanley & Co., LLC and Piper Jaffray & Co. Under the terms of the equity distribution agreements, the Company may offer and sell shares of its Common Stock from time to time through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms. During 2012 , the Company issued 3,141,911 shares of Common Stock under these equity distribution agreements at an average gross sales price of $32.87 per share and received net proceeds, after sales commissions and expenses, of $101.7 million . We paid an aggregate of $1.5 million in sales commissions to Wells Fargo Securities, LLC, Jefferies & Company, Inc. and Piper Jaffray & Co. during 2012 . In early January 2013 , the Company issued 198,177 shares of Common Stock under these equity distribution agreements at an average gross price of $33.97 per share and received net proceeds, after sales commissions and expenses, of $6.6 million . We paid an aggregate of $0.1 million in sales commissions to Piper Jaffray & Co. in connection with these issuances.

Our $ 475.0 million unsecured revolving credit facility is scheduled to mature on June 27, 2015 and includes an accordion feature that allows for an additional $ 75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $ 23.0 million and $ 25.0 million outstanding under our revolving credit facility at December 31, 2012 and February 1, 2013 , respectively. At both December 31, 2012 and February 1, 2013 , we had $ 0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at December 31, 2012 and February 1, 2013 was $ 451.9 million and $ 449.9 million , respectively.

During 2012, we repaid the remaining balances of $52.1 million of our variable rate, secured construction loan bearing interest of 1.07% and a $123.0 million secured mortgage loan bearing interest of 6.03% that was scheduled to mature in March 2013 . One of our consolidated affiliates also repaid a $20.8 million secured loan that bore interest at 6.06% and matured in October 2012 . We incurred no penalties related to these repayments. Real estate assets having a gross book value of $193 million became unencumbered in connection with the payoff of these secured loans. We also paid down $12.2 million of secured loan balances through principal amortization during 2012.
 
During 2012, the Operating Partnership issued $ 250 million aggregate principal amount of 3.625% Notes due January 15, 2023 , less original issue discount of $2.7 million . These notes were priced at 98.94% for an effective yield of 3.752% . Underwriting fees and other expenses were incurred that aggregated $2.1 million ; these costs were deferred and will be amortized over the term of the notes.
 
During 2012, we modified our $200.0 million , five-year unsecured bank term loan, which was originally scheduled to mature in February 2016 . The loan is now scheduled to mature in January 2018 and the interest rate was reduced from LIBOR plus 220 basis points to LIBOR plus 165 basis points. We incurred $0.9 million of deferred financing fees in connection with the modification, which will be amortized along with existing unamortized deferred loan fees over the remaining term of the new loan. Proceeds

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from two new participants, aggregating $35.0 million , were used to reduce amounts outstanding under our revolving credit facility. Two of the original participants, which still hold an aggregate $35.0 million of the principal balance under the original term loan, will be fully paid off on or before February 25, 2013 .
 
During 2012, we repurchased $12.1 million principal amount of unsecured notes due March 2017 bearing interest of 5.85% for a purchase price of 107.5% of par value. We recorded $1.0 million of loss on debt extinguishment related to this repurchase. 

During 2012, we obtained a $225.0 million , seven -year unsecured bank term loan bearing interest of LIBOR plus 190 basis points. The underlying LIBOR rate has been effectively fixed at a weighted average of 1.678% for the seven-year period with respect to the full principal amount of the term loan by floating-to-fixed interest rate swaps. The counterparties under the swaps are the same financial institutions that participated in the term loan.

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

Other Recent Activity

During 2012, we provided an $8.6 million loan to a third party, which was used by such third party to fund a portion of the purchase price to acquire 77 acres of mixed-use development land adjacent to our 68 -acre office development parcel in Nashville, TN. Initially, the loan is scheduled to mature in December 2015 and bears interest at 5.0% per year. The loan can be extended by the third party for up to three additional years, subject to applicable increases in the interest rate. We also agreed to loan such third party approximately $8.4 million to fund future infrastructure development on its 77 -acre development parcel. Both loans are or will be secured by the 77 -acre development parcel.

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

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

The Operating Partnership has the following notes currently outstanding ($ in thousands):

	
														
 	Face Amount	 	Carrying Amount	 	Stated Interest Rate	 	Effective Interest Rate	
Notes due in 2017	$	379,685		 	$	379,194		 	5.850	%	 	5.880	%	
Notes due in 2018	$	200,000		 	$	200,000		 	7.500	%	 	7.500	%	
Notes due in 2023	$	250,000		 	$	247,361		 	3.625	%	 	3.752	%	

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

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Contractual Obligations
 
The following table sets forth a summary regarding our known contractual obligations, including required interest payments for those items that are interest bearing, at December 31, 2012 ($ in thousands):

	
																												
 	 	 	Amounts due during the years ending December 31,	 	 	
 	Total	 	2013	 	2014	 	2015	 	2016	 	2017	 	Thereafter	
Mortgages and Notes Payable:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Principal payments  (1)	$	1,858,216		 	$	122,944		 	$	111,972		 	$	67,456		 	$	192,638		 	$	488,206		 	$	875,000		
Interest payments	419,032		 	90,883		 	79,378		 	77,961		 	66,751		 	45,591		 	58,468		
Financing Obligations:	 	 	 	 	 	 	 	 	 	 	 	 	 	
SF-HIW Harborview Plaza, LP financing obligation	12,747		 	—		 	12,747		 	—		 	—		 	—		 	—		
Tax increment financing bond	11,787		 	1,365		 	1,460		 	1,561		 	1,669		 	1,785		 	3,947		
Interest on financing obligations (2)	3,486		 	817		 	722		 	621		 	513		 	397		 	416		
Capitalized Lease Obligations	260		 	123		 	105		 	32		 	—		 	—		 	—		
Purchase Obligations:		 	 	 	 	 	 	 	 	 	 	 	 	
Lease and contractual commitments (3)	121,990		 	113,913		 	6,142		 	1,097		 	514		 	163		 	161		
Operating Lease Obligations:		 	 	 	 	 	 	 	 	 	 	 	 	
Operating ground leases	62,016		 	2,383		 	2,404		 	2,427		 	2,451		 	2,476		 	49,875		
Other Long Term Obligations:	 	 	 	 	 	 	 	 	 	 	 	 	 	
DLF I obligation	243		 	243		 	—		 	—		 	—		 	—		 	—		
Future infrastructure funding	8,438		 	618		 	5,520		 	2,300		 	—		 	—		 	—		
Total	$	2,498,215		 	$	333,289		 	$	220,450		 	$	153,455		 	$	264,536		 	$	538,618		 	$	987,867		
__________
		
(1)	Excludes amortization of premiums, discounts and/or purchase accounting adjustments.	
		
(2)	Does not include interest on the SF-HIW Harborview Plaza, LP financing obligation, which cannot be reasonably estimated for future periods. The interest expense on this financing obligation was $(0.3) million , $0.8 million and $1.1 million in 2012 , 2011 and 2010 , respectively.	
		
(3)	Amount represents commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements, and contracts for development/redevelopment projects. The timing of these expenditures may fluctuate.	

The interest payments due on mortgages and notes payable are based on the stated rates for the fixed rate debt and on the rates in effect at December 31, 2012 for the variable rate debt. The weighted average interest rate on our fixed (including debt with a variable rate that is effectively fixed by related interest rate swaps) and variable rate debt was 5.38% and 1.93% , respectively, at December 31, 2012 . For additional information about our mortgages and notes payable, see Note 6 to our Consolidated Financial Statements. For additional information about our financing obligations, see Note 8 to our Consolidated Financial Statements. For additional information about purchase obligations, operating lease obligations and other long term obligations, see Note 9 to our Consolidated Financial Statements.

Off Balance Sheet Arrangements

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

At December 31, 2012 , our unconsolidated joint ventures had $604.9 million of total assets and $394.9 million of total liabilities. Our weighted average equity interest based on the total assets of these unconsolidated joint ventures was 36.3% . During 2012 , these unconsolidated joint ventures earned $11.3 million of aggregate net income, of which our share was $3.3 million . Additionally, we recorded $1.7 million of adjustments for management and other fees in equity in earnings of unconsolidated affiliates. For additional information about our unconsolidated joint venture activity, see Note 4 to our Consolidated Financial Statements.

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At December 31, 2012 , our unconsolidated joint ventures had $370.4 million of outstanding mortgage debt. The following table sets forth the scheduled maturities of the Company’s proportionate share of the outstanding debt of its unconsolidated joint ventures at December 31, 2012 ($ in thousands):

	
				
2013	$	23,458		
2014	57,163		
2015	21,821		
2016	1,054		
2017	26,452		
Thereafter (1)	7,313		
 	$	137,261		
__________
		
(1)	Includes our 12.5% portion of a $9.4 million mortgage payable related to an equity method investee owned directly by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).	

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

During 2012, we provided a three-year, $20.8 million interest-only secured loan to our Harborview Plaza joint venture that is scheduled to mature in September 2015 , which the joint venture used to repay a secured loan at maturity to a third party lender. This new loan bears interest at LIBOR plus 500 basis points, subject to a LIBOR floor of 0.5% . Because the joint venture is consolidated, this loan and related interest income and expense are eliminated in consolidation.

During 2012, our DLF II joint venture obtained a $50.0 million , three-year secured mortgage loan from a third party lender, bearing a fixed interest rate of 3.5% on $39.1 million of the loan and a floating interest rate of LIBOR plus 250 basis points on $10.9 million of the loan, which was used by the joint venture to repay a secured loan at maturity to a third party lender.
 
During 2012, our DLF I joint venture sold two office properties to third parties for $15.5 million and recorded gains on disposition of property of $4.9 million . We recorded $1.1 million as our proportionate share of these gains through equity in earnings of unconsolidated affiliates.

During 2011, we provided a $ 38.3 million interest-only secured loan to our DLF I joint venture that was initially scheduled to mature in March 2012 . During 2012, the outstanding balance of the loan was repaid as a result of our acquisition of an office property from the joint venture and through application of the net proceeds from the joint venture's sale of two office properties to third parties as noted above. We recorded $0.9 million and $1.3 million of interest income from this loan in interest and other income during the years ended December 31, 2012 and 2011 , respectively.

Financing Arrangements
 
- SF-HIW Harborview Plaza, LP (“Harborview”)
 
Our joint venture partner in Harborview has the right to put its 80.0% equity interest in the joint venture to us in exchange for cash at any time during the one-year period commencing September 11, 2014 . The value of the 80.0% equity interest will be determined at the time that our partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LP's assets and liabilities, less 3.0% , which amount was intended to cover the normal costs of a sale transaction. Because of the put option, this transaction is accounted for as a financing transaction. Accordingly, the assets, liabilities and operations related to Harborview, the office property owned by Harborview LP, remain in our Consolidated Financial Statements.
 
As a result, we initially established a gross financing obligation equal to the $12.7 million equity contributed by our joint venture partner. During 2012, our joint venture partner contributed an additional $1.8 million of equity to the joint venture. During each period, we increase the gross financing obligation for 80.0% of the net income before depreciation of Harborview, which is recorded as interest expense on financing obligation, and decrease the gross financing obligation for distributions made to our joint venture partner. At the end of each reporting period, the balance of the gross financing obligation is adjusted to equal the greater of the equity contributed by our joint venture partner or the current fair value of the put option, which is recorded as a valuation allowance. The valuation allowance is amortized on a straight-line basis prospectively through September 2014 as interest expense on financing obligation. The fair value of the put option was $12.7 million and $6.2 million at December 31, 2012 and

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2011 , respectively. We continue to depreciate Harborview and record all of the depreciation on our books. At such time as the put option expires or is otherwise terminated, we will record the transaction as a partial sale and recognize gain accordingly.

- Tax Increment Financing Bond

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

Critical Accounting Estimates

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

•	Real estate and related assets;	

•	Impairments of real estate assets and investments in unconsolidated affiliates;	

•	Sales of real estate;	

•	Rental and other revenues; and	

•	Allowance for doubtful accounts.	
 
Real Estate and Related Assets
 
Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over initial fixed terms of the respective leases, which generally are from three to 10 years.
 
Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at depreciated cost. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs on qualifying assets, real estate taxes, development personnel salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use, but not later than one year from cessation of major construction activity. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction.
 
Expenditures directly related to the leasing of properties are included in deferred financing and leasing costs and are stated at amortized cost. Such expenditures are part of the investment necessary to execute leases and, therefore, are classified as investment activities in the statement of cash flows. All leasing commissions paid to third parties for new leases or lease renewals are capitalized. Internal leasing costs include primarily compensation, benefits and other costs, such as legal fees related to leasing activities, that

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are incurred in connection with successfully securing leases of properties. Capitalized leasing costs are amortized on a straight-line basis over the initial fixed terms of the respective leases, which generally are from three to 10 years. Estimated costs related to unsuccessful activities are expensed as incurred.
 
We record liabilities for the performance of asset retirement activities when the obligation to perform such activities is probable even when uncertainty exists about the timing and/or method of settlement.
 
Upon the acquisition of real estate assets, we assess the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets and liabilities such as above and below market leases, acquired in-place leases, customer relationships and other identifiable intangible assets and assumed liabilities. We assess fair value based on estimated cash flow projections that utilize discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
 
The above and below market rate portions of leases acquired in connection with property acquisitions are recorded in deferred financing and leasing costs and in accounts payable, accrued expenses and other liabilities, respectively, at fair value and amortized into rental revenue over the remaining term of the respective leases as described below. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any renewal option that the customer would be economically compelled to exercise for below-market leases.
 
In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the 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 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 impacts the anticipated holding period or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset's carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
 
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for use.
 
We record assets held for sale, including for-sale residential condominiums, at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.

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We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investee, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.
 
Sales of Real Estate
 
For sales transactions meeting the requirements for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have or receive an interest are accounted for using partial sale accounting.
 
For transactions that do not meet the criteria for a sale, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other alternate method of accounting, rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.
 
Rental and Other Revenues
 
Minimum contractual rents from leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the customer assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Contingent rental revenue, such as percentage rent, is accrued when the contingency is removed. Termination fee income is recognized at the later of when the customer has vacated the space or the lease has expired and a fully executed lease termination agreement has been delivered, the amount of the fee is determinable and collectability of the fee is reasonably assured. Rental revenue reductions related to co-tenancy lease provisions, if any, are accrued when events have occurred that trigger such provisions.
 
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 the customer pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of a base year amount. The computation of cost recovery income is complex and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not uniform in dealing with such cost 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 cost recovery 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.

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Non-GAAP Measures - FFO and NOI

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

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

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

•	Plus depreciation and amortization of depreciable operating properties;	

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

•	Plus or minus our proportionate share of adjustments, including depreciation and amortization of depreciable operating properties, for unconsolidated partnerships and joint ventures (to reflect funds from operations on the same basis); and	

•	Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales of depreciable operating properties, plus impairments on depreciable operating properties, and noncontrolling interests in consolidated affiliates related to discontinued operations.	
 
In calculating FFO, the Company includes net income attributable to noncontrolling interests in the Operating Partnership, which the Company believes is consistent with standard industry practice for REITs that operate through an UPREIT structure. The Company believes that it is important to present FFO on an as-converted basis since all of the Common Units not owned by the Company are redeemable on a one-for-one basis for shares of its Common Stock.

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The following table sets forth the Company's total FFO, FFO available for common stockholders and FFO available for common stockholders per share ($ in thousands, except per share amounts).

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Funds from operations:	 	 	 	 	 	
Net income	$	84,235		 	$	47,971		 	$	72,303		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(786	)	 	(755	)	 	(485	)	
Depreciation and amortization of real estate assets	154,236		 	135,925		 	128,497		
Impairments of depreciable properties	—		 	2,429		 	—		
(Gains) on disposition of depreciable properties	—		 	—		 	(74	)	
(Gains) on disposition of investments in unconsolidated affiliates	—		 	—		 	(25,330	)	
Unconsolidated affiliates:	 	 	 	 	 	
Depreciation and amortization of real estate assets	7,736		 	8,388		 	10,471		
Impairments of depreciable properties	1,002		 	—		 	—		
(Gains) on disposition of depreciable properties	(1,120	)	 	—		 	—		
Discontinued operations:	 	 	 	 	 	
Depreciation and amortization of real estate assets	2,009		 	5,256		 	5,926		
Impairments of depreciable properties	—		 	—		 	260		
(Gains) on disposition of depreciable properties	(29,455	)	 	(2,573	)	 	(174	)	
Funds from operations	217,857		 	196,641		 	191,394		
Dividends on Preferred Stock	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Funds from operations available for common stockholders	$	215,349		 	$	190,193		 	$	184,686		
Funds from operations available for common stockholders per share	$	2.70		 	$	2.50		 	$	2.44		
Weighted average shares outstanding (1)	79,678		 	76,189		 	75,578		
__________
		
(1)	Includes assumed conversion of all potentially dilutive Common Stock equivalents.	

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

As of December 31, 2012 , our same property portfolio consisted of 284 in-service office, industrial and retail properties encompassing 25.8 million square feet that were wholly owned during the entirety of the periods presented (from January 1, 2011 to December 31, 2012 ). As of December 31, 2011 , our same property portfolio consisted of 289 in-service office, industrial and retail properties encompassing 26.2 million square feet that were wholly owned during the entirety of the periods presented (from January 1, 2010 to December 31, 2011 ). The change in our same property portfolio was due to the addition of one office property encompassing 0.3 million square feet acquired during 2010 and three newly developed office properties encompassing 0.5 million square feet placed in service during 2010, offset by the removal of nine office properties encompassing 1.2 million square feet qualifying for discontinued operations during 2012 .

Rental and other revenues related to properties not in our same property portfolio were $77.6 million and $34.3 million for the years ended December 31, 2012 and 2011 , respectively. Rental property and other expenses related to properties not in our same property portfolio were $36.3 million and $18.2 million for the years ended December 31, 2012 and 2011 , respectively.

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

	
									
 	 	Year Ended December 31,	
 	 	2012	 	2011	
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	 	$	45,239		 	$	31,398		
Other income	 	(6,380	)	 	(7,363	)	
Interest expense	 	96,114		 	95,510		
General and administrative expenses	 	37,377		 	35,727		
Impairments of real estate assets	 	—		 	2,429		
Depreciation and amortization	 	156,318		 	137,890		
Net operating income from continuing operations	 	328,668		 	295,591		
Less – non same property and other net operating income	 	41,285		 	16,150		
Total same property net operating income from continuing operations	 	$	287,383		 	$	279,441		
 	 	 	 	 	
Rental and other revenues	 	$	516,102		 	$	463,444		
Rental property and other expenses	 	187,434		 	167,853		
Total net operating income from continuing operations	 	328,668		 	295,591		
Less – non same property and other net operating income	 	41,285		 	16,150		
Total same property net operating income from continuing operations	 	$	287,383		 	$	279,441		
 	 	 	 	 	
Total same property net operating income from continuing operations	 	$	287,383		 	$	279,441		
Less – straight-line rent and lease termination fees	 	10,185		 	11,953		
Same property cash net operating income from continuing operations	 	$	277,198		 	$	267,488		

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. Actual future results may differ materially from those presented. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.
 
We borrow funds at a combination of fixed and variable rates. Our debt consists of secured and unsecured long-term financings, unsecured debt securities, loans and credit facilities, which typically bear interest at fixed rates although some loans bear interest at variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes.
 
At December 31, 2012 , we had $1,376.2 million principal amount of fixed rate debt outstanding (not including debt with a variable rate that is effectively fixed by related interest rate swaps). The estimated aggregate fair market value of this debt was $1,502.8 million . If interest rates had been 100 basis points higher, the aggregate fair market value of our fixed rate debt would have been approximately $60.8 million lower. If interest rates had been 100 basis points lower, the aggregate fair market value of our fixed rate debt would have been approximately $64.6 million higher.
 
At December 31, 2012 , we had $483.0 million of variable rate debt outstanding not protected by interest rate hedge contracts. The estimated aggregate fair market value of this debt was $484.6 million . If the weighted average interest rate on this variable rate debt had been 100 basis points higher, the aggregate fair market value of our variable rate debt would have decreased by approximately $22.6 million and annual interest expense would increase $4.8 million . If the weighted average interest rate on this variable rate debt had been 100 basis points lower, the aggregate fair market value of our variable rate debt would have increased by approximately $23.9 million and annual interest expense would decrease $4.8 million .
 
At December 31, 2012 , we had floating-to-fixed interest rate swaps with respect to an aggregate of $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at 1.678% . If LIBOR interest rates increase or decrease by 100 basis points, the aggregate fair market value of the swaps at December 31, 2012 would increase by $3.6 million or decrease by $22.2 million , respectively. We are exposed to certain losses in the event of nonperformance by the counterparties, which are major financial institutions, under the swaps. We regularly evaluate the financial condition of our counterparties using publicly available information. Based on this review, we currently expect the counterparties to perform fully under the swaps. However, if a counterparty defaults on its obligations under a swap, we could be required to pay the full rates on the applicable debt, even if such rates were in excess of the rate in the contract.

ITEM 8. FINANCIAL STATEMENTS

	
	
See page 55  for Index to Consolidated Financial Statements of Highwoods Properties, Inc. and Highwoods Realty Limited Partnership.	

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

None.

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ITEM 9A. CONTROLS AND PROCEDURES

General

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

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

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

•	other personnel in our finance and accounting organization;	

•	members of our internal disclosure committee; and	

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

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

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

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.	
 
Under the supervision of the Company's CEO and CFO, we conducted an evaluation of the effectiveness of the Company's internal control over financial reporting at December 31, 2012 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have concluded that, at December 31, 2012 , the Company's internal control over financial reporting was effective. Deloitte & Touche LLP, our independent registered public accounting firm, has issued their attestation report, which is included below, on the effectiveness of the Company's internal control over financial reporting at December 31, 2012 .

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Management's Annual Report on the Operating Partnership's Internal Control Over Financial Reporting
 
The Operating Partnership is also required to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
 
Under the supervision of the Company's CEO and CFO, we conducted an evaluation of the effectiveness of the Operating Partnership's internal control over financial reporting at December 31, 2012 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have concluded that, at December 31, 2012 , the Operating Partnership's internal control over financial reporting was effective. SEC rules do not require us to obtain an attestation report of Deloitte & Touche LLP on the effectiveness of the Operating Partnership's internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm
  
To the Board of Directors and Stockholders of
Highwoods Properties, Inc.
Raleigh, North Carolina
 
We have audited the internal control over financial reporting of Highwoods Properties, Inc. and subsidiaries (the "Company") as of December 31, 2012 , based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on the Company's Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 , based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2012 of the Company and our report dated February 12, 2013 expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 12, 2013

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Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2012 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There were also no changes in the Operating Partnership’s internal control over financial reporting during the fourth quarter of 2012 that materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Disclosure Controls and Procedures

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

ITEM 9B. OTHER INFORMATION

Policy Involving Hedging by Directors and Officers

The directors and officers of the Company may not directly or indirectly engage in any hedging transaction involving Common Stock or Common Units without the prior consent of the compensation and governance committee of the Company's board of directors. This includes holding Common Stock or Common Units in margin accounts or otherwise pledging Common Stock or Common Units to secure personal loans or lines of credit or similar forms of indebtedness. Since commencement of this policy in 2009, none of our officers or directors has engaged in any hedging transaction involving Common Stock or Common Units. One of our independent directors, Gene H. Anderson, pledged 400,000 Common Units and 65,000 shares of Common Stock to secure a personal line of credit before the adoption of this policy.

Change in Control Arrangements

On February 12, 2013, we entered into new change in control agreements with each of Edward J. Fritsch, Michael E. Harris, Terry L. Stevens and Jeffrey D. Miller that provide benefits to such officers in the event of certain involuntary or constructive terminations of employment within a three-year period after a change in control of the Company. The previously effective change in control agreements for Messrs. Fritsch, Harris, Stevens and Miller were each terminated in connection with the execution of the new agreements.

The new change in control agreements are substantially similar to the previously effective change in control agreements, except the new agreements do not provide for (a) benefits if the officer voluntarily resigns without good reason during the three-year period after a change in control of the Company or (b) gross-up payments to pay for applicable excise taxes on benefits payable under the agreements.

The new change in control agreements generally provide that, if within 36 months from the date of a change in control (as defined therein), the employment of the executive officer is terminated without cause, or the officer resigns with “good reason” (i.e. because such executive officer's responsibilities are changed, salary is reduced or responsibilities are diminished), such executive officer will be entitled to receive 2.99 times a base amount. An executive officer's base amount for these purposes is equal to 12 times the highest monthly salary paid to the executive officer during the 12-month period ending prior to a change in control plus the greater of (1) the average amount earned under our annual non-equity incentive program for the preceding three years or (2) the amount earned under such program during the most recently completed fiscal year. Each executive officer would also be entitled upon any such termination to receive a stay bonus otherwise payable on the first anniversary of a change in control in an amount equal to the base amount referred to in the preceding sentence. Additionally, our equity incentive plans provide for the immediate vesting of all options, restricted stock and benefits upon a change in control.

The initial expiration date for each of the agreements is February 12, 2016. Each agreement may be automatically extended for one additional year on each anniversary date unless we give notice at least 60 days prior to such anniversary date that the term will not be extended.

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Additional Material Federal Income Tax Considerations

The following is a summary of certain additional material federal income tax considerations with respect to the ownership of our shares of common stock. This summary supplements and should be read together with “Material Federal Income Tax Considerations” in the prospectus dated February 9, 2011 and filed as part of a registration statement on Form S-3 (No. 333-172134).

Information Reporting Requirements and Backup Withholding Tax

U.S. Stockholders. For taxable years beginning after December 31, 2013, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our common stock received by U.S. stockholders who own their common stock through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed, for taxable years beginning after December 31, 2016, on proceeds from the sale of our common stock received by U.S. shareholders who own their common shares through foreign accounts or foreign intermediaries. We will not pay any additional amounts in respect of any amounts withheld.

Non-U.S. Stockholders. For taxable years beginning after December 31, 2013, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our common stock received by certain non-U.S. stockholders if they held our common stock through foreign entities that fail to meet certain disclosure requirements related to U.S. persons that either have accounts with such entities or own equity interests in such entities. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed, for taxable years beginning after December 31, 2016, on proceeds from the sale of our common stock received by certain non-U.S. stockholders. If payment of withholding taxes is required, non-U.S. stockholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect of such dividends and proceeds will be required to seek a refund from the Internal Revenue Service to obtain the benefit or such exemption or reduction. We will not pay any additional amounts in respect of any amounts withheld.

Recent Legislation

Pursuant to recently enacted legislation, as of January 1, 2013, (1) the maximum tax rate on "qualified dividend income" received by U.S. stockholders taxed at individual rates is 20%, (2) the maximum tax rate on long-term capital gain applicable to U.S. stockholders taxed at individual rates is 20%, and (3) the highest marginal individual income tax rate is 39.6%. Pursuant to such legislation, the backup withholding rate remains at 28%. Such legislation also makes permanent certain federal income tax provisions that were scheduled to expire on December 31, 2012. We urge you to consult your tax advisors regarding the impact of this legislation on the purchase, ownership and sale of our common stock.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about the Company’s executive officers and directors and the code of ethics that applies to the Company’s chief executive officer and senior financial officers, which is posted on our website, is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2013 . See Item X in Part I of this Annual Report for biographical information regarding the Company’s executive officers. The Company is the sole general partner of the Operating Partnership.

ITEM 11. EXECUTIVE COMPENSATION

Information about the compensation of the Company’s directors and executive officers is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2013 .

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

Information about the beneficial ownership of Common Stock and the Company’s equity compensation plans is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2013 .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information about certain relationships and related transactions and the independence of the Company’s directors is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2013 .

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information about fees paid to and services provided by our independent registered public accounting firm is incorporated herein by reference to the Company’s Proxy Statement to be filed in connection with its annual meeting of stockholders to be held on May 15, 2013 .

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PART IV

ITEM 15. EXHIBITS

Financial Statements

	
	
Reference is made to the Index to Consolidated Financial Statements on page 55  for a list of the consolidated financial statements of Highwoods Properties, Inc. and Highwoods Realty Limited Partnership included in this report.	

Exhibits

	
			
Exhibit
Number	 	Description	
3.1	 	Amended and Restated Charter of the Company (filed as part of the Company’s Current Report on Form 8-K dated May 15, 2008)	
3.2	 	Amended and Restated Bylaws of the Company (filed as part of the Company’s Current Report on Form 8-K dated May 15, 2008)	
4.1	 	Indenture among the Operating Partnership, the Company and First Union National Bank of North Carolina dated as of December 1, 1996 (filed as part of the Operating Partnership’s Current Report on Form 8-K dated December 2, 1996)	
4.2	 	Form of 3.625% Notes due January 15, 2023 (filed as part of the Company's Current Report on Form 8-K dated December 18, 2012)	
4.3	 	Officers' Certificate Establishing the Terms of the 3.625% Notes, dated as of December 18, 2012 (filed as part of the Company's Current Report on Form 8-K dated December 18, 2012)	
10.1	 	Second Restated Agreement of Limited Partnership, dated as of January 1, 2000, of the Operating Partnership (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)	
10.2	 	Amendment No. 1, dated as of July 22, 2004, to the Second Restated Agreement of Limited Partnership, dated as of January 1, 2000, of the Operating Partnership (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)	
10.3	*	2009 Long-Term Equity Incentive Plan (filed as part of the Company’s Current Report on Form 8-K dated May 13, 2009)	
10.4	 	Form of warrants to purchase Common Stock of the Company (filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 1997)	
10.5	 	Third Amended and Restated Credit Agreement, dated as of July 27, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)	
10.6	 	First Amendment, dated as of October 12, 2012, to Third Amended and Restated Credit Agreement, dated as of July 27, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Current Report on Form 8-K dated October 11, 2012)	
10.7	 	Credit Agreement, dated as of February 2, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 2010)	
10.8	 	Amendment No. 1, dated as of July 27, 2011, to Credit Agreement, dated as of February 2, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)	
10.9	 	Second Amendment, dated as of October 11, 2012, to Credit Agreement, dated as of February 2, 2011, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Current Report on Form 8-K dated October 11, 2012)	
10.10	*	Highwoods Properties, Inc. Retirement Plan, effective as of March 1, 2006 (filed as part of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007)	

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Exhibit
Number	 	Description	
10.11	*	Amended and Restated Executive Supplemental Employment Agreement, dated as of February 12, 2012, between the Company and Edward J. Fritsch	
10.12	*	Amended and Restated Executive Supplemental Employment Agreement, dated as of February 12, 2012, between the Company and Michael E. Harris	
10.13	*	Amended and Restated Executive Supplemental Employment Agreement, dated as of February 12, 2012, between the Company and Terry L. Stevens	
10.14	*	Amended and Restated Executive Supplemental Employment Agreement, dated as of February 12, 2012, between the Company and Jeffrey D. Miller	
10.15	*	Highwoods Properties, Inc. Amended and Restated Employee Stock Purchase Plan (filed as part of the Company’s Current Report on Form 8-K dated May 12, 2010)	
10.16	*	Amendment No. 1 to the Amended and Restated Employee Stock Purchase Plan of the Company (filed as part of the Company's Annual Report on Form 10-K for the year ended December 31, 2010)	
10.17	 	Credit Agreement, dated as of January 11, 2012, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Current Report on Form 8-K dated January 11, 2012)	
10.18	 	First Amendment, dated as of October 11, 2012, to Credit Agreement, dated as of January 11, 2012, by and among the Company, the Operating Partnership and the Subsidiaries named therein and the Lenders named therein (filed as part of the Company's Current Report on Form 8-K dated October 11, 2012)	
12.1	 	Statement re: Computation of Ratios of the Company	
12.2	 	Statement re: Computation of Ratios of the Operating Partnership	
21	 	Schedule of Subsidiaries	
23.1	 	Consent of Deloitte & Touche LLP for the Company	
23.2	 	Consent of Deloitte & Touche LLP for the Operating Partnership	
31.1	 	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Company	
31.2	 	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Company	
31.3	 	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Operating Partnership	
31.4	 	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act for the Operating Partnership	
32.1	 	Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Company	
32.2	 	Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Company	
32.3	 	Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Operating Partnership	
32.4	 	Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act for the Operating Partnership	
101.INS	 	XBRL Instance Document	
101.SCH	 	XBRL Taxonomy Extension Schema Document	
101.CAL	 	XBRL Taxonomy Extension Calculation Linkbase Document	
101.DEF	 	XBRL Taxonomy Extension Definition Linkbase Document	
101.LAB	 	XBRL Extension Labels Linkbase	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase Document	
__________

* Represents management contract or compensatory plan.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	
		
 	Page	
 	 	
Highwoods Properties, Inc.	 	
Report of Independent Registered Public Accounting Firm	56	
Consolidated Financial Statements:	 	
Consolidated Balance Sheets at December 31, 2012 and 2011	57	
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010	58	
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010	59	
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010	60	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010	62	
Notes to Consolidated Financial Statements	64	
 	 	
Highwoods Realty Limited Partnership:	 	
Report of Independent Registered Public Accounting Firm	109	
Consolidated Financial Statements:	 	
Consolidated Balance Sheets at December 31, 2012 and 2011	110	
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010	111	
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010	112	
Consolidated Statements of Capital for the Years Ended December 31, 2012, 2011 and 2010	113	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010	114	
Notes to Consolidated Financial Statements	116	
 	 	
Schedule II	158	
 	 	
Schedule III	159	
__________

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Highwoods Properties, Inc. and subsidiaries (the "Company") as of December 31, 2012 and 2011 , and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012 . Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Highwoods Properties, Inc. and subsidiaries as of December 31, 2012 and 2011 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2012 , based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2013 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 12, 2013

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

								
	December 31,	
 	2012	 	2011	
Assets:	 	 	 	
Real estate assets, at cost:	 	 	 	
Land	$	374,212		 	$	355,694		
Buildings and tenant improvements	3,304,468		 	3,009,155		
Development in process	21,198		 	—		
Land held for development	117,784		 	105,206		
 	3,817,662		 	3,470,055		
Less-accumulated depreciation	(947,567	)	 	(869,046	)	
Net real estate assets	2,870,095		 	2,601,009		
For-sale residential condominiums	—		 	4,751		
Real estate and other assets, net, held for sale	—		 	124,273		
Cash and cash equivalents	13,783		 	11,188		
Restricted cash	19,702		 	26,666		
Accounts receivable, net of allowance of $2,848 and $3,548, respectively	23,073		 	30,093		
Mortgages and notes receivable, net of allowance of $182 and $61, respectively	25,472		 	18,600		
Accrued straight-line rents receivable, net of allowance of $929 and $1,294, respectively	116,992		 	99,490		
Investments in and advances to unconsolidated affiliates	66,800		 	100,367		
Deferred financing and leasing costs, net of accumulated amortization of $77,383 and $62,319, respectively	170,023		 	127,774		
Prepaid expenses and other assets, net of accumulated amortization of $12,318 and $15,089,
respectively	44,488		 	36,781		
Total Assets	$	3,350,428		 	$	3,180,992		
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:	 	 	 	
Mortgages and notes payable	$	1,859,162		 	$	1,868,906		
Accounts payable, accrued expenses and other liabilities	172,146		 	148,607		
Financing obligations	29,358		 	30,150		
Liabilities held for sale	—		 	35,815		
Total Liabilities	2,060,666		 	2,083,478		
Commitments and contingencies		 		
Noncontrolling interests in the Operating Partnership	124,869		 	110,655		
Equity:	 	 	 	
Preferred Stock, $.01 par value, 50,000,000 authorized shares;	 	 	 	
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 29,077 shares issued and outstanding	29,077		 	29,077		
Common Stock, $.01 par value, 200,000,000 authorized shares;	 	 	 	
80,311,437 and 72,647,697 shares issued and outstanding, respectively	803		 	726		
Additional paid-in capital	2,040,306		 	1,803,997		
Distributions in excess of net income available for common stockholders	(897,418	)	 	(845,853	)	
Accumulated other comprehensive loss	(12,628	)	 	(5,734	)	
Total Stockholders’ Equity	1,160,140		 	982,213		
Noncontrolling interests in consolidated affiliates	4,753		 	4,646		
Total Equity	1,164,893		 	986,859		
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity	$	3,350,428		 	$	3,180,992		
See accompanying notes to consolidated financial statements.

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

												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Rental and other revenues	$	516,102		 	$	463,444		 	$	440,836		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	187,434		 	167,853		 	155,771		
Depreciation and amortization	156,318		 	137,890		 	130,232		
Impairments of real estate assets	—		 	2,429		 	—		
General and administrative	37,377		 	35,727		 	32,948		
Total operating expenses	381,129		 	343,899		 	318,951		
Interest expense:	 	 	 	 	 	
Contractual	92,838		 	91,458		 	87,409		
Amortization of deferred financing costs	3,685		 	3,312		 	3,385		
Financing obligations	(409	)	 	740		 	2,157		
 	96,114		 	95,510		 	92,951		
Other income:	 	 	 	 	 	
Interest and other income	7,353		 	7,387		 	6,362		
Losses on debt extinguishment	(973	)	 	(24	)	 	(705	)	
 	6,380		 	7,363		 	5,657		
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	45,239		 	31,398		 	34,591		
Gains on disposition of property	—		 	764		 	74		
Gains/(losses) on for-sale residential condominiums	444		 	(316	)	 	276		
Gains on disposition of investments in unconsolidated affiliates	—		 	2,282		 	25,330		
Equity in earnings of unconsolidated affiliates	5,035		 	4,878		 	3,821		
Income from continuing operations	50,718		 	39,006		 	64,092		
Discontinued operations:	 	 	 	 	 	
Income from discontinued operations	4,062		 	6,392		 	8,297		
Net gains/(losses) on disposition of discontinued operations	29,455		 	2,573		 	(86	)	
 	33,517		 	8,965		 	8,211		
Net income	84,235		 	47,971		 	72,303		
Net (income) attributable to noncontrolling interests in the Operating Partnership	(3,854	)	 	(2,091	)	 	(3,320	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(786	)	 	(755	)	 	(485	)	
Dividends on Preferred Stock	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Net income available for common stockholders	$	77,087		 	$	38,677		 	$	61,790		
Earnings per Common Share – basic:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.60		 	$	0.42		 	$	0.75		
Income from discontinued operations available for common stockholders	0.42		 	0.12		 	0.11		
Net income available for common stockholders	$	1.02		 	$	0.54		 	$	0.86		
Weighted average Common Shares outstanding – basic	75,811		 	72,281		 	71,578		
Earnings per Common Share – diluted:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.60		 	$	0.42		 	$	0.75		
Income from discontinued operations available for common stockholders	0.42		 	0.12		 	0.11		
Net income available for common stockholders	$	1.02		 	$	0.54		 	$	0.86		
Weighted average Common Shares outstanding – diluted	79,678		 	76,189		 	75,578		
Net income available for common stockholders:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	45,164		 	$	30,158		 	$	53,994		
Income from discontinued operations available for common stockholders	31,923		 	8,519		 	7,796		
Net income available for common stockholders	$	77,087		 	$	38,677		 	$	61,790		
See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(in thousands)

												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Comprehensive income:	 	 	 	 	 	
Net income	$	84,235		 	$	47,971		 	$	72,303		
Other comprehensive income/(loss):	 	 	 	 	 	
Unrealized gains/(losses) on tax increment financing bond	411		 	234		 	(177	)	
Unrealized losses on cash flow hedges	(10,358	)	 	(2,202	)	 	—		
Amortization of cash flow hedges	3,053		 	(118	)	 	237		
Sale of cash flow hedge related to disposition of investments in unconsolidated affiliate	—		 	—		 	103		
Total other comprehensive income/(loss)	(6,894	)	 	(2,086	)	 	163		
Total comprehensive income	77,341		 	45,885		 	72,466		
Less-comprehensive (income) attributable to noncontrolling interests	(4,640	)	 	(2,846	)	 	(3,805	)	
Comprehensive income attributable to common stockholders	$	72,701		 	$	43,039		 	$	68,661		
See accompanying notes to consolidated financial statements.

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

	
																																			
 	Number of Common Shares	 	Common Stock	 	Series A Cumulative Redeemable Preferred Shares	 	Series B Cumulative Redeemable Preferred Shares	 	Additional Paid-In Capital	 	Accumulated Other Compre-hensive Loss	 	Non-controlling Interests in Consolidated Affiliates	 	Distributions in Excess of Net Income Available for Common Stockholders	 	Total	
Balance at December 31, 2009	71,285,303		 	$	713		 	$	29,092		 	$	52,500		 	$	1,751,398		 	$	(3,811	)	 	$	5,183		 	$	(701,932	)	 	$	1,133,143		
Issuances of Common Stock, net	143,907		 	1		 	—		 	—		 	2,997		 	—		 	—		 	—		 	2,998		
Conversions of Common Units to Common Stock	97,134		 	1		 	—		 	—		 	3,060		 	—		 	—		 	—		 	3,061		
Dividends on Common Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(121,643	)	 	(121,643	)	
Dividends on Preferred Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(6,708	)	 	(6,708	)	
Adjustment of noncontrolling interests in the Operating Partnership to fair value	—		 	—		 	—		 	—		 	2,721		 	—		 	—		 	—		 	2,721		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	(568	)	 	—		 	(568	)	
Acquisition of noncontrolling interest in consolidated affiliate	—		 	—		 	—		 	—		 	140		 	—		 	(640	)	 	—		 	(500	)	
Issuances of restricted stock	164,143		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Share-based compensation expense	—		 	2		 	—		 	—		 	6,570		 	—		 	—		 	—		 	6,572		
Net (income) attributable to noncontrolling interests in the Operating Partnership	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(3,320	)	 	(3,320	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	485		 	(485	)	 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	—		 	—		 	—		 	—		 	—		 	—		 	—		 	72,303		 	72,303		
Other comprehensive income	—		 	—		 	—		 	—		 	—		 	163		 	—		 	—		 	163		
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	72,466		
Balance at December 31, 2010	71,690,487		 	717		 	29,092		 	52,500		 	1,766,886		 	(3,648	)	 	4,460		 	(761,785	)	 	1,088,222		
Issuances of Common Stock, net	758,389		 	8		 	—		 	—		 	23,262		 	—		 	—		 	—		 	23,270		
Conversions of Common Units to Common Stock	64,469		 	—		 	—		 	—		 	1,906		 	—		 	—		 	—		 	1,906		
Dividends on Common Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(122,745	)	 	(122,745	)	
Dividends on Preferred Stock	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(4,553	)	 	(4,553	)	
Adjustment of noncontrolling interests in the Operating Partnership to fair value	—		 	—		 	—		 	—		 	3,955		 	—		 	—		 	—		 	3,955		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	(569	)	 	—		 	(569	)	
Issuances of restricted stock	134,352		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Redemptions/repurchases of Preferred Stock	—		 	—		 	(15	)	 	(52,500	)	 	1,895		 	—		 	—		 	(1,895	)	 	(52,515	)	
Share-based compensation expense	—		 	1		 	—		 	—		 	6,093		 	—		 	—		 	—		 	6,094		
Net (income) attributable to noncontrolling interests in the Operating Partnership	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(2,091	)	 	(2,091	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	755		 	(755	)	 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	—		 	—		 	—		 	—		 	—		 	—		 	—		 	47,971		 	47,971		
Other comprehensive loss	—		 	—		 	—		 	—		 	—		 	(2,086	)	 	—		 	—		 	(2,086	)	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	45,885		
Balance at December 31, 2011	72,647,697		 	$	726		 	$	29,077		 	$	—		 	$	1,803,997		 	$	(5,734	)	 	$	4,646		 	$	(845,853	)	 	$	986,859		

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

 	Number of Common Shares	 	Common Stock	 	Series A Cumulative Redeemable Preferred Shares	 	Series B Cumulative Redeemable Preferred Shares	 	Additional Paid-In Capital	 	Accumulated Other Compre-hensive Loss	 	Non-controlling Interests in Consolidated Affiliates	 	Distributions in Excess of Net Income Available for Common Stockholders	 	Total	
Balance at December 31, 2011	72,647,697		 	$	726		 	$	29,077		 	$	—		 	$	1,803,997		 	$	(5,734	)	 	$	4,646		 	$	(845,853	)	 	$	986,859		
Issuances of Common Stock, net	7,441,489		 	74		 	—		 	—		 	243,094		 	—		 	—		 	—		 	243,168		
Conversions of Common Units to Common Stock	63,366		 	—		 	—		 	—		 	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	)	
Issuances of restricted stock	158,885		 	—		 	—		 	—		 	—		 	—		 	—		 	—		 	—		
Share-based compensation expense	—		 	3		 	—		 	—		 	7,610		 	—		 	—		 	—		 	7,613		
Net (income) attributable to noncontrolling interests in the Operating Partnership	—		 	—		 	—		 	—		 	—		 	—		 	—		 	(3,854	)	 	(3,854	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	—		 	—		 	—		 	786		 	(786	)	 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	—		 	—		 	—		 	—		 	—		 	—		 	—		 	84,235		 	84,235		
Other comprehensive loss	—		 	—		 	—		 	—		 	—		 	(6,894	)	 	—		 	—		 	(6,894	)	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	77,341		
Balance at December 31, 2012	80,311,437		 	$	803		 	$	29,077		 	$	—		 	$	2,040,306		 	$	(12,628	)	 	$	4,753		 	$	(897,418	)	 	$	1,164,893		
See accompanying notes to consolidated financial statements.

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

												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Operating activities:	 	 	 	 	 	
Net income	$	84,235		 	$	47,971		 	$	72,303		
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	
Depreciation and amortization	158,327		 	143,146		 	136,158		
Amortization of lease incentives and acquisition-related intangible assets and liabilities	355		 	1,446		 	1,239		
Share-based compensation expense	7,613		 	6,094		 	6,572		
Allowance for losses on accounts and accrued straight-line rents receivable	1,059		 	2,521		 	4,009		
Amortization of deferred financing costs	3,685		 	3,312		 	3,385		
Amortization of cash flow hedges	3,053		 	(118	)	 	237		
Impairments of real estate assets	—		 	2,429		 	—		
Losses on debt extinguishment	973		 	24		 	705		
Net (gains)/losses on disposition of property	(29,455	)	 	(3,337	)	 	12		
(Gains)/losses on for-sale residential condominiums	(444	)	 	316		 	(276	)	
Gains on disposition of investments in unconsolidated affiliates	—		 	(2,282	)	 	(25,330	)	
Equity in earnings of unconsolidated affiliates	(5,035	)	 	(4,878	)	 	(3,821	)	
Changes in financing obligations	(1,282	)	 	(476	)	 	708		
Distributions of earnings from unconsolidated affiliates	4,618		 	5,029		 	4,433		
Changes in operating assets and liabilities:	 	 	 	 	 	
Accounts receivable	3,132		 	(8,498	)	 	(3,290	)	
Prepaid expenses and other assets	(1,129	)	 	(400	)	 	370		
Accrued straight-line rents receivable	(17,919	)	 	(13,604	)	 	(11,889	)	
Accounts payable, accrued expenses and other liabilities	(18,370	)	 	16,701		 	5,012		
Net cash provided by operating activities	193,416		 	195,396		 	190,537		
Investing activities:	 	 	 	 	 	
Investments in acquired real estate and related intangible assets, net of cash acquired	(269,847	)	 	(75,510	)	 	(20,281	)	
Investments in development in process	(13,288	)	 	(5,835	)	 	(223	)	
Investments in tenant improvements and deferred leasing costs	(79,639	)	 	(80,934	)	 	(55,858	)	
Investments in building improvements	(35,799	)	 	(22,287	)	 	(26,355	)	
Net proceeds from disposition of real estate assets	152,456		 	17,717		 	6,801		
Net proceeds from disposition of for-sale residential condominiums	5,195		 	3,020		 	4,952		
Proceeds from disposition of investments in unconsolidated affiliates	—		 	4,756		 	15,000		
Distributions of capital from unconsolidated affiliates	1,311		 	1,577		 	1,933		
Investments in mortgage receivable	(8,648	)	 	—		 	—		
Repayments of mortgages and notes receivable	1,776		 	444		 	329		
Investments in and advances/repayments to/from unconsolidated affiliates	8,291		 	(39,901	)	 	(2,875	)	
Changes in restricted cash and other investing activities	(620	)	 	(18,526	)	 	(1,578	)	
Net cash used in investing activities	(238,812	)	 	(215,479	)	 	(78,155	)	
Financing activities:	 	 	 	 	 	
Dividends on Common Stock	(128,652	)	 	(122,745	)	 	(121,643	)	
Redemptions/repurchases of Preferred Stock	—		 	(52,515	)	 	—		
Dividends on Preferred Stock	(2,508	)	 	(4,553	)	 	(6,708	)	
Distributions to noncontrolling interests in the Operating Partnership	(6,334	)	 	(6,413	)	 	(6,469	)	
Distributions to noncontrolling interests in consolidated affiliates	(679	)	 	(569	)	 	(568	)	
Acquisition of noncontrolling interest in consolidated affiliate	—		 	—		 	(500	)	
Proceeds from the issuance of Common Stock	249,489		 	23,270		 	2,998		
Costs paid for the issuance of Common Stock	(3,600	)	 	—		 	—		
Repurchase of shares related to tax withholdings	(2,721	)	 	—		 	—		
Borrowings on revolving credit facility	524,100		 	525,800		 	37,500		
Repayments of revolving credit facility	(863,100	)	 	(193,800	)	 	(7,500	)	
Borrowings on mortgages and notes payable	507,350		 	200,000		 	10,368		
Repayments of mortgages and notes payable	(219,530	)	 	(344,203	)	 	(27,004	)	
Borrowings on financing obligations	1,839		 	—		 	—		
Payments on financing obligations	(1,316	)	 	(1,194	)	 	(1,116	)	
Payments on debt extinguishment	(908	)	 	—		 	(577	)	
Additions to deferred financing costs and other financing activities	(5,439	)	 	(6,013	)	 	(656	)	
Net cash provided by/(used in) financing activities	47,991		 	17,065		 	(121,875	)	

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Net increase/(decrease) in cash and cash equivalents	$	2,595		 	$	(3,018	)	 	$	(9,493	)	
Cash and cash equivalents at beginning of the period	11,188		 	14,206		 	23,699		
Cash and cash equivalents at end of the period	$	13,783		 	$	11,188		 	$	14,206		

Supplemental disclosure of cash flow information:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Cash paid for interest, net of amounts capitalized	$	93,547		 	$	90,838		 	$	86,395		

Supplemental disclosure of non-cash investing and financing activities:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Unrealized losses on cash flow hedges	$	(10,358	)	 	$	(2,202	)	 	$	—		
Conversion of Common Units to Common Stock	2,096		 	1,906		 	3,061		
Changes in accrued capital expenditures	8,116		 	11,048		 	(1,946	)	
Write-off of fully depreciated real estate assets	48,978		 	48,565		 	43,955		
Write-off of fully amortized deferred financing and leasing costs	19,176		 	19,987		 	15,719		
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan	475		 	(119	)	 	382		
Settlement of financing obligation	—		 	—		 	4,184		
Adjustment of noncontrolling interests in the Operating Partnership to fair value	16,491		 	(3,955	)	 	(2,721	)	
Unrealized gain/(loss) on tax increment financing bond	411		 	234		 	(177	)	
Mortgages receivable from seller financing	—		 	—		 	17,030		
Assumption of mortgages and notes payable related to acquisition activities	7,837		 	192,367		 	40,306		
Reduction of advances to unconsolidated affiliates related to acquisition activities	26,000		 	—		 	—		
Issuances of Common Units to noncontrolling interests to acquire real estate assets	2,299		 	—		 	—		

See accompanying notes to consolidated financial statements.

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HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
(tabular dollar amounts in thousands, except per share data)

1.    Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At December 31, 2012 , the Company and/or the Operating Partnership wholly owned: 301 in-service office, industrial and retail properties, comprising 29.7 million square feet; 649 acres of undeveloped land suitable for future development, of which 566 acres are considered core assets; and one office development property. In addition, we owned interests ( 50.0% or less) in 32 in-service office properties, a rental residential development property and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At December 31, 2012 , the Company owned all of the Preferred Units and 79.9 million , or 95.6% , of the Common Units in the Operating Partnership. Limited partners, including two directors of the Company, own the remaining 3.7 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 required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $ 0.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During 2012 , the Company redeemed 63,366 Common Units for a like number of shares of Common Stock and the Operating Partnership issued 66,864 Common Units to acquire real estate assets. As a result of this activity, in conjunction with the proceeds from issuances of Common Stock contributed to the Operating Partnership in exchange for additional Common Units, the percentage of Common Units owned by the Company increased from 95.1% at December 31, 2011 to 95.6% at December 31, 2012 .

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2011 was retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale and liabilities held for sale those properties which qualified as held for sale during 2012 . Our Consolidated Statements of Income for the years ended December 31, 2011 and 2010 were retrospectively revised from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations during 2012 . Prior period amounts related to capital expenditures in our Consolidated Statements of Cash Flows have been disaggregated to conform to the current period presentation.

The Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those subsidiaries in which we own a majority voting interest with the ability to control operations of the subsidiaries and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. We consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of the entity through majority ownership or in our capacity as general partner or managing member. Five of the 50.0% or less owned in-service office properties are consolidated. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At December 31, 2012 , 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.

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

1.    Description of Business and Significant Accounting Policies – Continued

Use of Estimates

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

Real Estate and Related Assets

Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over initial fixed terms of the respective leases, which generally are from three to 10 years. Depreciation expense for real estate assets was $ 129.0 million , $ 120.8 million and $ 117.6 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

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

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

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

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

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

1.    Description of Business and Significant Accounting Policies – Continued

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

In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the 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 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 impacts the anticipated holding period or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset's carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
 
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for use.
 
We record assets held for sale, including for-sale residential condominiums, at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.
 
We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investee, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.

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

1.    Description of Business and Significant Accounting Policies – Continued

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

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

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 the customer pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of a base year amount. The computation of cost recovery income is complex and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not uniform in dealing with such cost 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.

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

1.    Description of Business and Significant Accounting Policies – Continued
 
Discontinued Operations
 
Properties that are sold or classified as held for sale are classified as discontinued operations provided that (1) the operations and cash flows of the property will be eliminated from our ongoing operations and (2) we will not have any significant continuing involvement in the operations of the property after it is sold. Interest expense is included in discontinued operations if the related loan securing the sold property is to be paid off or assumed by the buyer in connection with the sale. If the property is sold to a joint venture in which we retain an interest, the property will not be accounted for as a discontinued operation due to our significant ongoing interest in the operations through our joint venture interest. If we are retained to provide property management, leasing and/or other services for the property owner after the sale, the property generally will be accounted for as a discontinued operation because the expected cash flows related to our management and leasing activities generally will not be significant in comparison to the cash flows from the property prior to sale.
 
Lease Incentives
 
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign the lease, are capitalized in deferred financing and leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
 
For-Sale Residential Condominiums
 
For-sale residential condominiums include completed, but unsold, condominium inventory. We initially record receipts of earnest money deposits in accounts payable, accrued expenses and other liabilities in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received. All for-sale residential condominiums were sold as of December 31, 2012.

Investments in Unconsolidated Affiliates
 
We account for our investments in less than majority owned joint ventures, partnerships and limited liability companies using the equity method of accounting when our interests represent a general partnership interest but substantive participating rights or substantive kick out rights have been granted to the limited partners or when our interests do not represent a general partnership interest and we do not control the major operating and financial policies of the entity. These investments are initially recorded at cost in investments in unconsolidated affiliates and are subsequently adjusted for our share of earnings and cash contributions and distributions. To the extent our cost basis at formation of the joint venture is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in our share of equity in earnings of unconsolidated affiliates.
 
Cash Equivalents
 
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
 
Restricted Cash
 
Restricted cash represents cash deposits that are legally restricted or held by third parties on our behalf, such as 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.
 
Income Taxes
 
We have elected and expect to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). A corporate REIT is a legal entity that holds real estate assets and, through the payment of dividends to stockholders, is generally permitted to reduce or avoid the payment of federal and state income taxes at the corporate level. To maintain qualification as a REIT, we are required to pay dividends to our stockholders equal to at least 90.0% of our annual REIT taxable income, excluding net capital gains.

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

1.    Description of Business and Significant Accounting Policies – Continued
 
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, 2012 , our Wholly Owned Properties were leased to 1,711 customers. The geographic locations that comprise greater than 10.0% of our rental and other revenues are Raleigh, NC, Atlanta, GA, Tampa, FL, Nashville, TN and Kansas City, MO. Our customers engage in a wide variety of businesses. No single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues during 2012 .

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

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

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

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

1.    Description of Business and Significant Accounting Policies – Continued
 
Recently Issued Accounting Standards
 
As a result of adopting certain new or amended accounting pronouncements in the first quarter of 2012, we have enhanced our disclosure of assets and liabilities measured at fair value and elected to continue use of credit valuation adjustments on a net basis by counterparty as part of the calculation to determine the fair value of our derivatives. Our disclosures now include: (1) significant transfers between Levels 1 and 2 of the fair value hierarchy, if any; (2) additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy; and (3) the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but was disclosed previously in our Notes to Consolidated Financial Statements. Additionally, we have presented comprehensive income in a separate financial statement entitled Consolidated Statements of Comprehensive Income.

2.    Real Estate Assets

Acquisitions

During 2012, we acquired:

•	a 492,000 square foot office property in Atlanta, GA for a purchase price of $144.9 million ;	

•	a 616,000 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 due August 2014 recorded at fair value of $7.9 million , with an effective interest rate of 4.06% ;	

•	a 178,300 square foot office property in Cary, NC from our DLF I 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	

•	68 acres of development land currently zoned for 1.3 million 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.  

The following table sets forth a summary of the assets acquired and liabilities assumed in the acquisition of the 492,000 square foot office building in Atlanta, GA discussed in the preceding paragraph:

	
				
 	Total
Purchase Price Allocation	
Real estate assets	$	135,128		
Acquisition-related intangible assets (in deferred financing and leasing costs)	21,637		
Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)	(11,875	)	
Total allocation	$	144,890		

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

2.      Real Estate Assets - Continued

The following table sets forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations and acquisition costs, assuming the 492,000 square foot office building in Atlanta, GA discussed in the preceding paragraphs had been acquired on January 1, 2011:

	
								
 	Year Ended December 31,	
 	2012	 	2011	
 	(unaudited)	
Pro forma rental and other revenues	$	530,613		 	$	479,908		
Pro forma net income	$	84,135		 	$	44,817		
Pro forma earnings per share - basic	$	1.02		 	$	0.49		
Pro forma earnings per share - diluted	$	1.01		 	$	0.49		
 
During 2011, we acquired a six-building, 1.54 million square foot office complex in Pittsburgh, PA for a purchase price of $ 188.5 million . The purchase price included the assumption of secured debt recorded at fair value of $ 124.5 million , with an effective interest rate of 4.27% , including amortization of deferred financing costs. This debt matures in November 2017 . We expensed $ 4.0 million of costs related to this acquisition (included in general and administrative expenses). Additionally, we acquired a 503,000 square foot office building in Atlanta, GA for a purchase price of $ 78.3 million . The purchase price included the assumption of secured debt recorded at fair value of $ 67.9 million , with an effective interest rate of 5.45% , including amortization of deferred financing costs. This debt matures in January 2014 . We expensed $ 0.3 million of costs related to this acquisition.
 
The following table sets forth a summary of the acquisition purchase price consideration for each major class of assets acquired and liabilities assumed in the acquisitions discussed above:

	
				
 	Total
Purchase Price Allocation	
Real estate assets	$	241,602		
Acquisition-related intangible assets (in deferred financing and leasing costs)	39,721		
Furniture, fixtures and equipment (in prepaid expenses and other assets)	1,101		
Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)	(15,627	)	
Total allocation	$	266,797		
 
The following table sets forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations and acquisition costs, assuming the 1.54 million square foot office complex in Pittsburgh, PA and the 503,000 square foot office building in Atlanta, GA discussed in the preceding paragraph had been acquired on January 1, 2010:

	
								
 	Year Ended December 31,	
 	2011	 	2010	
 	(unaudited)	
Pro forma rental and other revenues	$	505,072		 	$	491,573		
Pro forma net income	$	45,674		 	$	65,409		
Pro forma earnings per share - basic	$	0.50		 	$	0.77		
Pro forma earnings per share - diluted	$	0.50		 	$	0.77		

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

2.      Real Estate Assets - Continued

During 2011, we also acquired a 48,000 square foot medical office property in Raleigh, NC for $ 8.9 million and expensed $ 0.1 million of acquisition costs related to this transaction.

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

Dispositions

During 2012, we sold:

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

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

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

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

•	96 vacant non-core rental residential units in Kansas City, MO for a sale price of $11.0 million and recorded 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.	

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

During 2010, we sold seven office properties in Winston Salem, NC and six industrial properties in Greensboro, NC in two separate transactions for $ 24.9 million . In the aggregate, we received cash of $ 7.9 million , provided seller financing of $ 17.0 million and committed to lend up to an additional $ 1.7 million for tenant improvements and lease commissions, of which $ 0.2 million was funded as of December 31, 2012 . We have accounted for these dispositions using the installment method, whereby the $ 0.4 million gain on disposition of property related to the office properties has been deferred and will be recognized when the seller financing is repaid, and recorded impairment of $ 0.3 million related to the industrial properties. In 2010, we also recorded a completed sale in connection with the disposition of an office property in Raleigh, NC in the fourth quarter of 2009 where the buyer's limited right to compel us to repurchase the property expired and recorded a gain of $ 0.2 million .

Impairments

During 2011, we recorded impairments of real estate assets of $ 2.4 million related to two office properties located in Orlando, FL due to a change in the assumed timing of future dispositions, which reduced the future expected cash flows from the properties.

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

3.    Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

	
								
 	December 31,	
 	2012	 	2011	
Seller financing (first mortgages)	$	15,853		 	$	17,180		
Less allowance	—		 	—		
 	15,853		 	17,180		
Mortgage receivable	8,648		 	—		
Less allowance	—		 	—		
 	8,648		 	—		
Promissory notes	1,153		 	1,481		
Less allowance	(182	)	 	(61	)	
 	971		 	1,420		
Mortgages and notes receivable, net	$	25,472		 	$	18,600		

Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010 (see Note 2) and acquisition financing provided to a third party buyer of adjacent development land in Nashville, TN (see below).

The seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We evaluate the collectability of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of December 31, 2012 , the payments on both mortgages receivable were current and there were no other indicators of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

During 2012, we provided an $8.6 million loan to a third party, which was used by such third party to fund a portion of the purchase price to acquire 77 acres of mixed-use development land adjacent to our 68 -acre office development parcel in Nashville, TN. Initially, the loan is scheduled to mature in December 2015 and bears interest at 5.0% per year. The loan can be extended by the third party for up to three additional years, subject to applicable increases in the interest rate. We also agreed to loan such third party approximately $8.4 million to fund future infrastructure development on its 77 -acre development parcel. Both loans are or will be secured by the 77 -acre development parcel. We concluded this arrangement to be an interest in a variable interest entity. However, since we do not have the power to direct matters that most significantly impact the activities of the entity, we do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated and the arrangement is accounted for in mortgages and notes receivable in our Consolidated Balance Sheet at December 31, 2012 . Our risk of loss with respect to this arrangement is limited to the carrying value of the note receivable and the future infrastructure development funding commitment.

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

	
								
 	December 31,	
 	2012	 	2011	
Beginning notes receivable allowance	$	61		 	$	868		
Bad debt expense	186		 	196		
Recoveries/write-offs/other	(65	)	 	(1,003	)	
Total notes receivable allowance	$	182		 	$	61		

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

4.    Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financing policies. As a result, the assets and liabilities of these joint ventures are not included in our Consolidated Financial Statements.

The following table sets forth our ownership in unconsolidated affiliates at December 31, 2012 :

	
					
Joint Venture	 	Location of Properties	 	Ownership
Interest	
Concourse Center Associates, LLC	 	Greensboro, NC	 	50.0%	
Plaza Colonnade, LLC	 	Kansas City, MO	 	50.0%	
Lofts at Weston, LLC	 	Raleigh, NC	 	50.0%	
Board of Trade Investment Company	 	Kansas City, MO	 	49.0%	
Highwoods DLF 97/26 DLF 99/32, LP	 	Atlanta, GA; Greensboro, NC; Orlando, FL	 	42.9%	
Highwoods KC Glenridge Office, LLC	 	Atlanta, GA	 	40.0%	
Highwoods KC Glenridge Land, LLC	 	Atlanta, GA	 	39.9%	
HIW-KC Orlando, LLC	 	Orlando, FL	 	40.0%	
Kessinger/Hunter, LLC	 	Kansas City, MO	 	26.5%	
Highwoods DLF Forum, LLC	 	Raleigh, NC	 	25.0%	
Highwoods DLF 98/29, LLC	 	Atlanta, GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando, FL	 	22.8%	
4600 Madison Associates, LP	 	Kansas City, MO	 	12.5%	

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

	
								
 	December 31,	
 	2012	 	2011	
Balance Sheets:	 	 	 	
Assets:	 	 	 	
Real estate assets, net	$	491,180		 	$	536,088		
All other assets, net	113,734		 	96,944		
Total Assets	$	604,914		 	$	633,032		
Liabilities and Partners’ or Shareholders’ Equity:	 	 	 	
Mortgages and notes payable (1)	$	370,393		 	$	406,875		
All other liabilities	24,507		 	21,808		
Partners’ or shareholders’ equity	210,014		 	204,349		
Total Liabilities and Partners’ or Shareholders’ Equity	$	604,914		 	$	633,032		
Our share of historical partners’ or shareholders’ equity	$	63,847		 	$	59,584		
Advances to unconsolidated affiliate	—		 	38,323		
Net excess of cost of investments over the net book value of underlying net assets (2)	2,953		 	2,460		
Carrying value of investments in and advances to unconsolidated affiliates	$	66,800		 	$	100,367		
Our share of unconsolidated non-recourse mortgage debt (1)	$	137,261		 	$	146,926		
__________

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

4.    Investments in and Advances to Affiliates – Continued

(1)	Our share of scheduled future principal payments, including amortization, due on mortgages and notes payable at December 31, 2012 is as follows:	

				
2013	$	23,458		
2014	57,163		
2015	21,821		
2016	1,054		
2017	26,452		
Thereafter	7,313		
 	$	137,261		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Income Statements:	 	 	 	 	 	
Rental and other revenues	$	101,233		 	$	100,958		 	$	119,868		
Expenses:	 	 	 	 	 	
Rental property and other expenses	47,762		 	44,584		 	56,868		
Depreciation and amortization	25,253		 	26,430		 	31,401		
Impairments of real estate assets	7,180		 	—		 	—		
Interest expense	20,953		 	23,762		 	27,956		
Total expenses	101,148		 	94,776		 	116,225		
Income before disposition of properties	85		 	6,182		 	3,643		
Gains on disposition of properties	11,184		 	—		 	—		
Net income	$	11,269		 	$	6,182		 	$	3,643		
Our share of:	 	 	 	 	 	
Depreciation and amortization	$	7,736		 	$	8,388		 	$	10,471		
Impairments of real estate assets	$	1,002		 	$	—		 	$	—		
Interest expense	$	7,368		 	$	8,163		 	$	10,545		
Gains on disposition of properties	$	1,120		 	$	—		 	$	—		
Net income	$	3,304		 	$	2,429		 	$	1,466		
 	 	 	 	 	 	
Our share of net income	$	3,304		 	$	2,429		 	$	1,466		
Adjustment for management and other fees	1,731		 	2,449		 	2,355		
Equity in earnings of unconsolidated affiliates	$	5,035		 	$	4,878		 	$	3,821		

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

4.    Investments in and Advances to Affiliates – Continued

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

- Lofts at Weston, LLC

During 2011, we and Ravin Partners, LLC (“Ravin”) formed Lofts at Weston, LLC, in which we have a 50.0% ownership interest. We contributed 15.0 acres of land at an agreed upon value of $ 2.4 million to this joint venture, and Ravin contributed $ 1.2 million in cash and agreed to guarantee the joint venture's development loan. The joint venture then distributed $ 1.2 million to us and we recorded a gain of $ 0.3 million on this transaction. Ravin manages and operates this joint venture, which is constructing 215 rental residential units at a total cost of $ 25.9 million , of which $15.2 million had been incurred as of December 31, 2012 . Ravin is the developer, manager and leasing agent and will receive customary fees from the joint venture.

- Highwoods DLF 97/26 DLF 99/32, L.P. (“DLF II”)
 
During 2012, DLF II obtained a $50.0 million , three-year secured mortgage loan from a third party lender, bearing a fixed interest rate of 3.5% on $39.1 million of the loan and a floating interest rate of LIBOR plus 250 basis points on $10.9 million of the loan, which was used by the joint venture to repay a secured loan at maturity to a third party lender.
 
- Kessinger/Hunter, LLC
 
Kessinger/Hunter, LLC, which is managed by our joint venture partner, provides leasing services to certain of our Wholly Owned Properties in Kansas City, MO in exchange for customary fees from us. Kessinger/Hunter, LLC received $ 1.1 million , $ 2.1 million and $ 0.8 million from us for these services in 2012 , 2011 and 2010 , respectively.
 
- Highwoods DLF 98/29, LLC (“DLF I”)
 
At the formation of this joint venture in 1999, our partner contributed excess cash to the venture that was distributed to us under the joint venture agreements. We are required to repay this excess cash to our partner over time, as discussed in Note 9.
 
During 2012, DLF I sold two office properties to third parties for $15.5 million and recorded gains on disposition of property of $4.9 million . We recorded $1.1 million as our proportionate share of these gains through equity in earnings of unconsolidated affiliates.

During 2012, we recorded $1.0 million as our share of impairments of real estate assets on two office properties in our DLF I joint venture, due to a decline in projected occupancy and a change in the assumed holding period of those assets, which reduced the expected future cash flows from the properties.

During 2011, we provided a $ 38.3 million interest-only secured loan to DLF I that was initially scheduled to mature in March 2012 . During 2012, the outstanding balance of the loan was repaid as a result of our acquisition of an office property from the joint venture and through application of the net proceeds from the joint venture's sale of two office properties to third parties as noted above. We recorded $0.9 million and $1.3 million of interest income from this loan in interest and other income during the years ended December 31, 2012 and 2011 , respectively.
 
- Des Moines, IA Joint Ventures
 
During 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. The assets in the joint ventures included 1.7 million square feet of office, 788,000 square feet of industrial and 45,000 square feet of retail properties, as well as 418 apartment units. In connection with the closing, we received $ 15.0 million in cash. We had a negative book basis in certain of the joint ventures, primarily as a result of prior cash distributions to the partners. As a result, we recorded gain on disposition of investment in unconsolidated affiliates of $25.3 million .

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

4.    Investments in and Advances to Affiliates – Continued

- HIW Development B, LLC
 
During 2011, our joint venture partner exercised its option to acquire our 10.0% equity interest in the HIW Development B, LLC joint venture, which had recently completed construction of a build-to-suit office property in Charlotte, NC. As a result, we received gross proceeds of $ 4.8 million and recorded a gain on disposition of investment in unconsolidated affiliate related to this merchant build project of $2.3 million .

- Other Activities
 
We receive development, management and leasing fees for services provided to certain of our joint ventures. These fees are recognized in income to the extent of our respective joint venture partner's interest. During the years ended December 31, 2012 , 2011 and 2010 , we recognized $ 2.4 million , $ 3.1 million and $ 2.7 million , respectively, of development, management and leasing fees from our unconsolidated joint ventures. At December 31, 2012 and 2011 , we had receivables of $0.9 million and $1.0 million , respectively, related to these fees in accounts receivable.
 
Consolidated Affiliates
 
The following summarizes our consolidated affiliates:

- Highwoods-Markel Associates, LLC (“Markel”)
 
We have a 50.0% ownership interest in Markel. We are the manager and leasing agent for Markel's properties located in Richmond, VA and receive customary management and leasing fees. We consolidate Markel since we are the general partner and control the major operating and financial policies of the joint venture. As controlling partner, we have an obligation to cause this property-owning entity to distribute proceeds of liquidation to the noncontrolling interest partner in these partially owned properties only if the net proceeds received by the entity from the sale of our assets warrant a distribution as determined by the agreement. We estimate the value of noncontrolling interest distributions would have been $ 15.6 million had the entity been liquidated at December 31, 2012 . This estimated settlement value is based on the fair value of the underlying properties which is based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates and costs to operate each property. If the entity's underlying assets are worth less than the underlying liabilities on the date of such liquidation, we would have no obligation to remit any consideration to the noncontrolling interest holder.

- SF-HIW Harborview Plaza, LP (“Harborview”)
 
We have a 20.0% interest in Harborview. We are the manager and leasing agent for Harborview's property located in Tampa, FL and receive customary management and leasing fees. As further described in Note 8, we account for this joint venture as a financing obligation since our partner has the right to put its interest back to us in the future.
 
During 2012, we provided a three-year, $20.8 million interest-only secured loan to Harborview that is scheduled to mature in September 2015 , which the joint venture used to repay a secured loan at maturity to a third party lender. This new loan bears interest at LIBOR plus 500 basis points, subject to a LIBOR floor of 0.5% . Because Harborview is a consolidated joint venture, this loan and related interest income and expense are eliminated in consolidation.

- Plaza Residential, LLC (“Plaza Residential”)
 
In 2007, our taxable REIT subsidiary formed the Plaza Residential joint venture with an unrelated party to develop and sell 139 for-sale residential condominiums constructed above a wholly owned office property in Raleigh, NC. We initially had a 93.0% interest in Plaza Residential. In 2010, we acquired our partner's 7.0% ownership interest for $ 0.5 million . During the years ended December 31, 2012 , 2011 and 2010 , we received $ 5.5 million , $ 3.2 million and $ 5.3 million , respectively, in gross proceeds and recorded $ 5.1 million , $ 3.5 million and $ 5.0 million , respectively, of cost of assets sold from condominium sales, including impairment charges, if any. As of December 31, 2012, all of the for-sale residential condominiums have been sold.

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

5.    Intangible Assets and Below Market Lease Liabilities

The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:

	
								
 	December 31,	
 	2012	 	2011	
Assets:	 	 	 	
Deferred financing costs	$	21,759		 	$	18,044		
Less accumulated amortization	(7,862	)	 	(5,797	)	
 	13,897		 	12,247		
Deferred leasing costs (including lease incentives and acquisition-related intangible assets)	225,647		 	172,049		
Less accumulated amortization	(69,521	)	 	(56,522	)	
 	156,126		 	115,527		
Deferred financing and leasing costs, net	$	170,023		 	$	127,774		
 	 	 	 	
Liabilities (in accounts payable, accrued expenses and other liabilities):	 	 	 	
Acquisition-related below market lease liabilities	$	37,019		 	$	16,441		
Less accumulated amortization	(3,383	)	 	(971	)	
 	$	33,636		 	$	15,470		

The following table sets forth amortization of intangible assets and acquisition-related below market lease liabilities:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Amortization of deferred financing costs	$	3,685		 	$	3,312		 	$	3,385		
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)	$	27,731		 	$	20,980		 	$	17,383		
Amortization of lease incentives (in rental and other revenues)	$	1,439		 	$	1,371		 	$	1,239		
Amortization of acquisition-related intangible assets (in rental and other revenues)	$	1,357		 	$	915		 	$	531		
Amortization of acquisition-related intangible assets (in rental property and other expenses)	$	186		 	$	—		 	$	—		
Amortization of acquisition-related below market lease liabilities (in rental and other revenues)	$	(2,627	)	 	$	(840	)	 	$	(96	)	

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

5.    Intangible Assets and Below Market Lease Liabilities - Continued

The following table sets forth scheduled future amortization of intangible assets and acquisition-related below market lease liabilities:

	
																									
Years Ending December 31,	 	Amortization
of Deferred Financing
Costs	 	Amortization
of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization)	 	Amortization
of Lease Incentives (in Rental and Other Revenues)	 	Amortization
of Acquisition-Related Intangible Assets (in Rental and Other Revenues)	 	Amortization of Acquisition-Related Intangible Assets (in Rental Property and Other Expenses)	 	Amortization
of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues)	
2013	 	$	3,521		 	$	29,636		 	$	1,314		 	$	1,277		 	$	553		 	$	(4,149	)	
2014	 	3,224		 	25,200		 	1,163		 	989		 	553		 	(4,067	)	
2015	 	2,594		 	20,391		 	928		 	754		 	553		 	(3,801	)	
2016	 	1,519		 	16,877		 	734		 	659		 	553		 	(3,499	)	
2017	 	1,225		 	14,141		 	654		 	587		 	553		 	(3,256	)	
Thereafter	 	1,814		 	33,569		 	2,065		 	780		 	1,643		 	(14,864	)	
 	 	$	13,897		 	$	139,814		 	$	6,858		 	$	5,046		 	$	4,408		 	$	(33,636	)	
Weighted average remaining amortization periods as of December 31, 2012 (in years)	 	4.6		 	6.9		 	7.7		 	5.6		 	8.0		 	9.9		

The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of 2012 acquisition activity:

	
																	
 	 	Acquisition-Related Intangible Assets (amortized in Rental and Other Revenues)	 	Acquisition-Related Intangible Assets (amortized in Depreciation and Amortization)	 	Acquisition-Related Intangible Assets (amortized in Rental Property and Other Expenses)	 	Acquisition-Related Below Market Lease Liabilities (amortized in Rental and Other Revenues)	
Amount recorded from acquisition activity	 	$	2,636		 	$	37,247		 	$	4,593		 	$	(20,934	)	
Weighted average remaining amortization periods (in years)	 	5.3		 	8.7		 	8.0		 	10.6		

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

6.    Mortgages and Notes Payable
 
Our mortgages and notes payable consist of the following:

	
								
 	December 31,	
 	2012	 	2011	
Secured indebtedness: (1)	 	 	 	
5.45% (5.12% effective rate) mortgage loan due 2014 (2)	67,604		 	67,809		
5.18% (4.22% effective rate) mortgage loan due 2017 (3)	120,924		 	123,613		
6.03% mortgage loan due 2013	—		 	125,264		
5.68% mortgage loan due 2013	107,289		 	110,343		
5.17% (6.43% effective rate) mortgage loan due 2015 (4)	39,805		 	40,015		
6.88% mortgage loans due 2016	110,671		 	112,075		
7.50% mortgage loan due 2016	45,662		 	46,181		
5.74% to 9.00% mortgage loans due between 2012 and 2016 (5) (6) (7)	57,652		 	72,640		
Variable rate construction loan due 2012	—		 	17,802		
 	549,607		 	715,742		
Unsecured indebtedness:	 	 	 	
5.85% (5.88% effective rate) notes due 2017 (8)	379,194		 	391,164		
7.50% notes due 2018	200,000		 	200,000		
3.625% (3.752% effective rate) notes due 2023 (9)	247,361		 	—		
Variable rate term loan due 2016 (10)	35,000		 	200,000		
Variable rate term loan due 2018 (11)	200,000		 	—		
Variable rate term loan due 2019 (12)	225,000		 	—		
Revolving credit facility due 2015 (13)	23,000		 	362,000		
 	1,309,555		 	1,153,164		
Total	$	1,859,162		 	$	1,868,906		
__________
		
(1)	The secured mortgage loans payable are collateralized by real estate assets with an aggregate undepreciated book value of $ 966.9 million at December 31, 2012 . Our fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term or are prepayable subject to certain conditions including prepayment penalties.	
		
(2)	Includes unamortized fair market premium of $0.2 million as of December 31, 2012 .	
		
(3)	Includes unamortized fair market premium of $4.6 million as of December 31, 2012 .	
		
(4)	Net of unamortized fair market value discount of $ 1.2 million as of December 31, 2012 .	
		
(5)	Includes mortgage debt related to Harborview, a consolidated 20.0% owned joint venture, of $ 21.0 million at December 31, 2011 . See Note 8.	
		
(6)	Includes mortgage debt related to Markel, a consolidated 50.0% owned joint venture, of $ 33.1 million and $ 34.0 million at December 31, 2012 and 2011 , respectively. See Note 10.	
		
(7)	Net of unamortized fair market value premium of $ 0.5 million and $ 0.3 million at December 31, 2012 and 2011 , respectively.	
		
(8)	Net of unamortized original issuance discount of $ 0.5 million and $ 0.6 million at December 31, 2012 and 2011 , respectively.	
		
(9)	Net of unamortized original issuance discount of $2.6 million at December 31, 2012 .	
		
(10)	The interest rate is 2.42% at December 31, 2012 .	
		
(11)	The interest rate is 1.87% at December 31, 2012 .	

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

6.    Mortgages and Notes Payable - Continued

(12)	As more fully described in Note 7, we entered into floating-to-fixed interest rate swaps that effectively fix LIBOR for the full amount and duration of this loan. Accordingly, the equivalent fixed rate of this loan is 3.58% .	
		
(13)	The interest rate is 1.71% at December 31, 2012 .	

The following table sets forth scheduled future principal payments, including amortization, due on our mortgages and notes payable at December 31, 2012 :

	
					
Years Ending December 31,	 	Principal Amount	
2013	 	$	123,537		
2014	 	112,283		
2015	 	67,733		
2016	 	193,217		
2017	 	488,617		
Thereafter	 	873,775		
 	 	$	1,859,162		

Our $ 475.0 million unsecured revolving credit facility is scheduled to mature on June 27, 2015 and includes an accordion feature that allows for an additional $ 75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $ 23.0 million and $ 25.0 million outstanding under our revolving credit facility at December 31, 2012 and February 1, 2013 , respectively. At both December 31, 2012 and February 1, 2013 , we had $ 0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at December 31, 2012 and February 1, 2013 was $ 451.9 million and $ 449.9 million , respectively.
 
During 2012, we repaid the remaining balances of $52.1 million of our variable rate, secured construction loan bearing interest of 1.07% and a $123.0 million secured mortgage loan bearing interest of 6.03% that was scheduled to mature in March 2013 . One of our consolidated affiliates also repaid a $20.8 million secured loan that bore interest at 6.06% and matured in October 2012 . We incurred no penalties related to these repayments. Real estate assets having a gross book value of $193 million became unencumbered in connection with the payoff of these secured loans. We also paid down $12.2 million of secured loan balances through principal amortization during 2012.
 
During 2012, the Operating Partnership issued $ 250 million aggregate principal amount of 3.625% Notes due January 15, 2023 , less original issue discount of $2.7 million . These notes were priced at 98.94% for an effective yield of 3.752% . Underwriting fees and other expenses were incurred that aggregated $2.1 million ; these costs were deferred and will be amortized over the term of the notes.
 
During 2012, we modified our $200.0 million , five-year unsecured bank term loan, which was originally scheduled to mature in February 2016 . The loan is now scheduled to mature in January 2018 and the interest rate was reduced from LIBOR plus 220 basis points to LIBOR plus 165 basis points. We incurred $0.9 million of deferred financing fees in connection with the modification, which will be amortized along with existing unamortized deferred loan fees over the remaining term of the new loan. Proceeds from two new participants, aggregating $35.0 million , were used to reduce amounts outstanding under our revolving credit facility. Two of the original participants, which still hold an aggregate $35.0 million of the principal balance under the original term loan, will be fully paid off on or before February 25, 2013 .
 
During 2012, we repurchased $12.1 million principal amount of unsecured notes due March 2017 bearing interest of 5.85% for a purchase price of 107.5% of par value. We recorded $1.0 million of loss on debt extinguishment related to this repurchase. 

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

6.    Mortgages and Notes Payable - Continued

During 2012, we obtained a $225.0 million , seven -year unsecured bank term loan bearing interest of LIBOR plus 190 basis points. The underlying LIBOR rate has been effectively fixed for the entire seven-year term through floating-to-fixed interest rate swaps discussed in Note 7. The counterparties under the swaps are the same financial institutions that participated in the term loan.

During 2011, we repaid the remaining balance of $ 184.2 million of a secured mortgage loan bearing interest of 7.05% that was scheduled to mature in January 2012 and the remaining $ 10.0 million of a three -year unsecured term loan bearing interest of 3.90% that was scheduled to mature in February 2012 . We incurred no penalties related to these early repayments. We also obtained a $ 200.0 million , five -year unsecured bank term loan bearing interest of LIBOR plus 220 basis points.

During 2010, we repaid $ 10.0 million of our $ 20.0 million , three -year unsecured term loan. Additionally, we repaid the $ 5.8 million remaining balance outstanding on the mortgage payable secured by our 96 rental residential units, which we sold in 2012 as described in Note 4. We incurred a penalty of $ 0.6 million related to this early repayment, which is included in loss on debt extinguishment.

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

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

The Operating Partnership has $379.2 million carrying amount of 2017 bonds outstanding, $200.0 million carrying amount of 2018 bonds outstanding and $247.4 million carrying amount of 2023 bonds outstanding. The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of either series of bonds can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.

Capitalized Interest

Total interest capitalized to development projects was $ 1.0 million , $ 0.6 million and $ 1.4 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

		
7.	Derivative Financial Instruments	

We have six floating-to-fixed interest rate swaps through January 2019 each with respect to an aggregate of $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678% . The counterparties under the swaps are major financial institutions. The swap agreements contain a provision whereby if we default on any of our indebtedness, if greater than $10.0 million , and which defaults results in repayment of such indebtedness being, or becoming capable of being, accelerated by the lender, then we could also be declared in default on our derivative obligations. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the year ended December 31, 2012 . We have no collateral requirements related to our interest rate swaps.

Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During 2013, we estimate that $3.3 million will be reclassified to interest expense.

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

		
7.	Derivative Financial Instruments - Continued	

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

	
								
 	Fair Value as of December 31,	
 	2012	 	2011	
Liability Derivatives:	 	 	 	
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:	 	 	 	
Interest rate swaps	$	9,369		 	$	2,202		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Derivatives Designated as Cash Flow Hedges:	 	 	 	 	 	
Amount of unrealized losses recognized in AOCL on derivatives (effective portion):	 	 	 	 	 	
Interest rate swaps	$	(10,358	)	 	$	(2,202	)	 	$	—		
Amount of (gains)/losses reclassified out of AOCL into contractual interest expense (effective portion):	 	 	 	 	 	
Interest rate swaps	$	3,053		 	$	(118	)	 	$	237		

8.	Financing Arrangements	

Our financing obligations consist of the following:

	
								
 	December 31,	
 	2012	 	2011	
Harborview financing obligation	$	17,571		 	$	17,086		
Tax increment financing bond	11,787		 	13,064		
Total	$	29,358		 	$	30,150		

Harborview
 
Our joint venture partner in Harborview has the right to put its 80.0% equity interest in the joint venture to us in exchange for cash at any time during the one-year period commencing September 11, 2014 . The value of the 80.0% equity interest will be determined at the time that our partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LP's assets and liabilities, less 3.0% , which amount was intended to cover the normal costs of a sale transaction. Because of the put option, this transaction is accounted for as a financing transaction. Accordingly, the assets, liabilities and operations related to Harborview, the office property owned by Harborview LP remain in our Consolidated Financial Statements.

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

		
8.	Financing Arrangements - Continued	

As a result, we initially established a gross financing obligation equal to the $12.7 million equity contributed by our joint venture partner. During 2012, our joint venture partner contributed an additional $1.8 million of equity to the joint venture. During each period, we increase the gross financing obligation for 80.0% of the net income before depreciation of Harborview, which is recorded as interest expense on financing obligation, and decrease the gross financing obligation for distributions made to our joint venture partner. At the end of each reporting period, the balance of the gross financing obligation is adjusted to equal the greater of the equity contributed by our joint venture partner or the current fair value of the put option, which is recorded as a valuation allowance. The valuation allowance is amortized on a straight-line basis prospectively through September 2014 as interest expense on financing obligation. The fair value of the put option was $12.7 million and $6.2 million at December 31, 2012 and 2011 , respectively. We continue to depreciate Harborview and record all of the depreciation on our books. At such time as the put option expires or is otherwise terminated, we will record the transaction as a partial sale and recognize gain accordingly.

Tax Increment Financing Bond
 
In connection with tax increment financing for construction of a parking garage, we are obligated to pay fixed special assessments over a 20-year period ending in 2019 . The net present value of these assessments, discounted at the 6.93% interest rate on the underlying bond financing, is recorded as a financing obligation. We receive special tax revenues and property tax rebates recorded in interest and other income, which are intended, but not guaranteed, to provide funds to pay the special assessments. We acquired the underlying bond, which is recorded in prepaid and other assets, in a privately negotiated transaction in 2007 . For additional information about this tax increment financing bond, see Note 11.
 
Capitalized Ground Lease Obligation
 
The capitalized ground lease obligation represents an obligation to the lessor of land on which we constructed a wholly owned office property. We initially recorded the land and associated financing obligation at the net present value of the fixed rental payments and purchase option through the ninth year at the inception of the lease using a discount rate of 7.10% . The liability accretes as interest expense until it equals the amount of the purchase option. During 2012, this ground lease was conveyed as part of the disposition of an office property in Atlanta, GA.

9.	Commitments and Contingencies	

Operating Ground Leases
 
Certain Wholly Owned Properties are subject to operating ground leases. Rental payments on these leases are adjusted periodically based on either the consumer price index or on a pre-determined schedule. Total rental property expense recorded on the straight-line basis for operating ground leases was $1.5 million , $1.4 million and $1.5 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

The following table sets forth our scheduled obligations for future minimum payments on operating ground leases at December 31, 2012 :

	
					
Years Ending December 31,	 	Minimum Payments	
2013	 	$	2,383		
2014	 	2,404		
2015	 	2,427		
2016	 	2,451		
2017	 	2,476		
Thereafter	 	49,875		
 	 	$	62,016		

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

		
9.	Commitments and Contingencies - Continued	

Lease and Contractual Commitments
 
We have $122.0 million of lease and contractual commitments at December 31, 2012 . Lease and contractual commitments represent commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements) and contracts for development/redevelopment projects, of which $22.1 million was recorded on the Consolidated Balance Sheet at December 31, 2012 .
 
DLF I Obligation
 
At the formation of DLF I, the amount our partner contributed in cash to the venture and subsequently distributed to us was determined to be $7.2 million in excess of the amount required based on its ownership interest and the agreed-upon value of the real estate assets. We are required to repay this amount over 14 years, beginning in the first quarter of 1999 . The $7.2 million was discounted to net present value of $3.8 million using a discount rate of 9.62% specified in the agreement. Payments of $0.6 million were made in each of the years ended December 31, 2012 , 2011 and 2010 . The balance at December 31, 2012 and 2011 was $0.2 million and $0.8 million , respectively, which is included in accounts payable, accrued expenses and other liabilities.
 
Environmental Matters
 
Substantially all of our in-service and development properties have been subjected to Phase I environmental assessments and, in certain instances, Phase II environmental assessments. Such assessments and/or updates have not revealed, nor are we aware of, any environmental liability that we believe would have a material adverse effect on our Consolidated Financial Statements.

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

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

		
10.	Noncontrolling Interests	

Noncontrolling Interests in the Operating Partnership

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

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

	
								
 	Year Ended December 31,	
 	2012	 	2011	
Beginning noncontrolling interests in the Operating Partnership	$	110,655		 	$	120,838		
Adjustments of noncontrolling interests in the Operating Partnership to fair value	16,491		 	(3,955	)	
Issuances of Common Units	2,299		 	—		
Conversion of Common Units to Common Stock	(2,096	)	 	(1,906	)	
Net income attributable to noncontrolling interests in the Operating Partnership	3,854		 	2,091		
Distributions to noncontrolling interests in the Operating Partnership	(6,334	)	 	(6,413	)	
Total noncontrolling interests in the Operating Partnership	$	124,869		 	$	110,655		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Net income available for common stockholders	$	77,087		 	$	38,677		 	$	61,790		
Increase in additional paid in capital from conversion of Common Units to Common Stock	2,096		 	1,906		 	3,060		
Issuances of Common Units	(2,299	)	 	—		 	—		
Change from net income available for common stockholders and transfers from noncontrolling interests	$	76,884		 	$	40,583		 	$	64,850		

Noncontrolling Interests in Consolidated Affiliates

At December 31, 2012 , noncontrolling interests in consolidated affiliates relates to our joint venture partner's 50.0% interest in office properties located in Richmond, VA. Our joint venture partner is an unrelated third party.

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

		
11.	Disclosure About Fair Value of Financial Instruments	

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

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

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

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

Our Level 2 asset is the fair value of certain of our mortgages and notes receivable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants.
 
Our Level 2 liabilities include (1) the fair value of our mortgages and notes payable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants and (2) interest rate swaps whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of our interest rate swaps are based on the expectation of future LIBOR interest rates (forward curves) derived from observed market LIBOR interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.
 
Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
Our Level 3 assets include (1) certain of our mortgages and notes receivable, which were estimated by the income approach utilizing internal cash flow projections and market interest rates to estimate the price that would be paid in an orderly transaction between market participants, (2) our tax increment financing bond, which is not routinely traded but whose fair value is determined by the income approach utilizing contractual cash flows and market-based interest rates to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds, and (3) any real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which were valued using broker opinion of value and substantiated by internal cash flow projections.
 
Our Level 3 liabilities include the fair value of our contingent consideration to acquire real estate assets and financing obligations, which were estimated by the income approach to approximate the price that would be paid in an orderly transaction between market participants, utilizing: (1) contractual cash flows; (2) market-based interest rates; and (3) a number of other assumptions including demand for space, competition for customers, changes in market rental rates, costs of operation and expected ownership periods.

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

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

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

	
																
 	 	 	Level 1	 	Level 2	 	Level 3	
 	December 31, 2012	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Observable Inputs	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	 	 	
Mortgages and notes receivable, at fair value (1)	$	24,725		 	$	—		 	$	16,077		 	$	8,648		
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	3,354		 	3,354		 	—		 	—		
Tax increment financing bond (in prepaid expenses and other assets)	14,496		 	—		 	—		 	14,496		
Total Assets	$	42,575		 	$	3,354		 	$	16,077		 	$	23,144		
Noncontrolling Interests in the Operating Partnership	$	124,869		 	$	124,869		 	$	—		 	$	—		
Liabilities:	 	 	 	 	 	 	 	
Mortgages and notes payable, at fair value (1)	$	1,987,364		 	$	—		 	$	1,987,364		 	$	—		
Interest rate swaps (in accounts payable, accrued expenses and other liabilities)	9,369		 	—		 	9,369		 	—		
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	3,354		 	3,354		 	—		 	—		
Contingent consideration to acquire real estate assets (in accounts payable, accrued expenses and other liabilities)	563		 	—		 	—		 	563		
Financing obligations, at fair value (1)	23,252		 	—		 	—		 	23,252		
Total Liabilities	$	2,023,902		 	$	3,354		 	$	1,996,733		 	$	23,815		

	
																
 	 	 	Level 1	 	Level 2	 	Level 3	
 	December 31, 2011	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Observable Inputs	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	 	 	
Mortgages and notes receivable, at fair value (1)	$	18,990		 	$	—		 	$	18,990		 	$	—		
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	3,149		 	3,149		 	—		 	—		
Tax increment financing bond (in prepaid expenses and other assets)	14,788		 	—		 	—		 	14,788		
Impaired real estate assets and for-sale residential condominiums	12,767		 	—		 	—		 	12,767		
Total Assets	$	49,694		 	$	3,149		 	$	18,990		 	$	27,555		
Noncontrolling Interests in the Operating Partnership	$	110,655		 	$	110,655		 	$	—		 	$	—		
Liabilities:	 	 	 	 	 	 	 	
Mortgages and notes payable, at fair value (1)	$	1,959,438		 	$	—		 	$	1,959,438		 	$	—		
Interest rate swaps (in accounts payable, accrued expenses and other liabilities)	2,202		 	—		 	2,202		 	—		
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	3,149		 	3,149		 	—		 	—		
Financing obligations, at fair value (1)	17,572		 	—		 	—		 	17,572		
Total Liabilities	$	1,982,361		 	$	3,149		 	$	1,961,640		 	$	17,572		
__________
(1)    Amounts recorded at historical cost on our Consolidated Balance Sheets at December 31, 2012 and 2011 , respectively.

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

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

The following table sets forth the changes in our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:

	
								
 	December 31,	
 	2012	 	2011	
Asset:	 	 	 	
Tax Increment Financing Bond:	 	 	 	
Beginning balance	$	14,788		 	$	15,699		
Principal repayment	(703	)	 	(1,145	)	
Unrealized gains (in AOCL)	411		 	234		
Ending balance	$	14,496		 	$	14,788		
Liability:	 	 	 	
Contingent Consideration to Acquire Real Estate Assets:	 	 	 	
Beginning balance	$	—		 	$	—		
Fair value at acquisition date	677		 	—		
Unrealized gains (in general and administrative expenses)	(114	)	 	—		
Ending balance	$	563		 	$	—		
 
During 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020 . The estimated fair value at December 31, 2012 was $1.9 million below the outstanding principal due on the bond. If the discount rate used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.5 million lower or $0.5 million higher, respectively, as of December 31, 2012 . 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. We have recorded no credit losses related to the bond during the years ended December 31, 2012 and 2011 . 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 quantitative information about the unobservable inputs of our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:

	
											
 	Fair Value at
December 31, 2012	 	Valuation
Technique	 	Unobservable
Input	 	Rate/ Percentage	
Asset:	 	 	 	 	 	 	 	
Tax increment financing bond	$	14,496		 	Income approach	 	Discount rate	 	10.34	%	
Liability:	 	 	 	 	 	 	 	
Contingent consideration to acquire real estate assets	$	563		 	Income approach	 	Payout percentage	 	75.00	%	

12.	Equity	
 
Common Stock Issuances
 
The Company has entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of its Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During 2012 , the Company issued 7,245,837 shares of Common Stock under these agreements at an average gross price of $33.12 per share and received net proceeds, after sales commissions and expenses, of $236.4 million . During 2011, the Company issued 378,200 shares of Common Stock under these agreements at an average gross price of $35.09 per share and received net proceeds, after sales commissions, of $13.1 million .

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

		
12.	Equity - Continued	
 
Common Stock Dividends
 
Dividends declared and paid per share of Common Stock aggregated $1.70 for each of the years ended December 31, 2012 , 2011 and 2010 .

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Ordinary income	$	1.28		 	$	1.15		 	$	0.41		
Capital gains	0.24		 	—		 	0.44		
Return of capital	0.18		 	0.55		 	0.85		
Total	$	1.70		 	$	1.70		 	$	1.70		
 
Our tax returns have not been examined by the Internal Revenue Service (“IRS”) and, therefore, the taxability of dividends is subject to change.
 
Preferred Stock
 
In 2011, we redeemed the remaining 2.1 million outstanding 8.0% Series B Cumulative Redeemable Preferred Shares for an aggregate redemption price of $52.5 million , excluding accrued dividends. In connection with this redemption, the $1.9 million excess of the redemption cost over the net carrying amount of the redeemed shares was recorded as a reduction to net income available for common stockholders.
 
The following table sets forth our Preferred Stock:

	
																				
Preferred Stock Issuances	 	Issue Date	 	Number of Shares Outstanding	 	Carrying Value	 	Liquidation Preference Per Share	 	Optional Redemption Date	 	Annual Dividends Payable Per Share	
 	 	 	 	(in thousands)	 	 	 	 	 	 	 	 	
December 31, 2012	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,077		 	$	1,000		 	2/12/2027	 	$	86.25		
December 31, 2011	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,077		 	$	1,000		 	2/12/2027	 	$	86.25		
 
The following table sets forth the estimated taxability to the preferred stockholders of dividends per share for federal income tax purposes:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
8.625% Series A Cumulative Redeemable:	 	 	 	 	 	
Ordinary income	$	72.46		 	$	86.25		 	$	41.80		
Capital gains	13.79		 	—		 	44.45		
Total	$	86.25		 	$	86.25		 	$	86.25		
8.000% Series B Cumulative Redeemable:	 	 	 	 	 	
Ordinary income	$	—		 	$	1.05		 	$	0.97		
Capital gains	—		 	—		 	1.03		
Total	$	—		 	$	1.05		 	$	2.00		

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

		
12.	Equity - Continued	

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

Warrants
 
At December 31, 2012 and 2011 , there were 15,000 warrants outstanding with an exercise price of $32.50 per share. These warrants have no expiration date.
 
Dividend Reinvestment Plan
 
We have a Dividend Reinvestment and Stock Purchase Plan (“DRIP”) under which holders of Common Stock may elect to automatically reinvest their dividends in additional shares of Common Stock and make optional cash payments for additional shares of Common Stock. We may elect to satisfy DRIP obligations by issuing additional shares of Common Stock or instructing the DRIP administrator to purchase Common Stock in the open market.

13.	Employee Benefit Plans	

Officer, Management and Director Compensation Programs

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

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

Our officers generally receive annual grants of stock options and restricted stock on or about March 1 of each year. Restricted stock grants are also made annually to directors and certain other employees. Except as set forth in the next sentence, dividends received on restricted stock are non-forfeitable and are paid at the same rate and on the same date as on shares of Common Stock. Commencing in 2012 with respect to shares of restricted stock issued to our chief executive officer and subject to any delay in payment that would result in adverse tax consequences under Section 409A of the Code, dividends will accumulate and be payable only if and to the extent the shares vest. Dividends paid on subsequently forfeited shares are expensed. Additional total return-based restricted stock may be issued at the end of the three-year periods if actual performance exceeds certain levels of performance. Such additional shares, if any, would be fully vested when issued. No expense is recorded for additional shares of total return-based restricted stock that may be issued at the end of the three-year period since that possibility is reflected in the grant date fair value. The following table sets forth the number of shares of Common Stock reserved for future issuance:

	
						
 	December 31,	
 	2012	 	2011	
Outstanding stock options and warrants	1,144,309		 	1,224,455		
Possible future issuance under equity incentive plans	2,047,550		 	2,363,695		
 	3,191,859		 	3,588,150		

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

		
13.	Employee Benefit Plans - Continued	

Of the possible future issuance under equity incentive plans at December 31, 2012 , no more than 0.6 million can be in the form of restricted stock. At December 31, 2012 , we had 119.7 million remaining shares of Common Stock authorized to be issued under our charter.

During the years ended December 31, 2012 , 2011 and 2010 , we recognized $7.6 million , $6.1 million and $6.6 million , respectively, of share-based compensation expense. Because REITs generally do not pay income taxes, we do not realize tax benefits on share-based payments. At December 31, 2012 , there was $4.5 million of total unrecognized share-based compensation costs, which will be recognized over vesting periods that have a weighted average remaining term of 2.4 years.

- Stock Options

Stock options issued prior to 2005 vest ratably over four years and remain outstanding for 10 years. Stock options issued beginning in 2005 vest ratably over a four -year period and remain outstanding for seven years. The value of all options as of the date of grant is calculated using the Black-Scholes option-pricing model and is amortized over the respective vesting or service period. The fair values of options granted during 2012 , 2011 and 2010 were $5.47 , $6.47 and $4.96 , respectively, per option. The fair values of the options granted were determined at the grant dates using the following assumptions:

	
									
 	2012	 	2011	 	2010	
Risk free interest rate (1)  	1.1	%	 	2.4	%	 	2.6	%	
Common stock dividend yield (2)  	5.3	%	 	5.0	%	 	5.9	%	
Expected volatility (3)  	33.4	%	 	32.5	%	 	32.2	%	
Average expected option life (years) (4)	5.75		 	5.75		 	5.75		
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the option grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one -year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related stock option grant.	
		
(4)	The average expected option life is based on an analysis of our historical data.	

The following table sets forth stock option activity:

	
							
 	Options Outstanding	
 	Number of Shares	 	Weighted Average Exercise Price	
Balances at December 31, 2009	1,467,773		 	$	27.15		
Options granted	190,826		 	29.05		
Options exercised	(178,403	)	 	22.54		
Balances at December 31, 2010 	1,480,196		 	27.95		
Options granted 	146,581		 	33.93		
Options exercised 	(417,322	)	 	26.79		
Balances at December 31, 2011	1,209,455		 	29.08		
Options granted	190,886		 	31.97		
Options exercised	(271,032	)	 	26.87		
Balances at December 31, 2012  (1) (2)	1,129,309		 	$	30.10		
__________

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

		
13.	Employee Benefit Plans - Continued	

(1)	The outstanding options at December 31, 2012 had a weighted average remaining life of  3.3 years.	
		
(2)	We have 634,550 options exercisable at December 31, 2012 with a weighted average exercise price of $30.75 , weighted average remaining life of 2.1 years and intrinsic value of $2.6 million . Of these exercisable options, 173,007 had exercise prices higher than the market price of our Common Stock at December 31, 2012 .	

Cash received or receivable from options exercised was $7.4 million , $11.9 million and $4.4 million for the years ended December 31, 2012 , 2011 and 2010 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2012 , 2011 and 2010 was $1.9 million , $3.0 million and $1.7 million , respectively. The total intrinsic value of options outstanding at December 31, 2012 , 2011 and 2010 was $5.0 million , $3.3 million and $7.2 million , respectively. We generally do not permit the net cash settlement of exercised stock options, but do permit net share settlement so long as the shares received are held for at least one year. We have a policy of issuing new shares to satisfy stock option exercises.

- Time-Based Restricted Stock

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

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

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2009	316,074		 	$	28.60		
Awarded and issued (1)	88,930		 	29.05		
Vested (2)  	(138,745	)	 	31.81		
Forfeited	(1,933	)	 	25.86		
Restricted shares outstanding at December 31, 2010	264,326		 	27.08		
Awarded and issued (1)	76,966		 	33.70		
Vested (2) 	(116,631	)	 	30.64		
Restricted shares outstanding at December 31, 2011	224,661		 	28.02		
Awarded and issued (1)	90,983		 	32.27		
Vested (2) 	(92,239	)	 	27.14		
Forfeited	(903	)	 	30.12		
Restricted shares outstanding at December 31, 2012	222,502		 	$	30.31		
__________
		
(1)	The fair value at grant date of time-based restricted stock issued during the years ended December 31, 2012 , 2011 and 2010 was $2.9 million , $2.6 million and $2.6 million , respectively.	
		
(2)	The vesting date fair value of time-based restricted stock that vested during the years ended December 31, 2012 , 2011 and 2010 was $2.9 million , $3.9 million and $4.3 million , respectively. Vested shares include those shares repurchased for withholding taxes.	

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

		
13.	Employee Benefit Plans - Continued	

- Total Return-Based Restricted Stock

During 2012 , 2011 and 2010 , we issued shares of total return-based restricted stock to officers that will vest from zero to 250% based on (1) our absolute total returns for certain pre-determined three -year periods relative to defined target returns and (2) whether our total return exceeds the average total returns of a selected group of peer companies. The grant date fair value of such shares of total return-based restricted stock was determined to be $38.71 , $41.02 and $29.05 , respectively, of the market value of a share of Common Stock as of the grant date and is amortized over the respective three-year period. The fair values of the total return-based restricted stock granted were determined at the grant dates using the following assumptions:

	
									
 	2012	 	2011	 	2010	
Risk free interest rate (1)  	0.4	%	 	1.0	%	 	1.3	%	
Common stock dividend yield (2)  	5.4	%	 	5.4	%	 	5.6	%	
Expected volatility (3)  	43.7	%	 	42.8	%	 	42.5	%	
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the total return-based restricted stock grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one -year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related total return-based restricted stock grant.	

The following table sets forth total return-based restricted stock activity:

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2009	202,775		 	$	22.05		
Awarded and issued (1)	77,624		 	29.05		
Vested (2)	(47,257	)	 	38.50		
Forfeited	(1,307	)	 	22.99		
Restricted shares outstanding at December 31, 2010	231,835		 	21.03		
Awarded and issued (1)	57,386		 	41.02		
Vested (2)	(66,417	)	 	13.79		
Forfeited	(99,975	)	 	13.79		
Restricted shares outstanding at December 31, 2011	122,829		 	34.86		
Awarded and issued (1)	67,902		 	38.71		
Vested (2)	(32,722	)	 	29.47		
Forfeited	(32,721	)	 	29.47		
Restricted shares outstanding at December 31, 2012	125,288		 	$	32.87		
__________
		
(1)	The fair value at grant date of total return-based restricted stock issued during the years ended December 31, 2012 , 2011 and 2010 was $2.6 million , $2.4 million and $2.3 million , respectively. There were no performance-based restricted stock issued subsequent to 2008.	
		
(2)	The vesting date fair value of total return-based and other types of performance-based restricted stock that vested during the years ended December 31, 2012 , 2011 and 2010 was $1.1 million , $2.0 million and $1.6 million , respectively. Vested shares include those shares repurchased for withholding taxes.	

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

		
13.	Employee Benefit Plans - Continued	

Retirement Plan

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

Deferred Compensation

Prior to 2010, officers could elect to defer all or a portion of their base salary and/or amounts earned under our annual non-equity incentive plan, which was then invested in unrelated mutual funds under our non-qualified deferred compensation plan. These investments are recorded at fair value, which aggregated $3.4 million and $3.1 million at December 31, 2012 and 2011 , respectively, and are included in prepaid expenses and other assets, with an offsetting deferred compensation liability recorded in accounts payable, accrued expenses and other liabilities. Deferred amounts ultimately payable to the officers and directors are based on the value of the related mutual fund investments. Accordingly, changes in the value of the unrelated mutual funds are recorded in interest and other income and the corresponding offsetting changes in the deferred compensation liability are recorded in general and administration expense. As a result, there is no effect on our net income. Prior to 2006, officers could elect to defer cash compensation for investment in units of phantom stock. At the end of each calendar quarter, any person who deferred compensation into phantom stock was credited with units of phantom stock at a 15% discount. Dividends on the phantom units were assumed to be issued in additional units of phantom stock at a 15% discount. By the terms of the plan, the cash value of all phantom stock outstanding under the plan was reinvested in unrelated mutual funds as of December 31, 2011.

The following table sets forth our deferred compensation liability:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Beginning deferred compensation liability	$	3,149		 	$	4,091		 	$	6,898		
Contributions to deferred compensation plans	—		 	545		 	229		
Mark-to-market adjustment to deferred compensation (in general and administrative expenses)	475		 	(119	)	 	246		
Distributions from deferred compensation plans	(270	)	 	(1,368	)	 	(3,282	)	
Total deferred compensation liability	$	3,354		 	$	3,149		 	$	4,091		

401(k) Savings Plan

We have a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. We contribute amounts for each participant at a rate of 75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary and cash incentives subject to statutory limits). During the years ended December 31, 2012 , 2011 and 2010 , we contributed $1.0 million , $1.1 million and $1.0 million , respectively, to the 401(k) savings plan. The assets of this qualified plan are not included in our Consolidated Financial Statements since the assets are not owned by us. Administrative expenses of the plan are paid by us.

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

		
13.	Employee Benefit Plans - Continued	

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan pursuant to which employees generally may contribute up to 25% of their cash compensation for the purchase of Common Stock. At the end of each three-month offering period, each participant's account balance, which includes accrued dividends, is applied to acquire shares of Common Stock at a cost that is calculated at 85% of the average closing price on the New York Stock Exchange on the five consecutive days preceding the last day of the quarter. In the years ended December 31, 2012 , 2011 and 2010 , the Company issued 34,126 , 30,826 and 27,378 shares, respectively, of Common Stock under the Employee Stock Purchase Plan. The discount on newly issued shares is expensed by us as additional compensation and aggregated $0.2 million , $0.2 million and $0.1 million in the years ended December 31, 2012 , 2011 and 2010 , respectively.

14.	Accumulated Other Comprehensive Loss	

The following table sets forth the components of accumulated other comprehensive loss:

	
								
 	December 31,	
 	2012	 	2011	
Tax increment financing bond:	 	 	 	
Beginning balance	$	(2,309	)	 	$	(2,543	)	
Unrealized gains on tax increment financing bond	411		 	234		
Ending balance	(1,898	)	 	(2,309	)	
Cash flow hedges:	 	 	 	
Beginning balance	(3,425	)	 	(1,105	)	
Unrealized losses on cash flow hedges	(10,358	)	 	(2,202	)	
Amortization of cash flow hedges	3,053		 	(118	)	
Ending balance	(10,730	)	 	(3,425	)	
Total accumulated other comprehensive loss	$	(12,628	)	 	$	(5,734	)	

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

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

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Contractual rents, net	$	439,610		 	$	402,275		 	$	379,554		
Straight-line rental income, net	18,775		 	12,173		 	10,582		
Amortization of lease incentives	(1,424	)	 	(1,342	)	 	(1,202	)	
Cost recovery income, net	41,289		 	35,561		 	41,101		
Lease termination fees	1,848		 	2,439		 	2,938		
Fee income	4,965		 	5,571		 	5,466		
Other miscellaneous operating revenues	11,039		 	6,767		 	2,397		
 	$	516,102		 	$	463,444		 	$	440,836		

The following table sets forth scheduled future minimum base rents to be received from customers for leases in effect at December 31, 2012 for the Wholly Owned Properties:

	
				
2013	$	463,913		
2014	430,278		
2015	378,021		
2016	325,970		
2017	267,530		
Thereafter	878,894		
 	$	2,744,606		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Utilities, insurance and real estate taxes	$	100,956		 	$	92,119		 	$	86,013		
Maintenance, cleaning and general building	69,026		 	58,910		 	54,422		
Property management and administrative expenses	12,542		 	11,295		 	10,832		
Other miscellaneous operating expenses	4,910		 	5,529		 	4,504		
 	$	187,434		 	$	167,853		 	$	155,771		

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

		
16.	Discontinued Operations	

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Rental and other revenues	$	10,120		 	$	21,002		 	$	23,917		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	3,766		 	8,865		 	9,273		
Depreciation and amortization	2,009		 	5,256		 	5,926		
Total operating expenses	5,775		 	14,121		 	15,199		
Interest expense	283		 	489		 	421		
Income from discontinued operations	4,062		 	6,392		 	8,297		
Net gains/(losses) on disposition of discontinued operations	29,455		 	2,573		 	(86	)	
Total discontinued operations	$	33,517		 	$	8,965		 	$	8,211		
Carrying value of assets held for sale and assets sold that qualified for discontinued operations during the year	$	122,861		 	$	137,237		 	$	165,243		

The following table sets forth the major classes of assets and liabilities of our real estate and other assets, net, held for sale and liabilities held for sale:

	
								
 	December 31,	
 	2012	 	2011	
Assets:	 	 	 	
Land	$	—		 	$	14,077		
Buildings and tenant improvements	—		 	135,013		
Less - accumulated depreciation	—		 	(32,254	)	
Net real estate assets	—		 	116,836		
Accrued straight-line rents receivable	—		 	6,520		
Deferred leasing costs, net	—		 	811		
Prepaid expenses and other assets	—		 	106		
Real estate and other assets, net, held for sale	$	—		 	$	124,273		
Liabilities:	 	 	 	
Mortgages and notes payable	$	—		 	$	34,307		
Accrued expenses and other liabilities	—		 	214		
Financing obligations	—		 	1,294		
Liabilities held for sale	$	—		 	$	35,815		

As of December 31, 2012 , there were no real estate and other assets, net, held for sale. As of December 31, 2011 , real estate and other assets, net, held for sale included five office properties in Nashville, TN, one office property in Pinellas County, FL, one office property and 96 residential units in Kansas City, MO and three buildings in Jackson, MS and Atlanta, GA. All of these properties qualified for discontinued operations in 2012. 

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

		
17.	Earnings Per Share	

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Earnings per Common Share - basic:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	50,718		 	$	39,006		 	$	64,092		
Net (income) attributable to noncontrolling interests in the Operating Partnership from continuing operations	(2,260	)	 	(1,645	)	 	(2,905	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(786	)	 	(755	)	 	(485	)	
Dividends on Preferred Stock	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Income from continuing operations available for common stockholders	45,164		 	30,158		 	53,994		
Income from discontinued operations	33,517		 	8,965		 	8,211		
Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations	(1,594	)	 	(446	)	 	(415	)	
Income from discontinued operations available for common stockholders	31,923		 	8,519		 	7,796		
Net income available for common stockholders	$	77,087		 	$	38,677		 	$	61,790		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Share – weighted average shares (1) (2)	75,811		 	72,281		 	71,578		
Earnings per Common Share - basic:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.60		 	$	0.42		 	$	0.75		
Income from discontinued operations available for common stockholders	0.42		 	0.12		 	0.11		
Net income available for common stockholders	$	1.02		 	$	0.54		 	$	0.86		
Earnings per Common Share - diluted:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	50,718		 	$	39,006		 	$	64,092		
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(786	)	 	(755	)	 	(485	)	
Dividends on Preferred Stock	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership	47,424		 	31,803		 	56,899		
Income from discontinued operations available for common stockholders	33,517		 	8,965		 	8,211		
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership	$	80,941		 	$	40,768		 	$	65,110		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Share –weighted average shares (1) (2)	75,811		 	72,281		 	71,578		
Add:	 	 	 	 	 	
Stock options using the treasury method	122		 	136		 	198		
Noncontrolling interests Common Units	3,745		 	3,772		 	3,802		
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions ( 1)	79,678		 	76,189		 	75,578		
Earnings per Common Share - diluted:	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.60		 	$	0.42		 	$	0.75		
Income from discontinued operations available for common stockholders	0.42		 	0.12		 	0.11		
Net income available for common stockholders	$	1.02		 	$	0.54		 	$	0.86		
__________

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

		
17.	Earnings Per Share - Continued	

(1)	There were 0.5 million , 0.4 million and 0.7 million options outstanding during the years ended December 31, 2012 , 2011 and 2010 , respectively, that were not included in the computation of diluted earnings per share because the impact of including such options would be anti-dilutive .	
		
(2)	Includes all unvested restricted stock since dividends on such restricted stock are non-forfeitable.	

18.	Income Taxes	

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

The minimum dividend per share of Common Stock required for us to maintain our REIT status was $1.07 , $1.01 and $0.32 per share in 2012 , 2011 and 2010 , respectively. Continued qualification as a REIT depends on our ability to satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests prescribed in the Code. The tax basis of our assets (net of accumulated tax depreciation and amortization) and liabilities was approximately $2.9 billion and $2.0 billion , respectively, at December 31, 2012 and $2.7 billion and $2.0 billion , respectively, at  December 31, 2011 .

During the years ended December 31, 2012 , 2011 and 2010 , the Company qualified as a REIT, distributed the necessary amount of taxable income and, therefore, incurred no federal income tax expense; accordingly, the only federal income taxes included in the accompanying consolidated financial statements are in connection with our taxable REIT subsidiary.

The taxable REIT subsidiary has operated at a cumulative taxable loss through December 31, 2012 of $4.7 million . In addition to the $2.1 million deferred tax asset for these cumulative tax loss carryforwards, the taxable REIT subsidiary also had net deferred tax liabilities of $2.2 million comprised primarily of tax versus book basis differences in certain investments held by the taxable REIT subsidiary. At December 31, 2011, the taxable REIT subsidiary had a $0.4 million net deferred asset position that was fully reserved with a valuation allowance. The taxable REIT subsidiary incurred $0.1 million of deferred income tax expense in 2012, including the release of this valuation allowance. Income taxes are not material to our operating results or financial position.

We recorded state income tax expense in rental property and other expenses of $0.1 million , $0.1 million and $0.1 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

We are subject to federal, state and local income tax examinations by tax authorities for 2009 through 2012 .

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

		
19.	Segment Information	

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

Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States and, at December 31, 2012 , no single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues on an annualized basis.

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Rental and Other Revenues: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	61,947		 	$	49,521		 	$	44,480		
Greenville, SC	13,395		 	14,076		 	13,612		
Kansas City, MO	15,003		 	13,795		 	14,160		
Memphis, TN	36,832		 	36,801		 	31,479		
Nashville, TN	56,542		 	53,645		 	52,159		
Orlando, FL	11,169		 	10,233		 	11,611		
Piedmont Triad, NC	21,569		 	20,645		 	21,163		
Pittsburgh, PA	38,796		 	10,963		 	—		
Raleigh, NC	81,624		 	78,638		 	75,714		
Richmond, VA	47,310		 	47,525		 	47,175		
Tampa, FL	69,381		 	68,240		 	71,060		
Total Office Segment	453,568		 	404,082		 	382,613		
Industrial:	 	 	 	 	 	
Atlanta, GA	12,805		 	13,266		 	12,335		
Piedmont Triad, NC	12,518		 	11,827		 	12,372		
Total Industrial Segment	25,323		 	25,093		 	24,707		
Retail:	 	 	 	 	 	
Kansas City, MO	37,211		 	34,269		 	33,516		
Total Retail Segment	37,211		 	34,269		 	33,516		
Total Rental and Other Revenues	$	516,102		 	$	463,444		 	$	440,836		

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

		
19.	Segment Information - Continued	

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Net Operating Income: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	39,306		 	$	31,077		 	$	27,607		
Greenville, SC	7,612		 	8,333		 	8,142		
Kansas City, MO	9,516		 	8,374		 	8,824		
Memphis, TN	21,848		 	20,874		 	18,640		
Nashville, TN	38,831		 	36,586		 	35,451		
Orlando, FL	5,841		 	5,187		 	6,256		
Piedmont Triad, NC	13,325		 	13,041		 	13,886		
Pittsburgh, PA	19,545		 	5,450		 	—		
Raleigh, NC	56,628		 	54,699		 	52,347		
Richmond, VA	32,407		 	31,281		 	32,035		
Tampa, FL	43,114		 	42,371		 	44,622		
Total Office Segment	287,973		 	257,273		 	247,810		
Industrial:	 	 	 	 	 	
Atlanta, GA	9,282		 	9,780		 	8,734		
Piedmont Triad, NC	9,149		 	8,652		 	9,037		
Total Industrial Segment	18,431		 	18,432		 	17,771		
Retail:	 	 	 	 	 	
Kansas City, MO	22,528		 	20,157		 	19,927		
Total Retail Segment	22,528		 	20,157		 	19,927		
Residential:	 	 	 	 	 	
Raleigh, NC	(178	)	 	(195	)	 	(362	)	
Total Residential Segment	(178	)	 	(195	)	 	(362	)	
Corporate and other (2)	(86	)	 	(76	)	 	(81	)	
Total Net Operating Income	328,668		 	295,591		 	285,065		
Reconciliation to income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates:	 	 	 	 	 	
Depreciation and amortization	(156,318	)	 	(137,890	)	 	(130,232	)	
Impairments of real estate assets	—		 	(2,429	)	 	—		
General and administrative expenses	(37,377	)	 	(35,727	)	 	(32,948	)	
Interest expense	(96,114	)	 	(95,510	)	 	(92,951	)	
Other income	6,380		 	7,363		 	5,657		
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	$	45,239		 	$	31,398		 	$	34,591		
__________
		
(1)	Net of discontinued operations.	
		
(2)	Negative NOI with no corresponding revenues represents expensed real estate taxes and other carrying costs associated with land held for development that is currently zoned for the respective product type.	

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

		
19.	Segment Information - Continued	

	
								
 	December 31,	
 	2012	 	2011	
Total Assets:	 	 	 	
Office:	 	 	 	
Atlanta, GA	$	495,175		 	$	359,225		
Greenville, SC	69,138		 	69,669		
Kansas City, MO	84,538		 	86,028		
Memphis, TN	225,541		 	265,259		
Nashville, TN	314,705		 	325,272		
Orlando, FL	51,373		 	46,547		
Piedmont Triad, NC	144,404		 	115,096		
Pittsburgh, PA	330,975		 	227,965		
Raleigh, NC	479,995		 	468,494		
Richmond, VA	246,276		 	254,364		
Tampa, FL	386,676		 	394,569		
Total Office Segment	2,828,796		 	2,612,488		
Industrial:	 	 	 	
Atlanta, GA	115,330		 	133,640		
Piedmont Triad, NC	76,013		 	78,081		
Total Industrial Segment	191,343		 	211,721		
Retail:	 	 	 	
Kansas City, MO	166,030		 	170,717		
Total Retail Segment	166,030		 	170,717		
Residential:	 	 	 	
Kansas City, MO	—		 	5,707		
Raleigh, NC	8		 	4,768		
Total Residential Segment	8		 	10,475		
Corporate and other	164,251		 	175,591		
Total Assets	$	3,350,428		 	$	3,180,992		

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

		
20.	Quarterly Financial Data (Unaudited)	

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

	
																				
 	Year Ended December 31, 2012	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	125,583		 	$	128,323		 	$	128,214		 	$	133,982		 	$	516,102		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	11,419		 	11,377		 	12,313		 	15,609		 	50,718		
Income from discontinued operations (1)	6,913		 	3,121		 	23,483		 	—		 	33,517		
Net income	18,332		 	14,498		 	35,796		 	15,609		 	84,235		
Net (income) attributable to noncontrolling interests in the Operating Partnership	(827	)	 	(686	)	 	(1,653	)	 	(688	)	 	(3,854	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(184	)	 	(223	)	 	(159	)	 	(220	)	 	(786	)	
Dividends on Preferred Stock	(627	)	 	(627	)	 	(627	)	 	(627	)	 	(2,508	)	
Net income available for common stockholders	$	16,694		 	$	12,962		 	$	33,357		 	$	14,074		 	$	77,087		
Earnings per Common Share-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.14		 	$	0.13		 	$	0.15		 	$	0.18		 	$	0.60		
Income from discontinued operations available for common stockholders	0.09		 	0.04		 	0.29		 	—		 	0.42		
Net income available for common stockholders	$	0.23		 	$	0.17		 	$	0.44		 	$	0.18		 	$	1.02		
Earnings per Common Share-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.14		 	$	0.13		 	$	0.14		 	$	0.18		 	$	0.60		
Income from discontinued operations available for common stockholders	0.09		 	0.04		 	0.29		 	—		 	0.42		
Net income available for common stockholders	$	0.23		 	$	0.17		 	$	0.43		 	$	0.18		 	$	1.02		

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

		
20.	Quarterly Financial Data (Unaudited)	

	
																				
 	Year Ended December 31, 2011	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	110,047		 	$	112,185		 	$	117,265		 	$	123,947		 	$	463,444		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	10,671		 	12,572		 	3,957		 	11,806		 	39,006		
Income from discontinued operations (1)	1,772		 	1,862		 	4,287		 	1,044		 	8,965		
Net income	12,443		 	14,434		 	8,244		 	12,850		 	47,971		
Net (income) attributable to noncontrolling interests in the Operating Partnership	(507	)	 	(623	)	 	(366	)	 	(595	)	 	(2,091	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(123	)	 	(182	)	 	(249	)	 	(201	)	 	(755	)	
Dividends on Preferred Stock	(1,677	)	 	(1,622	)	 	(627	)	 	(627	)	 	(4,553	)	
Excess of Preferred Stock redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		 	—		 	(1,895	)	
Net income available for common stockholders	$	10,136		 	$	10,112		 	$	7,002		 	$	11,427		 	$	38,677		
Earnings per Common Share-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.12		 	$	0.12		 	$	0.04		 	$	0.14		 	$	0.42		
Income from discontinued operations available for common stockholders	0.02		 	0.02		 	0.06		 	0.02		 	0.12		
Net income available for common stockholders	$	0.14		 	$	0.14		 	$	0.10		 	$	0.16		 	$	0.54		
Earnings per Common Share-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common stockholders	$	0.12		 	$	0.12		 	$	0.04		 	$	0.14		 	$	0.42		
Income from discontinued operations available for common stockholders	0.02		 	0.02		 	0.06		 	0.02		 	0.12		
Net income available for common stockholders	$	0.14		 	$	0.14		 	$	0.10		 	$	0.16		 	$	0.54		
__________

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

		
20.	Quarterly Financial Data (Unaudited) – Continued	

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

	
												
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	
 	2012	 	2012	 	2012	
Rental and other revenues, as reported	$	129,943		 	$	130,735		 	$	128,214		
Discontinued operations	(4,360	)	 	(2,412	)	 	—		
Rental and other revenues, as adjusted	$	125,583		 	$	128,323		 	$	128,214		
Income from continuing operations, as reported	$	13,115		 	$	12,357		 	$	12,313		
Discontinued operations	(1,696	)	 	(980	)	 	—		
Income from continuing operations, as adjusted	$	11,419		 	$	11,377		 	$	12,313		
Income from discontinued operations, as reported	$	5,217		 	$	2,141		 	$	23,483		
Additional discontinued operations from properties sold subsequent to the respective reporting period	1,696		 	980		 	—		
Income from discontinued operations, as adjusted	$	6,913		 	$	3,121		 	$	23,483		

	
																
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	 	December 31,	
 	2011	 	2011	 	2011	 	2011	
Rental and other revenues, as reported	$	114,351		 	$	114,651		 	$	117,265		 	$	128,730		
Discontinued operations	(4,304	)	 	(2,466	)	 	—		 	(4,783	)	
Rental and other revenues, as adjusted	$	110,047		 	$	112,185		 	$	117,265		 	$	123,947		
Income from continuing operations, as reported	$	11,903		 	$	13,695		 	$	3,957		 	$	12,850		
Discontinued operations	(1,232	)	 	(1,123	)	 	—		 	(1,044	)	
Income from continuing operations, as adjusted	$	10,671		 	$	12,572		 	$	3,957		 	$	11,806		
Income from discontinued operations, as reported	$	540		 	$	739		 	$	4,287		 	$	—		
Additional discontinued operations from properties sold subsequent to the respective reporting period	1,232		 	1,123		 	—		 	1,044		
Income from discontinued operations, as adjusted	$	1,772		 	$	1,862		 	$	4,287		 	$	1,044		

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

		
21.	Subsequent Events	

In early January 2013 , the Company issued 198,177 shares of Common Stock under the equity distribution agreements at an average gross price of $33.97 per share and received net proceeds, after sales commissions and expenses, of $6.6 million .

On January 9, 2013 , we acquired two office buildings encompassing 195,000 square feet in Greensboro, NC for a total purchase price of $30.9 million . We expect to expense $0.2 million of costs related to this acquisition. Due to the limited time since the acquisition date, our initial accounting for this transaction is incomplete and, as such, we are unable to provide purchase price allocation disclosures. The operating results of this acquisition will be included in our 2013 consolidated financial results from the date of acquisition.

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

We have audited the accompanying consolidated balance sheets of Highwoods Realty Limited Partnership and subsidiaries (the "Operating Partnership") as of December 31, 2012 and 2011 , and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the three years in the period ended December 31, 2012 . Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Highwoods Realty Limited Partnership and subsidiaries as of December 31, 2012 and 2011 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 12, 2013

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

								
 	December 31,	
 	2012	 	2011	
Assets:	 	 	 	
Real estate assets, at cost:	 	 	 	
Land	$	374,212		 	$	355,694		
Buildings and tenant improvements	3,304,468		 	3,009,155		
Development in process	21,198		 	—		
Land held for development	117,784		 	105,206		
 	3,817,662		 	3,470,055		
Less-accumulated depreciation	(947,567	)	 	(869,046	)	
Net real estate assets	2,870,095		 	2,601,009		
For-sale residential condominiums	—		 	4,751		
Real estate and other assets, net, held for sale	—		 	124,273		
Cash and cash equivalents	13,867		 	11,151		
Restricted cash	19,702		 	26,666		
Accounts receivable, net of allowance of $2,848 and $3,548, respectively	23,073		 	30,093		
Mortgages and notes receivable, net of allowance of $182 and $61, respectively	25,472		 	18,600		
Accrued straight-line rents receivable, net of allowance of $929 and $1,294, respectively	116,992		 	99,490		
Investments in and advances to unconsolidated affiliates	65,813		 	99,296		
Deferred financing and leasing costs, net of accumulated amortization of $77,383 and $62,319, respectively	170,023		 	127,774		
Prepaid expenses and other assets, net of accumulated amortization of $12,318 and $15,089,
respectively	44,488		 	36,781		
Total Assets	$	3,349,525		 	$	3,179,884		
Liabilities, Redeemable Operating Partnership Units and Equity:	 	 	 	
Mortgages and notes payable	$	1,859,162		 	$	1,868,906		
Accounts payable, accrued expenses and other liabilities	172,026		 	148,607		
Financing obligations	29,358		 	30,150		
Liabilities held for sale	—		 	35,815		
Total Liabilities	2,060,546		 	2,083,478		
Commitments and contingencies		 		
Redeemable Operating Partnership Units:	 	 	 	
Common Units, 3,733,016 and 3,729,518 outstanding, respectively	124,869		 	110,655		
Series A Preferred Units (liquidation preference $1,000 per unit), 29,077 units issued and
outstanding	29,077		 	29,077		
Total Redeemable Operating Partnership Units	153,946		 	139,732		
Equity:	 	 	 	
Common Units:	 	 	 	
General partner Common Units, 836,356 and 759,684 outstanding, respectively	11,427		 	9,575		
Limited partner Common Units, 79,066,272 and 71,479,204 outstanding, respectively	1,131,481		 	948,187		
Accumulated other comprehensive loss	(12,628	)	 	(5,734	)	
Noncontrolling interests in consolidated affiliates	4,753		 	4,646		
Total Equity	1,135,033		 	956,674		
Total Liabilities, Redeemable Operating Partnership Units and Equity	$	3,349,525		 	$	3,179,884		
See accompanying notes to consolidated financial statements.

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

												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Rental and other revenues	$	516,102		 	$	463,444		 	$	440,836		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	187,185		 	167,827		 	155,411		
Depreciation and amortization	156,318		 	137,890		 	130,232		
Impairments of real estate assets	—		 	2,429		 	—		
General and administrative	37,626		 	35,753		 	33,308		
Total operating expenses	381,129		 	343,899		 	318,951		
Interest expense:	 	 	 	 	 	
Contractual	92,838		 	91,458		 	87,409		
Amortization of deferred financing costs	3,685		 	3,312		 	3,385		
Financing obligations	(409	)	 	740		 	2,157		
 	96,114		 	95,510		 	92,951		
Other income:	 	 	 	 	 	
Interest and other income	7,353		 	7,387		 	6,362		
Losses on debt extinguishment	(973	)	 	(24	)	 	(705	)	
 	6,380		 	7,363		 	5,657		
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	45,239		 	31,398		 	34,591		
Gains on disposition of property	—		 	764		 	74		
Gains/(losses) on for-sale residential condominiums	444		 	(316	)	 	276		
Gains on disposition of investments in unconsolidated affiliates	—		 	2,282		 	25,330		
Equity in earnings of unconsolidated affiliates	5,095		 	4,939		 	3,794		
Income from continuing operations	50,778		 	39,067		 	64,065		
Discontinued operations:	 	 	 	 	 	
Income from discontinued operations	4,062		 	6,392		 	8,297		
Net gains/(losses) on disposition of discontinued operations	29,455		 	2,573		 	(86	)	
 	33,517		 	8,965		 	8,211		
Net income	84,295		 	48,032		 	72,276		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(786	)	 	(755	)	 	(485	)	
Distributions on Preferred Units	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Unit redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Net income available for common unitholders	$	81,001		 	$	40,829		 	$	65,083		
Earnings per Common Unit – basic:	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.60		 	0.42		 	0.76		
Income from discontinued operations available for common unitholders	0.42		 	0.12		 	0.11		
Net income available for common unitholders	1.02		 	0.54		 	0.87		
Weighted average Common Units outstanding – basic	79,147		 	75,644		 	74,971		
Earnings per Common Unit – diluted:	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.60		 	0.42		 	0.76		
Income from discontinued operations available for common unitholders	0.42		 	0.12		 	0.11		
Net income available for common unitholders	1.02		 	0.54		 	0.87		
Weighted average Common Units outstanding – diluted	79,269		 	75,780		 	75,169		
Net income available for common unitholders:	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	47,484		 	$	31,864		 	$	56,872		
Income from discontinued operations available for common unitholders	33,517		 	8,965		 	8,211		
Net income available for common unitholders	$	81,001		 	$	40,829		 	$	65,083		
See accompanying notes to consolidated financial statements.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Comprehensive Income
(in thousands)

												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Comprehensive income:	 	 	 	 	 	
Net income	$	84,295		 	$	48,032		 	$	72,276		
Other comprehensive income/(loss):	 	 	 	 	 	
Unrealized gains/(losses) on tax increment financing bond	411		 	234		 	(177	)	
Unrealized losses on cash flow hedges	(10,358	)	 	(2,202	)	 	—		
Amortization of cash flow hedges	3,053		 	(118	)	 	237		
Sale of cash flow hedge related to disposition of investments in unconsolidated affiliate	—		 	—		 	103		
Total other comprehensive income/(loss)	(6,894	)	 	(2,086	)	 	163		
Total comprehensive income	77,401		 	45,946		 	72,439		
Less-comprehensive (income) attributable to noncontrolling interests	(786	)	 	(755	)	 	(485	)	
Comprehensive income attributable to common unitholders	$	76,615		 	$	45,191		 	$	71,954		

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

	
																				
 	Common Units	 	Accumulated
Other
Comprehensive Loss	 	Noncontrolling
Interests in
Consolidated
Affiliates	 	Total Partners’
Capital	
 	General
Partners’
Capital	 	Limited
Partners’
Capital	 						
Balance at December 31, 2009	$	10,485		 	$	1,038,328		 	$	(3,811	)	 	$	5,183		 	$	1,050,185		
Issuances of Common Units, net	30		 	2,968		 	—		 	—		 	2,998		
Distributions paid on Common Units	(1,274	)	 	(126,143	)	 	—		 	—		 	(127,417	)	
Distributions paid on Preferred Units	(67	)	 	(6,641	)	 	—		 	—		 	(6,708	)	
Share-based compensation expense	66		 	6,506		 	—		 	—		 	6,572		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	(568	)	 	(568	)	
Acquisition of noncontrolling interest in consolidated affiliate	1		 	139		 	—		 	(640	)	 	(500	)	
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner	85		 	8,380		 	—		 	—		 	8,465		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(5	)	 	(480	)	 	—		 	485		 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	
Net income	723		 	71,553		 	—		 	—		 	72,276		
Other comprehensive income	—		 	—		 	163		 	—		 	163		
Total comprehensive income	 	 	 	 	 	 	 	 	72,439		
Balance at December 31, 2010	10,044		 	994,610		 	(3,648	)	 	4,460		 	1,005,466		
Issuances of Common Units, net	233		 	23,037		 	—		 	—		 	23,270		
Distributions paid on Common Units	(1,285	)	 	(127,178	)	 	—		 	—		 	(128,463	)	
Distributions paid on Preferred Units	(46	)	 	(4,507	)	 	—		 	—		 	(4,553	)	
Share-based compensation expense	61		 	6,033		 	—		 	—		 	6,094		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	(569	)	 	(569	)	
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner	96		 	9,387		 	—		 	—		 	9,483		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(8	)	 	(747	)	 	—		 	755		 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	
Net income	480		 	47,552		 	—		 	—		 	48,032		
Other comprehensive loss	—		 	—		 	(2,086	)	 	—		 	(2,086	)	
Total comprehensive income	 	 	 	 	 	 	 	 	45,946		
Balance at December 31, 2011	9,575		 	948,187		 	(5,734	)	 	4,646		 	956,674		
Issuances of Common Units, net	2,455		 	243,012		 	—		 	—		 	245,467		
Distributions paid on Common Units	(1,343	)	 	(132,948	)	 	—		 	—		 	(134,291	)	
Distributions paid on Preferred Units	(25	)	 	(2,483	)	 	—		 	—		 	(2,508	)	
Share-based compensation expense	76		 	7,537		 	—		 	—		 	7,613		
Distributions to noncontrolling interests in consolidated affiliates	—		 	—		 	—		 	(679	)	 	(679	)	
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner	(146	)	 	(14,498	)	 	—		 	—		 	(14,644	)	
Net (income) attributable to noncontrolling interests in consolidated affiliates	(8	)	 	(778	)	 	—		 	786		 	—		
Comprehensive income:	 	 	 	 	 	 	 	 	 	
Net income	843		 	83,452		 	—		 	—		 	84,295		
Other comprehensive loss	—		 	—		 	(6,894	)	 	—		 	(6,894	)	
Total comprehensive income	 	 	 	 	 	 	 	 	77,401		
Balance at December 31, 2012	$	11,427		 	$	1,131,481		 	$	(12,628	)	 	$	4,753		 	$	1,135,033		
See accompanying notes to consolidated financial statements.

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

												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Operating activities:	 	 	 	 	 	
Net income	$	84,295		 	$	48,032		 	$	72,276		
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	
Depreciation and amortization	158,327		 	143,146		 	136,158		
Amortization of lease incentives and acquisition-related intangible assets and liabilities	355		 	1,446		 	1,239		
Share-based compensation expense	7,613		 	6,094		 	6,572		
Allowance for losses on accounts and accrued straight-line rents receivable	1,059		 	2,521		 	4,009		
Amortization of deferred financing costs	3,685		 	3,312		 	3,385		
Amortization of cash flow hedges	3,053		 	(118	)	 	237		
Impairments of real estate assets	—		 	2,429		 	—		
Losses on debt extinguishment	973		 	24		 	705		
Net (gains)/losses on disposition of property	(29,455	)	 	(3,337	)	 	12		
(Gains)/losses on for-sale residential condominiums	(444	)	 	316		 	(276	)	
Gains on disposition of investments in unconsolidated affiliates	—		 	(2,282	)	 	(25,330	)	
Equity in earnings of unconsolidated affiliates	(5,095	)	 	(4,939	)	 	(3,794	)	
Changes in financing obligations	(1,282	)	 	(476	)	 	708		
Distributions of earnings from unconsolidated affiliates	4,592		 	5,005		 	4,377		
Changes in operating assets and liabilities:	 	 	 	 	 	
Accounts receivable	3,132		 	(8,498	)	 	(3,290	)	
Prepaid expenses and other assets	(1,129	)	 	(400	)	 	370		
Accrued straight-line rents receivable	(17,919	)	 	(13,604	)	 	(11,889	)	
Accounts payable, accrued expenses and other liabilities	(18,490	)	 	16,701		 	5,012		
Net cash provided by operating activities	193,270		 	195,372		 	190,481		
Investing activities:	 	 	 	 	 	
Investments in acquired real estate and related intangible assets, net of cash acquired	(269,847	)	 	(75,510	)	 	(20,281	)	
Investments in development in process	(13,288	)	 	(5,835	)	 	(223	)	
Investments in tenant improvements and deferred leasing costs	(79,639	)	 	(80,934	)	 	(55,858	)	
Investments in building improvements	(35,799	)	 	(22,287	)	 	(26,355	)	
Net proceeds from disposition of real estate assets	152,456		 	17,717		 	6,801		
Net proceeds from disposition of for-sale residential condominiums	5,195		 	3,020		 	4,952		
Proceeds from disposition of investments in unconsolidated affiliates	—		 	4,756		 	15,000		
Distributions of capital from unconsolidated affiliates	1,311		 	1,577		 	1,933		
Investments in mortgages receivable	(8,648	)	 	—		 	—		
Repayments of mortgages and notes receivable	1,776		 	444		 	329		
Investments in and advances/repayments to/from unconsolidated affiliates	8,291		 	(39,901	)	 	(2,875	)	
Changes in restricted cash and other investing activities	(620	)	 	(18,526	)	 	(1,576	)	
Net cash used in investing activities	(238,812	)	 	(215,479	)	 	(78,153	)	
Financing activities:	 	 	 	 	 	
Distributions on Common Units	(134,291	)	 	(128,463	)	 	(127,417	)	
Redemptions/repurchases of Preferred Units	—		 	(52,515	)	 	—		
Distributions on Preferred Units	(2,508	)	 	(4,553	)	 	(6,708	)	
Distributions to noncontrolling interests in consolidated affiliates	(679	)	 	(569	)	 	(568	)	
Acquisition of noncontrolling interest in consolidated affiliate	—		 	—		 	(500	)	
Proceeds from the issuance of Common Units	249,489		 	23,270		 	2,998		
Costs paid for the issuance of Common Units	(3,600	)	 	—		 	—		
Repurchase of units related to tax withholdings	(2,721	)	 	—		 	—		
Borrowings on revolving credit facility	524,100		 	525,800		 	37,500		
Repayments of revolving credit facility	(863,100	)	 	(193,800	)	 	(7,500	)	
Borrowings on mortgages and notes payable	507,350		 	200,000		 	10,368		
Repayments of mortgages and notes payable	(219,530	)	 	(344,203	)	 	(27,004	)	
Borrowings on financing obligations	1,839		 	—		 	—		
Payments on financing obligations	(1,316	)	 	(1,194	)	 	(1,116	)	
Payments on debt extinguishment	(908	)	 	—		 	(577	)	
Additions to deferred financing costs and other financing activities	(5,867	)	 	(6,713	)	 	(1,125	)	
Net cash provided by/(used in) financing activities	48,258		 	17,060		 	(121,649	)	

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Net increase/(decrease) in cash and cash equivalents	$	2,716		 	$	(3,047	)	 	$	(9,321	)	
Cash and cash equivalents at beginning of the period	11,151		 	14,198		 	23,519		
Cash and cash equivalents at end of the period	$	13,867		 	$	11,151		 	$	14,198		

Supplemental disclosure of cash flow information:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Cash paid for interest, net of amounts capitalized	$	93,547		 	$	90,838		 	$	86,395		

Supplemental disclosure of non-cash investing and financing activities:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Unrealized losses on cash flow hedges	$	(10,358	)	 	$	(2,202	)	 	$	—		
Changes in accrued capital expenditures	8,116		 	11,048		 	(1,946	)	
Write-off of fully depreciated real estate assets	48,978		 	48,565		 	43,955		
Write-off of fully amortized deferred financing and leasing costs	19,176		 	19,987		 	15,719		
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan	475		 	(119	)	 	382		
Settlement of financing obligation	—		 	—		 	4,184		
Adjustment of Redeemable Common Units to fair value	11,915		 	(10,183	)	 	(2,721	)	
Unrealized gain/(loss) on tax increment financing bond	411		 	234		 	(177	)	
Mortgages receivable from seller financing	—		 	—		 	17,030		
Assumption of mortgages and notes payable related to acquisition activities	7,837		 	192,367		 	40,306		
Reduction of advances to unconsolidated affiliates related to acquisition activities	26,000		 	—		 	—		
Issuances of Common Units to acquire real estate assets	2,299		 	—		 	—		
See accompanying notes to consolidated financial statements.

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HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
(tabular dollar amounts in thousands, except per unit data)

1.    Description of Business and Significant Accounting Policies

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At December 31, 2012 , the Company and/or the Operating Partnership wholly owned: 301 in-service office, industrial and retail properties, comprising 29.7 million square feet; 649 acres of undeveloped land suitable for future development, of which 566 acres are considered core assets; and one office development property. In addition, we owned interests ( 50.0% or less) in 32 in-service office properties, a rental residential development property and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At December 31, 2012 , the Company owned all of the Preferred Units and 79.9 million , or 95.6% , of the Common Units in the Operating Partnership. Limited partners, including two directors of the Company, own the remaining 3.7 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 required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $ 0.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During 2012 , the Company redeemed 63,366 Common Units for a like number of shares of Common Stock and the Operating Partnership issued 66,864 Common Units to acquire real estate assets. As a result of this activity, in conjunction with the proceeds from issuances of Common Stock contributed to the Operating Partnership in exchange for additional Common Units, the percentage of Common Units owned by the Company increased from 95.1% at December 31, 2011 to 95.6% at December 31, 2012 .

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2011 was retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale and liabilities held for sale those properties which qualified as held for sale during 2012 . Our Consolidated Statements of Income for the years ended December 31, 2011 and 2010 were retrospectively revised from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations during 2012 . Prior period amounts related to capital expenditures in our Consolidated Statements of Cash Flows have been disaggregated to conform to the current period presentation.

The Consolidated Financial Statements include wholly owned subsidiaries and those subsidiaries in which we own a majority voting interest with the ability to control operations of the subsidiaries and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. We consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of the entity through majority ownership or in our capacity as general partner or managing member. Five of the 50.0% or less owned in-service office properties are consolidated. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At December 31, 2012 , 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.

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

1.    Description of Business and Significant Accounting Policies – Continued

Use of Estimates

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

Real Estate and Related Assets

Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over initial fixed terms of the respective leases, which generally are from three to 10 years. Depreciation expense for real estate assets was $ 129.0 million , $ 120.8 million and $ 117.6 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

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

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

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

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

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.

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

1.    Description of Business and Significant Accounting Policies – Continued

In-place leases acquired are recorded at fair value in deferred financing and leasing costs and are amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer's credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
 
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the 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 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 impacts the anticipated holding period or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset's carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
 
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on our properties held for use.
 
We record assets held for sale, including for-sale residential condominiums, at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer, less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.
 
We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investee, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.

Sales of Real Estate
 
For sales transactions meeting the requirements for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have or receive an interest are accounted for using partial sale accounting.

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

1.    Description of Business and Significant Accounting Policies – Continued
 
For transactions that do not meet the criteria for a sale, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other alternate method of accounting, rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.

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

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 the customer pays its pro-rata share of operating and administrative expenses and real estate taxes in excess of a base year amount. The computation of cost recovery income is complex and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not uniform in dealing with such cost 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.
 
Discontinued Operations
 
Properties that are sold or classified as held for sale are classified as discontinued operations provided that (1) the operations and cash flows of the property will be eliminated from our ongoing operations and (2) we will not have any significant continuing involvement in the operations of the property after it is sold. Interest expense is included in discontinued operations if the related loan securing the sold property is to be paid off or assumed by the buyer in connection with the sale. If the property is sold to a joint venture in which we retain an interest, the property will not be accounted for as a discontinued operation due to our significant ongoing interest in the operations through our joint venture interest. If we are retained to provide property management, leasing and/or other services for the property owner after the sale, the property generally will be accounted for as a discontinued operation because the expected cash flows related to our management and leasing activities generally will not be significant in comparison to the cash flows from the property prior to sale.

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

1.    Description of Business and Significant Accounting Policies – Continued
 
Lease Incentives
 
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign the lease, are capitalized in deferred financing and leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
 
For-Sale Residential Condominiums
 
For-sale residential condominiums include completed, but unsold, condominium inventory. We initially record receipts of earnest money deposits in accounts payable, accrued expenses and other liabilities in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received. All for-sale residential condominiums were sold as of December 31, 2012.
 
Investments in Unconsolidated Affiliates
 
We account for our investments in less than majority owned joint ventures, partnerships and limited liability companies using the equity method of accounting when our interests represent a general partnership interest but substantive participating rights or substantive kick out rights have been granted to the limited partners or when our interests do not represent a general partnership interest and we do not control the major operating and financial policies of the entity. These investments are initially recorded at cost in investments in unconsolidated affiliates and are subsequently adjusted for our share of earnings and cash contributions and distributions. To the extent our cost basis at formation of the joint venture is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in our share of equity in earnings of unconsolidated affiliates.
 
Cash Equivalents
 
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
 
Restricted Cash
 
Restricted cash represents cash deposits that are legally restricted or held by third parties on our behalf, such as 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 accompanying balance sheet. The recorded value of the Redeemable Common Units is based on fair value at the balance sheet date as measured by the closing price of Common Stock on that date multiplied by the total number of Redeemable Common Units outstanding. The recorded value of the Preferred Units is based on their redemption value.

Income Taxes

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

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

1.    Description of Business and Significant Accounting Policies – Continued

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

Concentration of Credit Risk
  
At December 31, 2012 , our Wholly Owned Properties were leased to 1,711 customers. The geographic locations that comprise greater than 10.0% of our rental and other revenues are Raleigh, NC, Atlanta, GA, Tampa, FL, Nashville, TN and Kansas City, MO. Our customers engage in a wide variety of businesses. No single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues during 2012 .

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

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

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

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

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

1.    Description of Business and Significant Accounting Policies – Continued
 
Recently Issued Accounting Standards
 
As a result of adopting certain new or amended accounting pronouncements in the first quarter of 2012, we have enhanced our disclosure of assets and liabilities measured at fair value and elected to continue use of credit valuation adjustments on a net basis by counterparty as part of the calculation to determine the fair value of our derivatives. Our disclosures now include: (1) significant transfers between Levels 1 and 2 of the fair value hierarchy, if any; (2) additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy; and (3) the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but was disclosed previously in our Notes to Consolidated Financial Statements. Additionally, we have presented comprehensive income in a separate financial statement entitled Consolidated Statements of Comprehensive Income.

2.    Real Estate Assets

Acquisitions

During 2012, we acquired:

•	a 492,000 square foot office property in Atlanta, GA for a purchase price of $144.9 million ;	

•	a 616,000 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, contingent consideration with fair value at the acquisition date of $0.7 million , and the assumption of secured debt due August 2014 recorded at fair value of $7.9 million , with an effective interest rate of 4.06% ;	

•	a 178,300 square foot office property in Cary, NC from our DLF I 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	

•	68 acres of development land currently zoned for 1.3 million 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.  

The following table sets forth a summary of the assets acquired and liabilities assumed in the acquisition of the 492,000 square foot office building in Atlanta, GA discussed in the preceding paragraph:

	
				
 	Total
Purchase Price Allocation	
Real estate assets	$	135,128		
Acquisition-related intangible assets (in deferred financing and leasing costs)	21,637		
Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)	(11,875	)	
Total allocation	$	144,890		

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

2.      Real Estate Assets - Continued

The following table sets forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations and acquisition costs, assuming the 492,000 square foot office building in Atlanta, GA discussed in the preceding paragraphs had been acquired on January 1, 2011:

	
								
 	Year Ended December 31,	
 	2012	 	2011	
 	(unaudited)	
Pro forma rental and other revenues	$	530,613		 	$	479,908		
Pro forma net income	$	84,195		 	$	44,878		
Pro forma earnings per share - basic	$	1.02		 	$	0.50		
Pro forma earnings per share - diluted	$	1.02		 	$	0.50		
 
During 2011, we acquired a six-building, 1.54 million square foot office complex in Pittsburgh, PA for a purchase price of $ 188.5 million . The purchase price included the assumption of secured debt recorded at fair value of $ 124.5 million , with an effective interest rate of 4.27% , including amortization of deferred financing costs. This debt matures in November 2017 . We expensed $ 4.0 million of costs related to this acquisition (included in general and administrative expenses). Additionally, we acquired a 503,000 square foot office building in Atlanta, GA for a purchase price of $ 78.3 million . The purchase price included the assumption of secured debt recorded at fair value of $ 67.9 million , with an effective interest rate of 5.45% , including amortization of deferred financing costs. This debt matures in January 2014 . We expensed $ 0.3 million of costs related to this acquisition.
 
The following table sets forth a summary of the acquisition purchase price consideration for each major class of assets acquired and liabilities assumed in the acquisitions discussed above:

	
				
 	Total
Purchase Price Allocation	
Real estate assets	$	241,602		
Acquisition-related intangible assets (in deferred financing and leasing costs)	39,721		
Furniture, fixtures and equipment (in prepaid expenses and other assets)	1,101		
Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)	(15,627	)	
Total allocation	$	266,797		
 
The following table sets forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations and acquisition costs, assuming the 1.54 million square foot office complex in Pittsburgh, PA and the 503,000 square foot office building in Atlanta, GA discussed in the preceding paragraph had been acquired on January 1, 2010:

	
								
 	Year Ended December 31,	
 	2011	 	2010	
 	(unaudited)	
Pro forma rental and other revenues	$	505,072		 	$	491,573		
Pro forma net income	$	38,470		 	$	58,216		
Pro forma earnings per share - basic	$	0.51		 	$	0.78		
Pro forma earnings per share - diluted	$	0.51		 	$	0.77		

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

2.      Real Estate Assets - Continued

During 2011, we also acquired a 48,000 square foot medical office property in Raleigh, NC for $ 8.9 million and expensed $ 0.1 million of acquisition costs related to this transaction.

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

Dispositions

During 2012, we sold:

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

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

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

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

•	96 vacant non-core rental residential units in Kansas City, MO for a sale price of $11.0 million and recorded 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.	

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

During 2010, we sold seven office properties in Winston Salem, NC and six industrial properties in Greensboro, NC in two separate transactions for $ 24.9 million . In the aggregate, we received cash of $ 7.9 million , provided seller financing of $ 17.0 million and committed to lend up to an additional $ 1.7 million for tenant improvements and lease commissions, of which $ 0.2 million was funded as of December 31, 2012 . We have accounted for these dispositions using the installment method, whereby the $ 0.4 million gain on disposition of property related to the office properties has been deferred and will be recognized when the seller financing is repaid, and recorded impairment of $ 0.3 million related to the industrial properties. In 2010, we also recorded a completed sale in connection with the disposition of an office property in Raleigh, NC in the fourth quarter of 2009 where the buyer's limited right to compel us to repurchase the property expired and recorded a gain of $ 0.2 million .

Impairments

During 2011, we recorded impairments of real estate assets of $ 2.4 million related to two office properties located in Orlando, FL due to a change in the assumed timing of future dispositions, which reduced the future expected cash flows from the properties.

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

3.    Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

	
								
 	December 31,	
 	2012	 	2011	
Seller financing (first mortgages)	$	15,853		 	$	17,180		
Less allowance	—		 	—		
 	15,853		 	17,180		
Mortgage receivable	8,648		 	—		
Less allowance	—		 	—		
 	8,648		 	—		
Promissory notes	1,153		 	1,481		
Less allowance	(182	)	 	(61	)	
 	971		 	1,420		
Mortgages and notes receivable, net	$	25,472		 	$	18,600		

Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010 (see Note 2) and acquisition financing provided to a third party buyer of adjacent development land in Nashville, TN (see below).

The seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We evaluate the collectability of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of December 31, 2012 , the payments on both mortgages receivable were current and there were no other indicators of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

During 2012, we provided an $8.6 million loan to a third party, which was used by such third party to fund a portion of the purchase price to acquire 77 acres of mixed-use development land adjacent to our 68 -acre office development parcel in Nashville, TN. Initially, the loan is scheduled to mature in December 2015 and bears interest at 5.0% per year. The loan can be extended by the third party for up to three additional years, subject to applicable increases in the interest rate. We also agreed to loan such third party approximately $8.4 million to fund future infrastructure development on its 77 -acre development parcel. Both loans are or will be secured by the 77 -acre development parcel. We concluded this arrangement to be an interest in a variable interest entity. However, since we do not have the power to direct matters that most significantly impact the activities of the entity, we do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated and the arrangement is accounted for in mortgages and notes receivable in our Consolidated Balance Sheet at December 31, 2012 . Our risk of loss with respect to this arrangement is limited to the carrying value of the note receivable and the future infrastructure development funding commitment.

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

	
								
 	December 31,	
 	2012	 	2011	
Beginning notes receivable allowance	$	61		 	$	868		
Bad debt expense	186		 	196		
Recoveries/write-offs/other	(65	)	 	(1,003	)	
Total notes receivable allowance	$	182		 	$	61		

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

4.    Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financing policies. As a result, the assets and liabilities of these joint ventures are not included in our Consolidated Financial Statements.

The following table sets forth our ownership in unconsolidated affiliates at December 31, 2012 :

	
					
Joint Venture	 	Location of Properties	 	Ownership
Interest	
Concourse Center Associates, LLC	 	Greensboro, NC	 	50.0%	
Plaza Colonnade, LLC	 	Kansas City, MO	 	50.0%	
Lofts at Weston, LLC	 	Raleigh, NC	 	50.0%	
Board of Trade Investment Company	 	Kansas City, MO	 	49.0%	
Highwoods DLF 97/26 DLF 99/32, LP	 	Atlanta, GA; Greensboro, NC; Orlando, FL	 	42.9%	
Highwoods KC Glenridge Office, LLC	 	Atlanta, GA	 	40.0%	
Highwoods KC Glenridge Land, LLC	 	Atlanta, GA	 	39.9%	
HIW-KC Orlando, LLC	 	Orlando, FL	 	40.0%	
Kessinger/Hunter, LLC	 	Kansas City, MO	 	26.5%	
Highwoods DLF Forum, LLC	 	Raleigh, NC	 	25.0%	
Highwoods DLF 98/29, LLC	 	Atlanta, GA; Charlotte, NC; Greensboro, NC; Raleigh, NC; Orlando, FL	 	22.8%	

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

	
								
 	December 31,	
 	2012	 	2011	
Balance Sheets:	 	 	 	
Assets:	 	 	 	
Real estate assets, net	$	480,245		 	$	523,992		
All other assets, net	112,295		 	95,504		
Total Assets	$	592,540		 	$	619,496		
Liabilities and Partners’ or Shareholders’ Equity:	 	 	 	
Mortgages and notes payable (1)	$	360,944		 	$	396,977		
All other liabilities	23,983		 	21,121		
Partners’ or shareholders’ equity	207,613		 	201,398		
Total Liabilities and Partners’ or Shareholders’ Equity	$	592,540		 	$	619,496		
Our share of historical partners’ or shareholders’ equity	$	63,546		 	$	59,215		
Advances to unconsolidated affiliate	—		 	38,323		
Net excess of cost of investments over the net book value of underlying net assets (2)	$	2,267		 	$	1,758		
Carrying value of investments in and advances to unconsolidated affiliates	$	65,813		 	$	99,296		
Our share of unconsolidated non-recourse mortgage debt (1)	$	136,080		 	$	145,689		
__________

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

4.    Investments in and Advances to Affiliates – Continued
		
(1)	Our share of scheduled future principal payments, including amortization, due on mortgages and notes payable at December 31, 2012 is as follows:	

				
2013	$	23,427		
2014	57,130		
2015	21,786		
2016	1,017		
2017	26,412		
Thereafter	6,308		
 	$	136,080		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Income Statements:	 	 	 	 	 	
Rental and other revenues	$	97,225		 	$	96,771		 	$	115,826		
Expenses:	 	 	 	 	 	
Rental property and other expenses	45,391		 	42,052		 	54,695		
Depreciation and amortization	24,007		 	25,184		 	29,945		
Impairments of real estate assets	7,180		 	—		 	—		
Interest expense	20,296		 	23,062		 	27,187		
Total expenses	96,874		 	90,298		 	111,827		
Income before disposition of properties	351		 	6,473		 	3,999		
Gains on disposition of properties	11,184		 	—		 	—		
Net income	$	11,535		 	$	6,473		 	$	3,999		
Our share of:	 	 	 	 	 	
Depreciation and amortization	$	7,580		 	$	8,232		 	$	10,318		
Impairments of real estate assets	$	12,924		 	$	—		 	$	—		
Interest expense	$	7,286		 	$	8,075		 	$	10,449		
Gains on disposition of properties	$	1,120		 	$	—		 	$	—		
Net income	$	3,337		 	$	2,585		 	$	1,483		
 	 	 	 	 	 	
Our share of net income	$	3,337		 	$	2,585		 	$	1,483		
Adjustment for management and other fees	1,758		 	2,354		 	2,311		
Equity in earnings of unconsolidated affiliates	$	5,095		 	$	4,939		 	$	3,794		

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

4.    Investments in and Advances to Affiliates– Continued

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

- Lofts at Weston, LLC

During 2011, we and Ravin Partners, LLC (“Ravin”) formed Lofts at Weston, LLC, in which we have a 50.0% ownership interest. We contributed 15.0 acres of land at an agreed upon value of $2.4 million to this joint venture, and Ravin contributed $1.2 million in cash and agreed to guarantee the joint venture's development loan. The joint venture then distributed $1.2 million to us and we recorded a gain of $0.3 million on this transaction. Ravin manages and operates this joint venture, which is constructing 215 rental residential units at a total cost of $25.9 million, of which $15.2 million had been incurred as of December 31, 2012 . Ravin is the developer, manager and leasing agent and will receive customary fees from the joint venture.

- Highwoods DLF 97/26 DLF 99/32, L.P. (“DLF II”)
 
During 2012, DLF II obtained a $50.0 million, three-year secured mortgage loan from a third party lender, bearing a fixed interest rate of 3.5% on $39.1 million of the loan and a floating interest rate of LIBOR plus 250 basis points on $10.9 million of the loan, which was used by the joint venture to repay a secured loan at maturity to a third party lender.
 
- Kessinger/Hunter, LLC
 
Kessinger/Hunter, LLC, which is managed by our joint venture partner, provides leasing services to certain of our Wholly Owned Properties in Kansas City, MO in exchange for customary fees from us. Kessinger/Hunter, LLC received $1.1 million, $2.1 million and $0.8 million from us for these services in 2012 , 2011 and 2010 , respectively.
 
- Highwoods DLF 98/29, LLC (“DLF I”)
 
At the formation of this joint venture in 1999, our partner contributed excess cash to the venture that was distributed to us under the joint venture agreements. We are required to repay this excess cash to our partner over time, as discussed in Note 9.
 
During 2012, DLF I sold two office properties to third parties for $15.5 million and recorded gains on disposition of property of $4.9 million. We recorded $1.1 million as our proportionate share of these gains through equity in earnings of unconsolidated affiliates.

During 2012, we recorded $1.0 million as our share of impairments of real estate assets on two office properties in our DLF I joint venture, due to a decline in projected occupancy and a change in the assumed holding period of those assets, which reduced the expected future cash flows from the properties.

During 2011, we provided a $38.3 million interest-only secured loan to DLF I that was initially scheduled to mature in March 2012. During 2012, the outstanding balance of the loan was repaid as a result of our acquisition of an office property from the joint venture and through application of the net proceeds from the joint venture's sale of two office properties to third parties as noted above. We recorded $0.9 million and $1.3 million of interest income from this loan in interest and other income during the years ended December 31, 2012 and 2011 , respectively.
 
- Des Moines, IA Joint Ventures
 
During 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. The assets in the joint ventures included 1.7 million square feet of office, 788,000 square feet of industrial and 45,000 square feet of retail properties, as well as 418 apartment units. In connection with the closing, we received $15.0 million in cash. We had a negative book basis in certain of the joint ventures, primarily as a result of prior cash distributions to the partners. As a result, we recorded gain on disposition of investment in unconsolidated affiliates of $25.3 million.

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

4.    Investments in and Advances to Affiliates – Continued

- HIW Development B, LLC
 
During 2011, our joint venture partner exercised its option to acquire our 10.0% equity interest in the HIW Development B, LLC joint venture, which had recently completed construction of a build-to-suit office property in Charlotte, NC. As a result, we received gross proceeds of $4.8 million and recorded a gain on disposition of investment in unconsolidated affiliate related to this merchant build project of $2.3 million.

- Other Activities
 
We receive development, management and leasing fees for services provided to certain of our joint ventures. These fees are recognized in income to the extent of our respective joint venture partner's interest. During the years ended December 31, 2012 , 2011 and 2010 , we recognized $2.4 million, $3.1 million and $2.7 million, respectively, of development, management and leasing fees from our unconsolidated joint ventures. At December 31, 2012 and 2011 , we had receivables of $0.9 million and $1.0 million, respectively, related to these fees in accounts receivable.
 
Consolidated Affiliates
 
The following summarizes our consolidated affiliates:

- Highwoods-Markel Associates, LLC (“Markel”)
 
We have a 50.0% ownership interest in Markel. We are the manager and leasing agent for Markel's properties located in Richmond, VA and receive customary management and leasing fees. We consolidate Markel since we are the general partner and control the major operating and financial policies of the joint venture. As controlling partner, we have an obligation to cause this property-owning entity to distribute proceeds of liquidation to the noncontrolling interest partner in these partially owned properties only if the net proceeds received by the entity from the sale of our assets warrant a distribution as determined by the agreement. We estimate the value of noncontrolling interest distributions would have been $15.6 million had the entity been liquidated at December 31, 2012 . This estimated settlement value is based on the fair value of the underlying properties which is based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates and costs to operate each property. If the entity's underlying assets are worth less than the underlying liabilities on the date of such liquidation, we would have no obligation to remit any consideration to the noncontrolling interest holder.

- SF-HIW Harborview Plaza, LP (“Harborview”)
 
We have a 20.0% interest in Harborview. We are the manager and leasing agent for Harborview's property located in Tampa, FL and receive customary management and leasing fees. As further described in Note 8, we account for this joint venture as a financing obligation since our partner has the right to put its interest back to us in the future.
 
During 2012, we provided a three-year, $20.8 million interest-only secured loan to Harborview that is scheduled to mature in September 2015, which the joint venture used to repay a secured loan at maturity to a third party lender. This new loan bears interest at LIBOR plus 500 basis points, subject to a LIBOR floor of 0.5%. Because Harborview is a consolidated joint venture, this loan and related interest income and expense are eliminated in consolidation.

- Plaza Residential, LLC (“Plaza Residential”)
 
In 2007, our taxable REIT subsidiary formed the Plaza Residential joint venture with an unrelated party to develop and sell 139 for-sale residential condominiums constructed above a wholly owned office property in Raleigh, NC. We initially had a 93.0% interest in Plaza Residential. In 2010, we acquired our partner's 7.0% ownership interest for $0.5 million. During the years ended December 31, 2012 , 2011 and 2010 , we received $5.5 million, $3.2 million and $5.3 million, respectively, in gross proceeds and recorded $5.1 million, $3.5 million and $5.0 million, respectively, of cost of assets sold from condominium sales, including impairment charges, if any. As of December 31, 2012, all of the for-sale residential condominiums have been sold.

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

5.    Intangible Assets and Below Market Lease Liabilities

The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:

	
								
 	December 31,	
 	2012	 	2011	
Assets:	 	 	 	
Deferred financing costs	$	21,759		 	$	18,044		
Less accumulated amortization	(7,862	)	 	(5,797	)	
 	13,897		 	12,247		
Deferred leasing costs (including lease incentives and acquisition-related intangible assets)	225,647		 	172,049		
Less accumulated amortization	(69,521	)	 	(56,522	)	
 	156,126		 	115,527		
Deferred financing and leasing costs, net	$	170,023		 	$	127,774		
 	 	 	 	
Liabilities (in accounts payable, accrued expenses and other liabilities):	 	 	 	
Acquisition-related below market lease liabilities	$	37,019		 	$	16,441		
Less accumulated amortization	(3,383	)	 	(971	)	
 	$	33,636		 	$	15,470		

The following table sets forth amortization of intangible assets and acquisition-related below market lease liabilities:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Amortization of deferred financing costs	$	3,685		 	$	3,312		 	$	3,385		
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)	$	27,731		 	$	20,980		 	$	17,383		
Amortization of lease incentives (in rental and other revenues)	$	1,439		 	$	1,371		 	$	1,239		
Amortization of acquisition-related intangible assets (in rental and other revenues)	$	1,357		 	$	915		 	$	531		
Amortization of acquisition-related intangible assets (in rental property and other expenses)	$	186		 	$	—		 	$	—		
Amortization of acquisition-related below market lease liabilities (in rental and other revenues)	$	(2,627	)	 	$	(840	)	 	$	(96	)	

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

5.    Intangible Assets and Liabilities - Continued

The following table sets forth scheduled future amortization of intangible assets and acquisition-related below market lease liabilities:

	
																									
Years Ending December 31,	 	Amortization
of Deferred Financing
Costs	 	Amortization
of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization)	 	Amortization
of Lease Incentives (in Rental and Other Revenues)	 	Amortization
of Acquisition-Related Intangible Assets (in Rental and Other Revenues)	 	Amortization of Acquisition-Related Intangible Assets (in Rental Property and Other Expenses)	 	Amortization
of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues)	
2013	 	$	3,521		 	$	29,636		 	$	1,314		 	$	1,277		 	$	553		 	$	(4,149	)	
2014	 	3,224		 	25,200		 	1,163		 	989		 	553		 	(4,067	)	
2015	 	2,594		 	20,391		 	928		 	754		 	553		 	(3,801	)	
2016	 	1,519		 	16,877		 	734		 	659		 	553		 	(3,499	)	
2017	 	1,225		 	14,141		 	654		 	587		 	553		 	(3,256	)	
Thereafter	 	1,814		 	33,569		 	2,065		 	780		 	1,643		 	(14,864	)	
 	 	$	13,897		 	$	139,814		 	$	6,858		 	$	5,046		 	$	4,408		 	$	(33,636	)	
Weighted average remaining amortization periods as of December 31, 2012 (in years)	 	4.6		 	6.9		 	7.7		 	5.6		 	8.0		 	9.9		

The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of 2012 acquisition activity:

	
																	
 	 	Acquisition-Related Intangible Assets (amortized in Rental and Other Revenues)	 	Acquisition-Related Intangible Assets (amortized in Depreciation and Amortization)	 	Acquisition-Related Intangible Assets (amortized in Rental Property and Other Expenses)	 	Acquisition-Related Below Market Lease Liabilities (amortized in Rental and Other Revenues)	
Amount recorded from acquisition activity	 	$	2,636		 	$	37,247		 	$	4,593		 	$	(20,934	)	
Weighted average remaining amortization periods (in years)	 	5.3		 	8.7		 	8.0		 	10.6		

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

6.    Mortgages and Notes Payable
 
Our mortgages and notes payable consist of the following:

	
								
 	December 31,	
 	2012	 	2011	
Secured indebtedness: (1)	 	 	 	
5.45% (5.12% effective rate) mortgage loan due 2014 (2)	67,604		 	67,809		
5.18% (4.22% effective rate) mortgage loan due 2017 (3)	120,924		 	123,613		
6.03% mortgage loan due 2013	—		 	125,264		
5.68% mortgage loan due 2013	107,289		 	110,343		
5.17% (6.43% effective rate) mortgage loan due 2015 (4)	39,805		 	40,015		
6.88% mortgage loans due 2016	110,671		 	112,075		
7.50% mortgage loan due 2016	45,662		 	46,181		
5.74% to 9.00% mortgage loans due between 2012 and 2016 (5) (6) (7)	57,652		 	72,640		
Variable rate construction loan due 2012	—		 	17,802		
 	549,607		 	715,742		
Unsecured indebtedness:	 	 	 	
5.85% (5.88% effective rate) notes due 2017 (8)	379,194		 	391,164		
7.50% notes due 2018	200,000		 	200,000		
3.625% (3.752% effective rate) notes due 2023 (9)	247,361		 	—		
Variable rate term loan due 2016 (10)	35,000		 	200,000		
Variable rate term loan due 2018 (11)	200,000		 	—		
Variable rate term loan due 2019 (12)	225,000		 	—		
Revolving credit facility due 2015 (13)	23,000		 	362,000		
 	1,309,555		 	1,153,164		
Total	$	1,859,162		 	$	1,868,906		
__________
		
(1)	The secured mortgage loans payable are collateralized by real estate assets with an aggregate undepreciated book value of $ 966.9 million at December 31, 2012 . Our fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term or are prepayable subject to certain conditions including prepayment penalties.	
		
(2)	Includes unamortized fair market premium of $0.2 million as of December 31, 2012 .	
		
(3)	Includes unamortized fair market premium of $4.6 million as of December 31, 2012 .	
		
(4)	Net of unamortized fair market value discount of $ 1.2 million as of December 31, 2012 .	
		
(5)	Includes mortgage debt related to Harborview, a consolidated 20.0% owned joint venture, of $ 21.0 million at December 31, 2011 . See Note 8.	
		
(6)	Includes mortgage debt related to Markel, a consolidated 50.0% owned joint venture, of $ 33.1 million and $ 34.0 million at December 31, 2012 and 2011 , respectively. See Note 10.	
		
(7)	Net of unamortized fair market value premium of $ 0.5 million and $ 0.3 million at December 31, 2012 and 2011 , respectively.	
		
(8)	Net of unamortized original issuance discount of $ 0.5 million and $ 0.6 million at December 31, 2012 and 2011 , respectively.	
		
(9)	Net of unamortized original issuance discount of $2.6 million at December 31, 2012 .	
		
(10)	The interest rate is 2.42% at December 31, 2012 .	
		
(11)	The interest rate is 1.87% at December 31, 2012 .	

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

6.    Mortgages and Notes Payable - Continued

(12)	As more fully described in Note 7, we entered into floating-to-fixed interest rate swaps that effectively fix LIBOR for the full amount and duration of this loan. Accordingly, the equivalent fixed rate of this loan is 3.58% .	
		
(13)	The interest rate is 1.71% at December 31, 2012 .	

The following table sets forth scheduled future principal payments, including amortization, due on our mortgages and notes payable at December 31, 2012 :

	
					
Years Ending December 31,	 	Principal Amount	
2013	 	$	123,537		
2014	 	112,283		
2015	 	67,733		
2016	 	193,217		
2017	 	488,617		
Thereafter	 	873,775		
 	 	$	1,859,162		

Our $ 475.0 million unsecured revolving credit facility is scheduled to mature on June 27, 2015 and includes an accordion feature that allows for an additional $ 75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $ 23.0 million and $ 25.0 million outstanding under our revolving credit facility at December 31, 2012 and February 1, 2013 , respectively. At both December 31, 2012 and February 1, 2013 , we had $ 0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at December 31, 2012 and February 1, 2013 was $ 451.9 million and $ 449.9 million , respectively.
 
During 2012, we repaid the remaining balances of $52.1 million of our variable rate, secured construction loan bearing interest of 1.07% and a $123.0 million secured mortgage loan bearing interest of 6.03% that was scheduled to mature in March 2013 . One of our consolidated affiliates also repaid a $20.8 million secured loan that bore interest at 6.06% and matured in October 2012 . We incurred no penalties related to these repayments. Real estate assets having a gross book value of $193 million became unencumbered in connection with the payoff of these secured loans. We also paid down $12.2 million of secured loan balances through principal amortization during 2012.
 
During 2012, the Operating Partnership issued $ 250 million aggregate principal amount of 3.625% Notes due January 15, 2023 , less original issue discount of $2.7 million . These notes were priced at 98.94% for an effective yield of 3.752% . Underwriting fees and other expenses were incurred that aggregated $2.1 million ; these costs were deferred and will be amortized over the term of the notes.
 
During 2012, we modified our $200.0 million , five-year unsecured bank term loan, which was originally scheduled to mature in February 2016 . The loan is now scheduled to mature in January 2018 and the interest rate was reduced from LIBOR plus 220 basis points to LIBOR plus 165 basis points. We incurred $0.9 million of deferred financing fees in connection with the modification, which will be amortized along with existing unamortized deferred loan fees over the remaining term of the new loan. Proceeds from two new participants, aggregating $35.0 million , were used to reduce amounts outstanding under our revolving credit facility. Two of the original participants, which still hold an aggregate $35.0 million of the principal balance under the original term loan, will be fully paid off on or before February 25, 2013 .
 
During 2012, we repurchased $12.1 million principal amount of unsecured notes due March 2017 bearing interest of 5.85% for a purchase price of 107.5% of par value. We recorded $1.0 million of loss on debt extinguishment related to this repurchase. 

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

6.    Mortgages and Notes Payable - Continued

During 2012, we obtained a $225.0 million , seven -year unsecured bank term loan bearing interest of LIBOR plus 190 basis points. The underlying LIBOR rate has been effectively fixed for the entire seven-year term through floating-to-fixed interest rate swaps discussed in Note 7. The counterparties under the swaps are the same financial institutions that participated in the term loan.

During 2011, we repaid the remaining balance of $ 184.2 million of a secured mortgage loan bearing interest of 7.05% that was scheduled to mature in January 2012 and the remaining $ 10.0 million of a three -year unsecured term loan bearing interest of 3.90% that was scheduled to mature in February 2012 . We incurred no penalties related to these early repayments. We also obtained a $ 200.0 million , five -year unsecured bank term loan bearing interest of LIBOR plus 220 basis points.

During 2010, we repaid $ 10.0 million of our $ 20.0 million , three -year unsecured term loan. Additionally, we repaid the $ 5.8 million remaining balance outstanding on the mortgage payable secured by our 96 rental residential units, which we sold in 2012 as described in Note 4. We incurred a penalty of $ 0.6 million related to this early repayment, which is included in loss on debt extinguishment.

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

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

The Operating Partnership has $379.2 million carrying amount of 2017 bonds outstanding, $200.0 million carrying amount of 2018 bonds outstanding and $247.4 million carrying amount of 2023 bonds outstanding. The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of either series of bonds can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.

Capitalized Interest

Total interest capitalized to development projects was $ 1.0 million , $ 0.6 million and $ 1.4 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

7.	Derivative Financial Instruments	

We have six floating-to-fixed interest rate swaps through January 2019 each with respect to an aggregate of $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678% . The counterparties under the swaps are major financial institutions. The swap agreements contain a provision whereby if we default on any of our indebtedness, if greater than $10.0 million , and which defaults results in repayment of such indebtedness being, or becoming capable of being, accelerated by the lender, then we could also be declared in default on our derivative obligations. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the year ended December 31, 2012 . We have no collateral requirements related to our interest rate swaps.

Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During 2013, we estimate that $3.3 million will be reclassified to interest expense.

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

		
7.	Derivative Financial Instruments- Continued	

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

	
								
 	Fair Value as of December 31,	
 	2012	 	2011	
Liability Derivatives:	 	 	 	
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:	 	 	 	
Interest rate swaps	$	9,369		 	$	2,202		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Derivatives Designated as Cash Flow Hedges:	 	 	 	 	 	
Amount of unrealized losses recognized in AOCL on derivatives (effective portion):	 	 	 	 	 	
Interest rate swaps	$	(10,358	)	 	$	(2,202	)	 	$	—		
Amount of (gains)/losses reclassified out of AOCL into contractual interest expense (effective portion):	 	 	 	 	 	
Interest rate swaps	$	3,053		 	$	(118	)	 	$	237		

8.	Financing Arrangements	

Our financing obligations consist of the following:

	
								
 	December 31,	
 	2012	 	2011	
Harborview financing obligation	$	17,571		 	$	17,086		
Tax increment financing bond	11,787		 	13,064		
Total	$	29,358		 	$	30,150		

Harborview
 
Our joint venture partner in Harborview has the right to put its 80.0% equity interest in the joint venture to us in exchange for cash at any time during the one-year period commencing September 11, 2014 . The value of the 80.0% equity interest will be determined at the time that our partner elects to exercise its put right, if ever, based upon the then fair market value of Harborview LP's assets and liabilities, less 3.0% , which amount was intended to cover the normal costs of a sale transaction. Because of the put option, this transaction is accounted for as a financing transaction. Accordingly, the assets, liabilities and operations related to Harborview, the office property owned by Harborview LP remain in our Consolidated Financial Statements.

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

		
8.	Financing Arrangements - Continued	
 
As a result, we initially established a gross financing obligation equal to the $12.7 million equity contributed by our joint venture partner. During 2012, our joint venture partner contributed an additional $1.8 million of equity to the joint venture. During each period, we increase the gross financing obligation for 80.0% of the net income before depreciation of Harborview, which is recorded as interest expense on financing obligation, and decrease the gross financing obligation for distributions made to our joint venture partner. At the end of each reporting period, the balance of the gross financing obligation is adjusted to equal the greater of the equity contributed by our joint venture partner or the current fair value of the put option, which is recorded as a valuation allowance. The valuation allowance is amortized on a straight-line basis prospectively through September 2014 as interest expense on financing obligation. The fair value of the put option was $12.7 million and $6.2 million at December 31, 2012 and 2011 , respectively. We continue to depreciate Harborview and record all of the depreciation on our books. At such time as the put option expires or is otherwise terminated, we will record the transaction as a partial sale and recognize gain accordingly.

Tax Increment Financing Bond
 
In connection with tax increment financing for construction of a parking garage, we are obligated to pay fixed special assessments over a 20 -year period ending in 2019 . The net present value of these assessments, discounted at the 6.93% interest rate on the underlying bond financing, is recorded as a financing obligation. We receive special tax revenues and property tax rebates recorded in interest and other income, which are intended, but not guaranteed, to provide funds to pay the special assessments. We acquired the underlying bond, which is recorded in prepaid and other assets, in a privately negotiated transaction in 2007 . For additional information about this tax increment financing bond, see Note 11.
 
Capitalized Ground Lease Obligation
 
The capitalized ground lease obligation represents an obligation to the lessor of land on which we constructed a wholly owned office property. We initially recorded the land and associated financing obligation at the net present value of the fixed rental payments and purchase option through the ninth year at the inception of the lease using a discount rate of 7.10% . The liability accretes as interest expense until it equals the amount of the purchase option. During 2012, this ground lease was conveyed as part of the disposition of an office property in Atlanta, GA.

9.	Commitments and Contingencies	

Operating Ground Leases
 
Certain Wholly Owned Properties are subject to operating ground leases. Rental payments on these leases are adjusted periodically based on either the consumer price index or on a pre-determined schedule. Total rental property expense recorded on the straight-line basis for operating ground leases was $1.5 million , $1.4 million and $1.5 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

The following table sets forth our scheduled obligations for future minimum payments on operating ground leases at December 31, 2012 :

	
					
Years Ending December 31,	 	Minimum Payments	
2013	 	$	2,383		
2014	 	2,404		
2015	 	2,427		
2016	 	2,451		
2017	 	2,476		
Thereafter	 	49,875		
 	 	$	62,016		

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

		
9.	Commitments and Contingencies - Continued	
 
Lease and Contractual Commitments
 
We have $122.0 million of lease and contractual commitments at December 31, 2012 . Lease and contractual commitments represent commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements) and contracts for development/redevelopment projects, of which $22.1 million was recorded on the Consolidated Balance Sheet at December 31, 2012 .

DLF I Obligation
 
At the formation of DLF I, the amount our partner contributed in cash to the venture and subsequently distributed to us was determined to be $7.2 million in excess of the amount required based on its ownership interest and the agreed-upon value of the real estate assets. We are required to repay this amount over 14 years, beginning in the first quarter of 1999 . The $7.2 million was discounted to net present value of $3.8 million using a discount rate of 9.62% specified in the agreement. Payments of $0.6 million were made in each of the years ended December 31, 2012 , 2011 and 2010 . The balance at December 31, 2012 and 2011 was $0.2 million and $0.8 million , respectively, which is included in accounts payable, accrued expenses and other liabilities.
 
Environmental Matters
 
Substantially all of our in-service and development properties have been subjected to Phase I environmental assessments and, in certain instances, Phase II environmental assessments. Such assessments and/or updates have not revealed, nor are we aware of, any environmental liability that we believe would have a material adverse effect on our Consolidated Financial Statements.

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

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

		
10.	Noncontrolling Interests	

Noncontrolling Interests in Consolidated Affiliates

At December 31, 2012 , noncontrolling interests in consolidated affiliates relates to our joint venture partner's 50.0% interest in office properties located in Richmond, VA. Our joint venture partner is an unrelated third party.

11.	Disclosure About Fair Value of Financial Instruments	

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

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

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

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

Our Level 2 asset is the fair value of certain of our mortgages and notes receivable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants.
 
Our Level 2 liabilities include (1) the fair value of our mortgages and notes payable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants and (2) interest rate swaps whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of our interest rate swaps are based on the expectation of future LIBOR interest rates (forward curves) derived from observed market LIBOR interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.

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

Our Level 3 assets include (1) certain of our mortgages and notes receivable, which were estimated by the income approach utilizing internal cash flow projections and market interest rates to estimate the price that would be paid in an orderly transaction between market participants, (2) our tax increment financing bond, which is not routinely traded but whose fair value is determined by the income approach utilizing contractual cash flows and market-based interest rates to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds, and (3) any real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which were valued using broker opinion of value and substantiated by internal cash flow projections.
 
Our Level 3 liabilities include the fair value of our contingent consideration to acquire real estate assets and financing obligations, which were estimated by the income approach to approximate the price that would be paid in an orderly transaction between market participants, utilizing: (1) contractual cash flows; (2) market-based interest rates; and (3) a number of other assumptions including demand for space, competition for customers, changes in market rental rates, costs of operation and expected ownership periods.

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

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

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

	
																
 	 	 	Level 1	 	Level 2	 	Level 3	
 	December 31, 2012	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Observable Inputs	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	 	 	
Mortgages and notes receivable, at fair value (1)	$	24,725		 	$	—		 	$	16,077		 	$	8,648		
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	3,354		 	3,354		 	—		 	—		
Tax increment financing bond (in prepaid expenses and other assets)	14,496		 	—		 	—		 	14,496		
Total Assets	$	42,575		 	$	3,354		 	$	16,077		 	$	23,144		
Liabilities:	 	 	 	 	 	 	 	
Mortgages and notes payable, at fair value (1)	$	1,987,364		 	$	—		 	$	1,987,364		 	$	—		
Interest rate swaps (in accounts payable, accrued expenses and other liabilities)	9,369		 	—		 	9,369		 	—		
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	3,354		 	3,354		 	—		 	—		
Contingent consideration to acquire real estate assets (in accounts payable, accrued expenses and other liabilities)	563		 	—		 	—		 	563		
Financing obligations, at fair value (1)	23,252		 	—		 	—		 	23,252		
Total Liabilities	$	2,023,902		 	$	3,354		 	$	1,996,733		 	$	23,815		

	
																
 	 	 	Level 1	 	Level 2	 	Level 3	
 	December 31, 2011	 	Quoted Prices
in Active
Markets for Identical Assets or Liabilities	 	Significant Observable Inputs	 	Significant Unobservable Inputs	
Assets:	 	 	 	 	 	 	 	
Mortgages and notes receivable, at fair value (1)	$	18,990		 	$	—		 	$	18,990		 	$	—		
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)	3,149		 	3,149		 	—		 	—		
Tax increment financing bond (in prepaid expenses and other assets)	14,788		 	—		 	—		 	14,788		
Impaired real estate assets and for-sale residential condominiums	12,767		 	—		 	—		 	12,767		
Total Assets	$	49,694		 	$	3,149		 	$	18,990		 	$	27,555		
Liabilities:	 	 	 	 	 	 	 	
Mortgages and notes payable, at fair value (1)	$	1,959,438		 	$	—		 	$	1,959,438		 	$	—		
Interest rate swaps (in accounts payable, accrued expenses and other liabilities)	2,202		 	—		 	2,202		 	—		
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)	3,149		 	3,149		 	—		 	—		
Financing obligations, at fair value (1)	17,572		 	—		 	—		 	17,572		
Total Liabilities	$	1,982,361		 	$	3,149		 	$	1,961,640		 	$	17,572		
__________
(1)    Amounts recorded at historical cost on our Consolidated Balance Sheets at December 31, 2012 and 2011 , respectively.

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

		
11.	Disclosure About Fair Value of Financial Instruments – Continued	

The following table sets forth the changes in our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:

	
								
 	December 31,	
 	2012	 	2011	
Asset:	 	 	 	
Tax Increment Financing Bond:	 	 	 	
Beginning balance	$	14,788		 	$	15,699		
Principal repayment	(703	)	 	(1,145	)	
Unrealized gains (in AOCL)	411		 	234		
Ending balance	$	14,496		 	$	14,788		
Liability:	 	 	 	
Contingent Consideration to Acquire Real Estate Assets:	 	 	 	
Beginning balance	$	—		 	$	—		
Fair value at acquisition date	677		 	—		
Unrealized gains (in general and administrative expenses)	(114	)	 	—		
Ending balance	$	563		 	$	—		

During 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020 . The estimated fair value at December 31, 2012 was $1.9 million below the outstanding principal due on the bond. If the discount rate used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.5 million lower or $0.5 million higher, respectively, as of December 31, 2012 . 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. We have recorded no credit losses related to the bond during the years ended December 31, 2012 and 2011 . 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 quantitative information about the unobservable inputs of our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:

	
											
 	Fair Value at
December 31, 2012	 	Valuation
Technique	 	Unobservable
Input	 	Rate/ Percentage	
Asset:	 	 	 	 	 	 	 	
Tax increment financing bond	$	14,496		 	Income approach	 	Discount rate	 	10.34	%	
Liability:	 	 	 	 	 	 	 	
Contingent consideration to acquire real estate assets	$	563		 	Income approach	 	Payout percentage	 	75.00	%	

12.	Equity	
 
Common Stock Issuances
 
The Company has entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of its Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During 2012 , the Company issued 7,245,837 shares of Common Stock under these agreements at an average gross price of $33.12 per share and received net proceeds, after sales commissions and expenses, of $236.4 million . During 2011, the Company issued 378,200 shares of Common Stock under these agreements at an average gross price of $35.09 per share and received net proceeds, after sales commissions, of $13.1 million .

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

		
12.	Equity - Continued	

  Common Unit Distributions
 
Distributions declared and paid per Common Unit aggregated $1.70 for each of the years ended December 31, 2012 , 2011 and 2010 .
 
Redeemable Common Units
 
The Operating Partnership is obligated to redeem each Redeemable Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Redeemable Common Unit presented for redemption for cash or one share of Common Stock. When a holder redeems a Redeemable Common Unit for a share of Common Stock or cash, the Company’s share in the Operating Partnership will be increased. The Common Units owned by the Company are not redeemable.
 
Preferred Units
 
In 2011, we redeemed the remaining 2.1 million outstanding 8.0% Series B Cumulative Redeemable Preferred Units for an aggregate redemption price of $52.5 million , excluding accrued distributions. In connection with this redemption, the $1.9 million excess of the redemption cost over the net carrying amount of the redeemed units was recorded as a reduction to net income available for common unitholders.

The following table sets forth our Preferred Units:

	
																				
Preferred Unit Issuances	 	Issue Date	 	Number of
Units
Outstanding	 	Carrying
Value	 	Liquidation Preference
Per Unit	 	Optional Redemption
Date	 	Annual
Distributions
Payable
Per Unit	
 	 	 	 	(in thousands)	 	 	 	 	 	 	 	 	
December 31, 2012	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,077		 	$	1,000		 	2/12/2027	 	$	86.25		
December 31, 2011	 	 	 	 	 	 	 	 	 	 	 	 	
8.625% Series A Cumulative Redeemable	 	2/12/1997	 	29		 	$	29,077		 	$	1,000		 	2/12/2027	 	$	86.25		
 
Warrants
 
Upon exercise of a warrant, the Company will contribute the exercise price to the Operating Partnership in exchange for Common Units. Therefore, the Operating Partnership accounts for such warrants as if issued by the Operating Partnership. At December 31, 2012 and 2011 , there were 15,000 warrants outstanding with an exercise price of $32.50 per share. These warrants have no expiration date.

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

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

		
13.	Employee Benefit Plans - Continued	
 
Certain other employees participate in an annual non-equity incentive program whereby a target annual cash incentive payment is established based upon the job responsibilities of their position. Incentive payment eligibility ranges from 10% to 30% of annual base salary. The actual incentive payment is determined by our overall performance and the individual’s performance during each year. These incentive payments are also accrued and expensed in the year earned.
 
The Company's officers generally receive annual grants of stock options and restricted stock on or about March 1 of each year. Restricted stock grants are also made annually to directors and certain other employees. Except as set forth in the next sentence, dividends received on restricted stock are non-forfeitable and are paid at the same rate and on the same date as on shares of Common Stock. Commencing in 2012 with respect to shares of restricted stock issued to the Company's chief executive officer and subject to any delay in payment that would result in adverse tax consequences under Section 409A of the Code, dividends will accumulate and be payable only if and to the extent the shares vest. Dividends paid on subsequently forfeited shares are expensed. Additional total return-based restricted stock may be issued at the end of the three-year periods if actual performance exceeds certain levels of performance. Such additional shares, if any, would be fully vested when issued. No expense is recorded for additional shares of total return-based restricted stock that may be issued at the end of the three-year period since that possibility is reflected in the grant date fair value. The following table sets forth the number of shares of Common Stock reserved for future issuance:

	
						
 	December 31,	
 	2012	 	2011	
Outstanding stock options and warrants	1,144,309		 	1,224,455		
Possible future issuance under equity incentive plans	2,047,550		 	2,363,695		
 	3,191,859		 	3,588,150		
 
Of the possible future issuance under equity incentive plans at December 31, 2012 , no more than 0.6 million can be in the form of restricted stock. At December 31, 2012 , the Company had 119.7 million remaining shares of Common Stock authorized to be issued under our charter.
 
During the years ended December 31, 2012 , 2011 and 2010 , we recognized $7.6 million , $6.1 million and $6.6 million , respectively, of share-based compensation expense. Because REITs generally do not pay income taxes, we do not realize tax benefits on share-based payments. At December 31, 2012 , there was $4.5 million of total unrecognized share-based compensation costs, which will be recognized over vesting periods that have a weighted average remaining term of 2.4 years.
 
- Stock Options
 
Stock options issued prior to 2005 vest ratably over four years and remain outstanding for 10 years. Stock options issued beginning in 2005 vest ratably over a four -year period and remain outstanding for seven years. The value of all options as of the date of grant is calculated using the Black-Scholes option-pricing model and is amortized over the respective vesting or service period. The fair values of options granted during 2012 , 2011 and 2010 were $5.47 , $6.47 and $4.96 , respectively, per option. The fair values of the options granted were determined at the grant dates using the following assumptions:

	
									
 	2012	 	2011	 	2010	
Risk free interest rate (1)  	1.1	%	 	2.4	%	 	2.6	%	
Common stock dividend yield (2)  	5.3	%	 	5.0	%	 	5.9	%	
Expected volatility (3)  	33.4	%	 	32.5	%	 	32.2	%	
Average expected option life (years) (4)	5.75		 	5.75		 	5.75		
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the option grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one-year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related stock option grant.	
		
(4)	The average expected option life is based on an analysis of the Company's historical data.	

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

		
13.	Employee Benefit Plans - Continued	

The following table sets forth stock option activity:

	
							
 	Options Outstanding	
 	Number of Shares	 	Weighted Average Exercise Price	
Balances at December 31, 2009	1,467,773		 	$	27.15		
Options granted	190,826		 	29.05		
Options exercised	(178,403	)	 	22.54		
Balances at December 31, 2010	1,480,196		 	27.95		
Options granted 	146,581		 	33.93		
Options exercised 	(417,322	)	 	26.79		
Balances at December 31, 2011	1,209,455		 	29.08		
Options granted	190,886		 	31.97		
Options exercised	(271,032	)	 	26.87		
Balances at December 31, 2012  (1) (2)	1,129,309		 	$	30.10		
__________
		
(1)	The outstanding options at December 31, 2012 had a weighted average remaining life of  3.3 years.	
		
(2)	The Company has 634,550 options exercisable at December 31, 2012 with a weighted average exercise price of $30.75 , weighted average remaining life of 2.1 years and intrinsic value of $2.6 million . Of these exercisable options, 173,007 had exercise prices higher than the market price of our Common Stock at December 31, 2012 .	

Cash received or receivable from options exercised was $7.4 million , $11.9 million and $4.4 million for the years ended December 31, 2012 , 2011 and 2010 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2012 , 2011 and 2010 was $1.9 million , $3.0 million and $1.7 million , respectively. The total intrinsic value of options outstanding at December 31, 2012 , 2011 and 2010 was $5.0 million , $3.3 million and $7.2 million , respectively. The Company generally does not permit the net cash settlement of exercised stock options, but does permit net share settlement so long as the shares received are held for at least one year. The Company has a policy of issuing new shares to satisfy stock option exercises.

- Time-Based Restricted Stock

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

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

		
13.	Employee Benefit Plans - Continued	

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

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2009	316,074		 	$	28.60		
Awarded and issued (1)	88,930		 	29.05		
Vested (2)  	(138,745	)	 	31.81		
Forfeited	(1,933	)	 	25.86		
Restricted shares outstanding at December 31, 2010	264,326		 	27.08		
Awarded and issued (1)	76,966		 	33.70		
Vested (2) 	(116,631	)	 	30.64		
Restricted shares outstanding at December 31, 2011	224,661		 	28.02		
Awarded and issued (1)	90,983		 	32.27		
Vested (2) 	(92,239	)	 	27.14		
Forfeited	(903	)	 	30.12		
Restricted shares outstanding at December 31, 2012	222,502		 	$	30.31		
__________
		
(1)	The fair value at grant date of time-based restricted stock issued during the years ended December 31, 2012 , 2011 and 2010 was $2.9 million , $2.6 million and $2.6 million , respectively.	
		
(2)	The vesting date fair value of time-based restricted stock that vested during the years ended December 31, 2012 , 2011 and 2010 was $2.9 million , $3.9 million and $4.3 million , respectively. Vested shares include those shares repurchased for withholding taxes.	

- Total Return-Based Restricted Stock

During 2012 , 2011 and 2010 , we issued shares of total return-based restricted stock to officers that will vest from zero to 250% based on (1) our absolute total returns for certain pre-determined three-year periods relative to defined target returns and (2) whether the Company's total return exceeds the average total returns of a selected group of peer companies. The grant date fair value of such shares of total return-based restricted stock was determined to be $38.71 , $41.02 and $29.05 , respectively, of the market value of a share of Common Stock as of the grant date and is amortized over the respective three-year period. The fair values of the total return-based restricted stock granted were determined at the grant dates using the following assumptions:

	
									
 	2012	 	2011	 	2010	
Risk free interest rate (1)  	0.4	%	 	1.0	%	 	1.3	%	
Common stock dividend yield (2)  	5.4	%	 	5.4	%	 	5.6	%	
Expected volatility (3)  	43.7	%	 	42.8	%	 	42.5	%	
__________
		
(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the total return-based restricted stock grants.	
		
(2)	The dividend yield is calculated utilizing the dividends paid for the previous one-year period and the per share price of Common Stock on the date of grant.	
		
(3)	Based on the historical volatility of Common Stock over a period relevant to the related total return-based restricted stock grant.	

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

		
13.	Employee Benefit Plans - Continued	

The following table sets forth total return-based restricted stock activity:

	
							
 	Number of Shares	 	Weighted Average Grant Date Fair Value	
Restricted shares outstanding at December 31, 2009	202,775		 	$	22.05		
Awarded and issued (1)	77,624		 	29.05		
Vested (2)	(47,257	)	 	38.50		
Forfeited	(1,307	)	 	22.99		
Restricted shares outstanding at December 31, 2010	231,835		 	21.03		
Awarded and issued (1)	57,386		 	41.02		
Vested (2)	(66,417	)	 	13.79		
Forfeited	(99,975	)	 	13.79		
Restricted shares outstanding at December 31, 2011	122,829		 	34.86		
Awarded and issued (1)	67,902		 	38.71		
Vested (2)	(32,722	)	 	29.47		
Forfeited	(32,721	)	 	29.47		
Restricted shares outstanding at December 31, 2012	125,288		 	$	32.87		
__________
		
(1)	The fair value at grant date of total return-based restricted stock issued during the years ended December 31, 2012 , 2011 and 2010 was $2.6 million , $2.4 million and $2.3 million , respectively. There were no performance-based restricted stock issued subsequent to 2008.	
		
(2)	The vesting date fair value of total return-based and other types of performance-based restricted stock that vested during the years ended December 31, 2012 , 2011 and 2010 was $1.1 million , $2.0 million and $1.6 million , respectively. Vested shares include those shares repurchased for withholding taxes.	

Retirement Plan

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

Deferred Compensation

Prior to 2010, officers could elect to defer all or a portion of their base salary and/or amounts earned under the Company's annual non-equity incentive plan, which was then invested in unrelated mutual funds under its non-qualified deferred compensation plan. These investments are recorded at fair value, which aggregated $3.4 million and $3.1 million at December 31, 2012 and 2011 , respectively, and are included in prepaid expenses and other assets, with an offsetting deferred compensation liability recorded in accounts payable, accrued expenses and other liabilities. Deferred amounts ultimately payable to the officers and directors are based on the value of the related mutual fund investments. Accordingly, changes in the value of the unrelated mutual funds are recorded in interest and other income and the corresponding offsetting changes in the deferred compensation liability are recorded in general and administration expense. As a result, there is no effect on our net income. Prior to 2006, officers could elect to defer cash compensation for investment in units of phantom stock. At the end of each calendar quarter, any person who deferred compensation into phantom stock was credited with units of phantom stock at a 15% discount. Dividends on the phantom units were assumed to be issued in additional units of phantom stock at a 15% discount. By the terms of the plan, the cash value of all phantom stock outstanding under the plan was reinvested in unrelated mutual funds as of December 31, 2011.

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

		
13.	Employee Benefit Plans - Continued	
 
The following table sets forth the Company's deferred compensation liability:

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Beginning deferred compensation liability	$	3,149		 	$	4,091		 	$	6,898		
Contributions to deferred compensation plans	—		 	545		 	229		
Mark-to-market adjustment to deferred compensation (in general and administrative expenses)	475		 	(119	)	 	246		
Distributions from deferred compensation plans	(270	)	 	(1,368	)	 	(3,282	)	
Total deferred compensation liability	$	3,354		 	$	3,149		 	$	4,091		

401(k) Savings Plan
 
We have a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. We contribute amounts for each participant at a rate of 75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary and cash incentives subject to statutory limits). During the years ended December 31, 2012 , 2011 and 2010 , we contributed $1.0 million , $1.1 million and $1.0 million , respectively, to the 401(k) savings plan. The assets of this qualified plan are not included in our Consolidated Financial Statements since the assets are not owned by us. Administrative expenses of the plan are paid by us.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan pursuant to which employees generally may contribute up to 25% of their cash compensation for the purchase of Common Stock. At the end of each three-month offering period, each participant's account balance, which includes accrued dividends, is applied to acquire shares of Common Stock at a cost that is calculated at 85% of the average closing price on the New York Stock Exchange on the five consecutive days preceding the last day of the quarter. In the years ended December 31, 2012 , 2011 and 2010 , the Company issued 34,126 , 30,826 and 27,378 shares, respectively, of Common Stock under the Employee Stock Purchase Plan. The discount on newly issued shares is expensed by us as additional compensation and aggregated $0.2 million , $0.2 million and $0.1 million in the years ended December 31, 2012 , 2011 and 2010 , respectively.

14.	Accumulated Other Comprehensive Loss	
 
The following table sets forth the components of accumulated other comprehensive loss:

	
								
 	December 31,	
 	2012	 	2011	
Tax increment financing bond:	 	 	 	
Beginning balance	$	(2,309	)	 	$	(2,543	)	
Unrealized gains on tax increment financing bond	411		 	234		
Ending balance	(1,898	)	 	(2,309	)	
Cash flow hedges:	 	 	 	
Beginning balance	(3,425	)	 	(1,105	)	
Unrealized losses on cash flow hedges	(10,358	)	 	(2,202	)	
Amortization of cash flow hedges	3,053		 	(118	)	
Ending balance	(10,730	)	 	(3,425	)	
Total accumulated other comprehensive loss	$	(12,628	)	 	$	(5,734	)	

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

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

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Contractual rents, net	$	439,610		 	$	402,275		 	$	379,554		
Straight-line rental income, net	18,775		 	12,173		 	10,582		
Amortization of lease incentives	(1,424	)	 	(1,342	)	 	(1,202	)	
Cost recovery income, net	41,289		 	35,561		 	41,101		
Lease termination fees	1,848		 	2,439		 	2,938		
Fee income	4,965		 	5,571		 	5,466		
Other miscellaneous operating revenues	11,039		 	6,767		 	2,397		
 	$	516,102		 	$	463,444		 	$	440,836		

The following table sets forth scheduled future minimum base rents to be received from customers for leases in effect at December 31, 2012 for the Wholly Owned Properties:

	
				
2013	$	463,913		
2014	430,278		
2015	378,021		
2016	325,970		
2017	267,530		
Thereafter	878,894		
 	$	2,744,606		

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Utilities, insurance and real estate taxes	$	100,707		 	$	92,093		 	$	85,653		
Maintenance, cleaning and general building	69,026		 	58,910		 	54,422		
Property management and administrative expenses	12,542		 	11,295		 	10,832		
Other miscellaneous operating expenses	4,910		 	5,529		 	4,504		
 	$	187,185		 	$	167,827		 	$	155,411		

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

		
16.	Discontinued Operations	

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Rental and other revenues	$	10,120		 	$	21,002		 	$	23,917		
Operating expenses:	 	 	 	 	 	
Rental property and other expenses	3,766		 	8,865		 	9,273		
Depreciation and amortization	2,009		 	5,256		 	5,926		
Total operating expenses	5,775		 	14,121		 	15,199		
Interest expense	283		 	489		 	421		
Income from discontinued operations	4,062		 	6,392		 	8,297		
Net gains/(losses) on disposition of discontinued operations	29,455		 	2,573		 	(86	)	
Total discontinued operations	$	33,517		 	$	8,965		 	$	8,211		
Carrying value of assets held for sale and assets sold that qualified for discontinued operations during the year	$	122,861		 	$	137,237		 	$	165,243		

The following table sets forth the major classes of assets and liabilities of our real estate and other assets, net, held for sale and liabilities held for sale:

	
								
 	December 31,	
 	2012	 	2011	
Assets:	 	 	 	
Land	$	—		 	$	14,077		
Buildings and tenant improvements	—		 	135,013		
Less - accumulated depreciation	—		 	(32,254	)	
Net real estate assets	—		 	116,836		
Accrued straight-line rents receivable	—		 	6,520		
Deferred leasing costs, net	—		 	811		
Prepaid expenses and other assets	—		 	106		
Real estate and other assets, net, held for sale	$	—		 	$	124,273		
Liabilities:	 	 	 	
Mortgages and notes payable	$	—		 	$	34,307		
Accrued expenses and other liabilities	—		 	214		
Financing obligations	—		 	1,294		
Liabilities held for sale	$	—		 	$	35,815		

As of December 31, 2012 , there were no real estate and other assets, net, held for sale. As of December 31, 2011 , real estate and other assets, net, held for sale included five office properties in Nashville, TN, one office property in Pinellas County, FL, one office property and 96 residential units in Kansas City, MO and three buildings in Jackson, MS and Atlanta, GA. All of these properties qualified for discontinued operations in 2012. 

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

		
17.	Earnings Per Unit	

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Earnings per Common Unit - basic:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	50,778		 	$	39,067		 	$	64,065		
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(786	)	 	(755	)	 	(485	)	
Distributions on Preferred Units	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Unit redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Income from continuing operations available for common unitholders	47,484		 	31,864		 	56,872		
Income from discontinued operations available for common unitholders	33,517		 	8,965		 	8,211		
Net income available for common unitholders	$	81,001		 	$	40,829		 	$	65,083		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Unit – weighted average units (1) (2)	79,147		 	75,644		 	74,971		
Earnings per Common Unit - basic:	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.60		 	$	0.42		 	$	0.76		
Income from discontinued operations available for common unitholders	0.42		 	0.12		 	0.11		
Net income available for common unitholders	$	1.02		 	$	0.54		 	$	0.87		
Earnings per Common Unit - diluted:	 	 	 	 	 	
Numerator:	 	 	 	 	 	
Income from continuing operations	$	50,778		 	$	39,067		 	$	64,065		
Net (income) attributable to noncontrolling interests in consolidated affiliates from continuing operations	(786	)	 	(755	)	 	(485	)	
Distributions on Preferred Units	(2,508	)	 	(4,553	)	 	(6,708	)	
Excess of Preferred Unit redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		
Income from continuing operations available for common unitholders	47,484		 	31,864		 	56,872		
Income from discontinued operations available for common unitholders	33,517		 	8,965		 	8,211		
Net income available for common unitholders	$	81,001		 	$	40,829		 	$	65,083		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per Common Unit –weighted average units (1) (2)	79,147		 	75,644		 	74,971		
Add:	 	 	 	 	 	
Stock options using the treasury method	122		 	136		 	198		
Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions (1)	79,269		 	75,780		 	75,169		
Earnings per Common Unit - diluted:	 	 	 	 	 	
Income from continuing operations available for common unitholders	$	0.60		 	$	0.42		 	$	0.76		
Income from discontinued operations available for common unitholders	0.42		 	0.12		 	0.11		
Net income available for common unitholders	$	1.02		 	$	0.54		 	$	0.87		
__________
		
(1)	There were 0.5 million , 0.4 million and 0.7 million options outstanding during the years ended December 31, 2012 , 2011 and 2010 , respectively, that were not included in the computation of diluted earnings per unit because the impact of including such options would be anti-dilutive .	
		
(2)	Includes all unvested restricted stock since dividends on such restricted stock are non-forfeitable.	

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

		
18.	Income Taxes	

Our Consolidated Financial Statements include the operations of the Company’s taxable REIT subsidiary, which is not entitled to the dividends paid deduction and is subject to federal, state and local income taxes. The taxable REIT subsidiary has operated at a cumulative taxable loss through December 31, 2012 of $4.7 million and has paid no income taxes since its formation. In addition to the $2.1 million deferred tax asset for these cumulative tax loss carryforwards, the taxable REIT subsidiary also had net deferred tax liabilities of $2.2 million comprised primarily of tax versus book basis differences in certain investments held by the taxable REIT subsidiary. At December 31, 2011, the taxable REIT subsidiary had a $0.4 million net deferred asset position that was fully reserved with a valuation allowance. The taxable REIT subsidiary incurred $0.1 million of deferred income tax expense in 2012, including the release of this valuation allowance. Income taxes are not material to our operating results or financial position. Other than income taxes related to its taxable REIT subsidiary, the Operating Partnership recorded state income tax expense in rental property and other expenses of $0.1 million , $0.1 million and $0.1 million for the years ended December 31, 2012 , 2011 and 2010 , respectively.

The minimum dividend per share of Common Stock required for the Company to maintain its REIT status was $1.07 , $1.01 and $0.32 per share in 2012 , 2011 and 2010 , respectively. Continued qualification as a REIT depends on the Company's ability to satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests prescribed in the Code. The tax basis of our assets (net of accumulated tax depreciation and amortization) and liabilities was approximately $2.9 billion and $2.0 billion , respectively, at December 31, 2012 and $2.7 billion and $2.0 billion , respectively, at  December 31, 2011 .

The Company is subject to federal, state and local income tax examinations by tax authorities for 2009 through 2012 .

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

		
19.	Segment Information	

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

Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States and, at December 31, 2012 , no single customer of the Wholly Owned Properties generated more than 10.0% of our consolidated revenues on an annualized basis.

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

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Rental and Other Revenues: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	61,948		 	$	49,521		 	$	44,480		
Greenville, SC	13,394		 	14,076		 	13,612		
Kansas City, MO	15,003		 	13,795		 	14,160		
Memphis, TN	36,832		 	36,801		 	31,479		
Nashville, TN	56,542		 	53,643		 	52,159		
Orlando, FL	11,169		 	10,233		 	11,611		
Piedmont Triad, NC	21,569		 	20,645		 	21,162		
Pittsburgh, PA	38,796		 	10,963		 	—		
Raleigh, NC	81,624		 	78,640		 	75,715		
Richmond, VA	47,310		 	47,525		 	47,175		
Tampa, FL	69,381		 	68,240		 	71,060		
Total Office Segment	453,568		 	404,082		 	382,613		
Industrial:	 	 	 	 	 	
Atlanta, GA	12,805		 	13,266		 	12,335		
Piedmont Triad, NC	12,518		 	11,827		 	12,372		
Total Industrial Segment	25,323		 	25,093		 	24,707		
Retail:	 	 	 	 	 	
Kansas City, MO	37,211		 	34,269		 	33,516		
Total Retail Segment	37,211		 	34,269		 	33,516		
Total Rental and Other Revenues	$	516,102		 	$	463,444		 	$	440,836		

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

		
19.	Segment Information - Continued	

	
												
 	Year Ended December 31,	
 	2012	 	2011	 	2010	
Net Operating Income: (1)	 	 	 	 	 	
Office:	 	 	 	 	 	
Atlanta, GA	$	39,335		 	$	31,080		 	$	27,641		
Greenville, SC	7,618		 	8,334		 	8,152		
Kansas City, MO	9,523		 	8,375		 	8,835		
Memphis, TN	21,864		 	20,876		 	18,664		
Nashville, TN	38,860		 	36,589		 	35,497		
Orlando, FL	5,845		 	5,187		 	6,264		
Piedmont Triad, NC	13,335		 	13,042		 	13,903		
Pittsburgh, PA	19,548		 	5,450		 	—		
Raleigh, NC	56,682		 	54,704		 	52,413		
Richmond, VA	32,431		 	31,283		 	32,075		
Tampa, FL	43,150		 	42,375		 	44,679		
Total Office Segment	288,191		 	257,295		 	248,123		
Industrial:	 	 	 	 	 	
Atlanta, GA	9,289		 	9,781		 	8,745		
Piedmont Triad, NC	9,156		 	8,653		 	9,048		
Total Industrial Segment	18,445		 	18,434		 	17,793		
Retail:	 	 	 	 	 	
Kansas City, MO	22,545		 	20,159		 	19,952		
Total Retail Segment	22,545		 	20,159		 	19,952		
Residential:	 	 	 	 	 	
Raleigh, NC	(178	)	 	(195	)	 	(362	)	
Total Residential Segment	(178	)	 	(195	)	 	(362	)	
Corporate and other (2)	(86	)	 	(76	)	 	(81	)	
Total Net Operating Income	328,917		 	295,617		 	285,425		
Reconciliation to income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates:	 	 	 	 	 	
Depreciation and amortization	(156,318	)	 	(137,890	)	 	(130,232	)	
Impairments of real estate assets	—		 	(2,429	)	 	—		
General and administrative expenses	(37,626	)	 	(35,753	)	 	(33,308	)	
Interest expense	(96,114	)	 	(95,510	)	 	(92,951	)	
Other income	6,380		 	7,363		 	5,657		
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates	$	45,239		 	$	31,398		 	$	34,591		
__________
		
(1)	Net of discontinued operations.	
		
(2)	Negative NOI with no corresponding revenues represents expensed real estate taxes and other carrying costs associated with land held for development that is currently zoned for the respective product type.	

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

		
19.	Segment Information - Continued	

	
								
 	December 31,	
 	2012	 	2011	
Total Assets:	 	 	 	
Office:	 	 	 	
Atlanta, GA	$	495,175		 	$	359,225		
Greenville, SC	69,138		 	69,669		
Kansas City, MO	84,538		 	86,028		
Memphis, TN	225,541		 	265,259		
Nashville, TN	314,705		 	325,272		
Orlando, FL	51,373		 	46,547		
Piedmont Triad, NC	144,404		 	115,096		
Pittsburgh, PA	330,975		 	227,965		
Raleigh, NC	479,995		 	468,494		
Richmond, VA	246,276		 	254,364		
Tampa, FL	386,676		 	394,569		
Total Office Segment	2,828,796		 	2,612,488		
Industrial:	 	 	 	
Atlanta, GA	115,330		 	133,640		
Piedmont Triad, NC	76,013		 	78,081		
Total Industrial Segment	191,343		 	211,721		
Retail:	 	 	 	
Kansas City, MO	166,030		 	170,717		
Total Retail Segment	166,030		 	170,717		
Residential:	 	 	 	
Kansas City, MO	—		 	5,707		
Raleigh, NC	8		 	4,768		
Total Residential Segment	8		 	10,475		
Corporate and other	163,348		 	174,483		
Total Assets	$	3,349,525		 	$	3,179,884		

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

		
20.	Quarterly Financial Data (Unaudited)	

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

	
																				
 	Year Ended December 31, 2012	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	125,583		 	$	128,323		 	$	128,214		 	$	133,982		 	$	516,102		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	11,421		 	11,380		 	12,317		 	15,660		 	50,778		
Income from discontinued operations (1)	6,913		 	3,121		 	23,483		 	—		 	33,517		
Net income	18,334		 	14,501		 	35,800		 	15,660		 	84,295		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(184	)	 	(223	)	 	(159	)	 	(220	)	 	(786	)	
Distributions on Preferred Units	(627	)	 	(627	)	 	(627	)	 	(627	)	 	(2,508	)	
Net income available for common unitholders	$	17,523		 	$	13,651		 	$	35,014		 	$	14,813		 	$	81,001		
Earnings per Common Unit-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.14		 	0.14		 	0.15		 	0.18		 	0.60		
Income from discontinued operations available for common unitholders	0.09		 	0.04		 	0.29		 	—		 	0.42		
Net income available for common unitholders	0.23		 	0.18		 	0.44		 	0.18		 	1.02		
Earnings per Common Unit-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.14		 	0.13		 	0.15		 	0.18		 	0.60		
Income from discontinued operations available for common unitholders	0.09		 	0.04		 	0.29		 	—		 	0.42		
Net income available for common unitholders	0.23		 	0.17		 	0.44		 	0.18		 	1.02		

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

		
20.	Quarterly Financial Data (Unaudited)	

	
																				
 	Year Ended December 31, 2011	
 	First
Quarter	 	Second
Quarter	 	Third
Quarter	 	Fourth
Quarter	 	Total	
Rental and other revenues (1)	$	110,047		 	$	112,185		 	$	117,265		 	$	123,947		 	$	463,444		
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations (1)	10,679		 	12,576		 	3,957		 	11,855		 	39,067		
Income from discontinued operations (1)	1,772		 	1,862		 	4,287		 	1,044		 	8,965		
Net income	12,451		 	14,438		 	8,244		 	12,899		 	48,032		
Net (income) attributable to noncontrolling interests in consolidated affiliates	(123	)	 	(182	)	 	(249	)	 	(201	)	 	(755	)	
Distributions on Preferred Units	(1,677	)	 	(1,622	)	 	(627	)	 	(627	)	 	(4,553	)	
Excess of Preferred Unit redemption/repurchase cost over carrying value	—		 	(1,895	)	 	—		 	—		 	(1,895	)	
Net income available for common unitholders	$	10,651		 	$	10,739		 	$	7,368		 	$	12,071		 	$	40,829		
Earnings per Common Unit-basic:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.12		 	0.12		 	0.04		 	0.15		 	0.42		
Income from discontinued operations available for common unitholders	0.02		 	0.02		 	0.06		 	0.01		 	0.12		
Net income available for common unitholders	0.14		 	0.14		 	0.10		 	0.16		 	0.54		
Earnings per Common Unit-diluted:	 	 	 	 	 	 	 	 	 	
Income from continuing operations available for common unitholders	0.12		 	0.12		 	0.04		 	0.15		 	0.42		
Income from discontinued operations available for common unitholders	0.02		 	0.02		 	0.06		 	0.01		 	0.12		
Net income available for common unitholders	0.14		 	0.14		 	0.10		 	0.16		 	0.54		
__________

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

		
20.	Quarterly Financial Data (Unaudited) – Continued	

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

	
												
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	
 	2012	 	2012	 	2012	
Rental and other revenues, as reported	$	129,943		 	$	130,735		 	$	128,214		
Discontinued operations	(4,360	)	 	(2,412	)	 	—		
Rental and other revenues, as adjusted	$	125,583		 	$	128,323		 	$	128,214		
Income from continuing operations, as reported	$	13,117		 	$	12,360		 	$	12,317		
Discontinued operations	(1,696	)	 	(980	)	 	—		
Income from continuing operations, as adjusted	$	11,421		 	$	11,380		 	$	12,317		
Income from discontinued operations, as reported	$	5,217		 	$	2,141		 	$	23,483		
Additional discontinued operations from properties sold subsequent to the respective reporting period	1,696		 	980		 	—		
Income from discontinued operations, as adjusted	$	6,913		 	$	3,121		 	$	23,483		

	
																
 	Quarter Ended	
 	March 31,	 	June 30,	 	September 30,	 	December 31,	
 	2011	 	2011	 	2011	 	2011	
Rental and other revenues, as reported	$	114,351		 	$	114,651		 	$	117,265		 	$	128,730		
Discontinued operations	(4,304	)	 	(2,466	)	 	—		 	(4,783	)	
Rental and other revenues, as adjusted	$	110,047		 	$	112,185		 	$	117,265		 	$	123,947		
Income from continuing operations, as reported	$	11,911		 	$	13,699		 	$	3,957		 	$	12,899		
Discontinued operations	(1,232	)	 	(1,123	)	 	—		 	(1,044	)	
Income from continuing operations, as adjusted	$	10,679		 	$	12,576		 	$	3,957		 	$	11,855		
Income from discontinued operations, as reported	$	540		 	$	739		 	$	4,287		 	$	—		
Additional discontinued operations from properties sold subsequent to the respective reporting period	1,232		 	1,123		 	—		 	1,044		
Income from discontinued operations, as adjusted	$	1,772		 	$	1,862		 	$	4,287		 	$	1,044		

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

		
21.	Subsequent Events	

In early January 2013 , the Company issued 198,177 shares of Common Stock under the equity distribution agreements at an average gross price of $33.97 per share and received net proceeds, after sales commissions and expenses, of $6.6 million .

On January 9, 2013 , we acquired two office buildings encompassing 195,000 square feet in Greensboro, NC for a total purchase price of $30.9 million . We expect to expense $0.2 million of costs related to this acquisition. Due to the limited time since the acquisition date, our initial accounting for this transaction is incomplete and, as such, we are unable to provide purchase price allocation disclosures. The operating results of this acquisition will be included in our 2013 consolidated financial results from the date of acquisition.

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HIGHWOODS PROPERTIES, INC.
 
HIGHWOODS REALTY LIMITED PARTNERSHIP

SCHEDULE II
 
(in thousands)

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

	
																
 	Balance at December 31, 2011	 	Additions	 	Deductions	 	Balance at December 31, 2012	
Allowance for Doubtful Accounts - Straight-Line Rent	$	1,294		 	$	1,382		 	$	(1,747	)	 	$	929		
Allowance for Doubtful Accounts - Accounts Receivable	3,548		 	767		 	(1,467	)	 	2,848		
Allowance for Doubtful Accounts - Notes Receivable	61		 	186		 	(65	)	 	182		
Totals	$	4,903		 	$	2,335		 	$	(3,279	)	 	$	3,959		

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

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

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HIGHWOODS PROPERTIES, INC.
 
HIGHWOODS REALTY LIMITED PARTNERSHIP

NOTE TO SCHEDULE III
 
(in thousands)

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

	
												
 	December 31,	
 	2012	 	2011	 	2010	
Real estate assets:	 	 	 	 	 	
Beginning balance	$	3,594,328		 	$	3,308,306		 	$	3,341,257		
Additions:	 	 	 	 	 	
Acquisitions, development and improvements	214,959		 	329,675		 	104,199		
Cost of real estate sold and retired	(12,823	)	 	(43,653	)	 	(137,150	)	
Ending balance (a)	$	3,796,464		 	$	3,594,328		 	$	3,308,306		
Accumulated depreciation:	 	 	 	 	 	
Beginning balance	$	901,300		 	$	832,918		 	$	782,557		
Depreciation expense	128,971		 	120,812		 	117,639		
Real estate sold and retired	(82,704	)	 	(52,430	)	 	(67,278	)	
Ending balance (b)	$	947,567		 	$	901,300		 	$	832,918		

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

												
 	2012	 	2011	 	2010	
Total per Schedule III	$	3,796,464		 	$	3,594,328		 	$	3,308,306		
Development in progress exclusive of land included in Schedule III	21,198		 	—		 	4,524		
Real estate assets, net, held for sale	—		 	(124,273	)	 	(142,783	)	
Total real estate assets	$	3,817,662		 	$	3,470,055		 	$	3,170,047		

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

												
 	2012	 	2011	 	2010	
Total per Schedule III	$	947,567		 	$	901,300		 	$	832,918		
Real estate assets, net, held for sale	—		 	(32,254	)	 	(34,501	)	
Total accumulated depreciation	$	947,567		 	$	869,046		 	$	798,417		

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
 
(in thousands)
 
December 31, 2012 

																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Atlanta, GA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1700 Century Circle	 	Office	 	Atlanta	 	 	 	$	—		 	$	2,482		 	$	2		 	$	1		 	$	2		 	$	2,483		 	$	2,485		 	$	591		 	1983	 	5-40 yrs.	
1800 Century Boulevard	 	Office	 	Atlanta	 	 	 	1,444		 	29,081		 	—		 	13,179		 	1,444		 	42,260		 	43,704		 	17,806		 	1975	 	5-40 yrs.	
1825 Century Parkway	 	Office	 	Atlanta	 	 	 	864		 	—		 	303		 	14,392		 	1,167		 	14,392		 	15,559		 	3,686		 	2002	 	5-40 yrs.	
1875 Century Boulevard	 	Office	 	Atlanta	 	 	 	—		 	8,924		 	—		 	2,280		 	—		 	11,204		 	11,204		 	5,022		 	1976	 	5-40 yrs.	
1900 Century Boulevard	 	Office	 	Atlanta	 	 	 	—		 	4,744		 	—		 	702		 	—		 	5,446		 	5,446		 	2,296		 	1971	 	5-40 yrs.	
2200 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	14,432		 	—		 	3,672		 	—		 	18,104		 	18,104		 	7,320		 	1971	 	5-40 yrs.	
2400 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	—		 	406		 	12,646		 	406		 	12,646		 	13,052		 	4,640		 	1998	 	5-40 yrs.	
2500 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	—		 	328		 	14,329		 	328		 	14,329		 	14,657		 	3,907		 	2005	 	5-40 yrs.	
2500/2635 Parking Garage	 	Office	 	Atlanta	 	 	 	—		 	—		 	—		 	6,319		 	—		 	6,319		 	6,319		 	1,108		 	2005	 	5-40 yrs.	
2600 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	10,679		 	—		 	3,971		 	—		 	14,650		 	14,650		 	6,205		 	1973	 	5-40 yrs.	
2635 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	21,643		 	—		 	4,513		 	—		 	26,156		 	26,156		 	10,219		 	1980	 	5-40 yrs.	
2800 Century Parkway	 	Office	 	Atlanta	 	 	 	—		 	20,449		 	—		 	6,728		 	—		 	27,177		 	27,177		 	8,810		 	1983	 	5-40 yrs.	
50 Glenlake	 	Office	 	Atlanta	 	 	 	2,500		 	20,006		 	—		 	2,944		 	2,500		 	22,950		 	25,450		 	8,873		 	1997	 	5-40 yrs.	
6348 Northeast Expressway	 	Industrial	 	Atlanta	 	 	 	275		 	1,655		 	—		 	199		 	275		 	1,854		 	2,129		 	789		 	1978	 	5-40 yrs.	
6438 Northeast Expressway	 	Industrial	 	Atlanta	 	 	 	179		 	2,216		 	—		 	612		 	179		 	2,828		 	3,007		 	1,041		 	1981	 	5-40 yrs.	
Bluegrass Lakes I	 	Industrial	 	Atlanta	 	 	 	816		 	—		 	336		 	2,972		 	1,152		 	2,972		 	4,124		 	1,159		 	1999	 	5-40 yrs.	
Bluegrass Place I	 	Industrial	 	Atlanta	 	 	 	491		 	2,061		 	—		 	125		 	491		 	2,186		 	2,677		 	854		 	1995	 	5-40 yrs.	
Bluegrass Place II	 	Industrial	 	Atlanta	 	 	 	412		 	2,583		 	—		 	103		 	412		 	2,686		 	3,098		 	1,026		 	1996	 	5-40 yrs.	
Bluegrass Valley I	 	Industrial	 	Atlanta	 	 	 	1,500		 	—		 	374		 	3,117		 	1,874		 	3,117		 	4,991		 	927		 	2000	 	5-40 yrs.	
Bluegrass Valley - Land	 	Industrial	 	Atlanta	 	 	 	19,711		 	—		 	(14,810	)	 	—		 	4,901		 	—		 	4,901		 	—		 	N/A	 	N/A	
Century Plaza I	 	Office	 	Atlanta	 	 	 	1,290		 	8,567		 	—		 	3,240		 	1,290		 	11,807		 	13,097		 	4,224		 	1981	 	5-40 yrs.	
Century Plaza II	 	Office	 	Atlanta	 	 	 	1,380		 	7,733		 	—		 	2,222		 	1,380		 	9,955		 	11,335		 	3,245		 	1984	 	5-40 yrs.	
Chastain Place I	 	Industrial	 	Atlanta	 	 	 	451		 	—		 	341		 	3,767		 	792		 	3,767		 	4,559		 	1,153		 	1997	 	5-40 yrs.	
Chastain Place II	 	Industrial	 	Atlanta	 	 	 	599		 	—		 	194		 	1,505		 	793		 	1,505		 	2,298		 	515		 	1998	 	5-40 yrs.	
Chastain Place III	 	Industrial	 	Atlanta	 	 	 	539		 	—		 	173		 	1,318		 	712		 	1,318		 	2,030		 	482		 	1999	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Corporate Lakes	 	Industrial	 	Atlanta	 	 	 	1,265		 	7,243		 	—		 	2,124		 	1,265		 	9,367		 	10,632		 	3,540		 	1988	 	5-40 yrs.	
General Services Administration	 	Office	 	Atlanta	 	 	 	3,100		 	—		 	(3,100	)	 	—		 	—		 	—		 	—		 	—		 	2007	 	5-40 yrs.	
Federal Aviation Administration	 	Office	 	Atlanta	 	 	 	1,196		 	—		 	1,416		 	15,143		 	2,612		 	15,143		 	17,755		 	2,232		 	2009	 	5-40 yrs.	
Gwinnett Distribution Center	 	Industrial	 	Atlanta	 	 	 	1,119		 	5,960		 	—		 	3,875		 	1,119		 	9,835		 	10,954		 	3,322		 	1991	 	5-40 yrs.	
Henry County - Land	 	Industrial	 	Atlanta	 	 	 	3,010		 	—		 	13		 	—		 	3,023		 	—		 	3,023		 	—		 	N/A	 	N/A	
Highwoods Ctr I at Tradeport	 	Office	 	Atlanta	 	 	 	307		 	—		 	139		 	2,049		 	446		 	2,049		 	2,495		 	697		 	1999	 	5-40 yrs.	
Highwoods Ctr II at Tradeport	 	Office	 	Atlanta	 	 	 	641		 	—		 	181		 	9,024		 	822		 	9,024		 	9,846		 	379		 	1999	 	5-40 yrs.	
Highwoods Ctr III at Tradeport	 	Office	 	Atlanta	 	 	 	409		 	—		 	130		 	3,900		 	539		 	3,900		 	4,439		 	623		 	2001	 	5-40 yrs.	
Highwoods River Point IV	 	Industrial	 	Atlanta	 	 	 	1,037		 	—		 	858		 	8,820		 	1,895		 	8,820		 	10,715		 	1,275		 	2009	 	5-40 yrs.	
NARA	 	Industrial	 	Atlanta	 	 	 	1,484		 	—		 	(1,484	)	 	—		 	—		 	—		 	—		 	—		 	2004	 	5-40 yrs.	
Newpoint Place I	 	Industrial	 	Atlanta	 	 	 	819		 	—		 	391		 	2,871		 	1,210		 	2,871		 	4,081		 	991		 	1998	 	5-40 yrs.	
Newpoint Place II	 	Industrial	 	Atlanta	 	 	 	1,499		 	—		 	434		 	3,085		 	1,933		 	3,085		 	5,018		 	917		 	1999	 	5-40 yrs.	
Newpoint Place III	 	Industrial	 	Atlanta	 	 	 	668		 	—		 	276		 	1,879		 	944		 	1,879		 	2,823		 	686		 	1998	 	5-40 yrs.	
Newpoint Place IV	 	Industrial	 	Atlanta	 	 	 	989		 	—		 	455		 	4,048		 	1,444		 	4,048		 	5,492		 	973		 	2001	 	5-40 yrs.	
Newpoint Place V	 	Industrial	 	Atlanta	 	 	 	2,150		 	—		 	920		 	8,949		 	3,070		 	8,949		 	12,019		 	2,134		 	2007	 	5-40 yrs.	
Norcross, I & II	 	Industrial	 	Atlanta	 	 	 	323		 	2,000		 	—		 	602		 	323		 	2,602		 	2,925		 	1,099		 	1970	 	5-40 yrs.	
5405 Windward Parkway	 	Office	 	Atlanta	 	 	 	3,342		 	32,111		 	—		 	411		 	3,342		 	32,522		 	35,864		 	12,155		 	1998	 	5-40 yrs.	
Riverpoint - Land	 	Industrial	 	Atlanta	 	 	 	7,250		 	—		 	4,525		 	2,712		 	11,775		 	2,712		 	14,487		 	211		 	N/A	 	N/A	
Riverwood 100	 	Office	 	Atlanta	 	(1)	 	5,785		 	64,913		 	—		 	4,629		 	5,785		 	69,542		 	75,327		 	3,175		 	1989	 	5-40 yrs.	
South Park Residential - Land	 	Other	 	Atlanta	 	 	 	50		 	—		 	7		 	—		 	57		 	—		 	57		 	—		 	N/A	 	N/A	
South Park Site - Land	 	Industrial	 	Atlanta	 	 	 	1,204		 	—		 	754		 	—		 	1,958		 	—		 	1,958		 	—		 	N/A	 	N/A	
Southside Distribution Center	 	Industrial	 	Atlanta	 	 	 	804		 	4,553		 	—		 	2,207		 	804		 	6,760		 	7,564		 	2,664		 	1988	 	5-40 yrs.	
Tradeport Place I	 	Industrial	 	Atlanta	 	 	 	557		 	—		 	261		 	2,218		 	818		 	2,218		 	3,036		 	750		 	1999	 	5-40 yrs.	
Tradeport Place II	 	Industrial	 	Atlanta	 	 	 	557		 	—		 	261		 	2,305		 	818		 	2,305		 	3,123		 	809		 	1999	 	5-40 yrs.	
Tradeport Place III	 	Industrial	 	Atlanta	 	 	 	673		 	—		 	370		 	2,684		 	1,043		 	2,684		 	3,727		 	907		 	1999	 	5-40 yrs.	
Tradeport Place IV	 	Industrial	 	Atlanta	 	 	 	667		 	—		 	365		 	3,683		 	1,032		 	3,683		 	4,715		 	1,105		 	2001	 	5-40 yrs.	
Tradeport - Land	 	Industrial	 	Atlanta	 	 	 	5,243		 	—		 	(387	)	 	—		 	4,856		 	—		 	4,856		 	—		 	N/A	 	N/A	
Tradeport Place V	 	Industrial	 	Atlanta	 	 	 	463		 	—		 	180		 	2,322		 	643		 	2,322		 	2,965		 	565		 	2002	 	5-40 yrs.	
Two Point Royal	 	Office	 	Atlanta	 	 	 	1,793		 	14,964		 	—		 	2,486		 	1,793		 	17,450		 	19,243		 	6,737		 	1997	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Two Alliance Center	 	Office	 	Atlanta	 	 	 	9,579		 	125,549		 	—		 	2,020		 	9,579		 	127,569		 	137,148		 	1,587		 	2009	 	5-40 yrs.	
Greenville, SC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Brookfield Plaza	 	Office	 	Greenville	 	 	 	1,500		 	8,514		 	—		 	2,691		 	1,500		 	11,205		 	12,705		 	4,922		 	1987	 	5-40 yrs.	
Jacobs Building	 	Office	 	Greenville	 	 	 	3,050		 	17,280		 	(23	)	 	3,880		 	3,027		 	21,160		 	24,187		 	9,155		 	1990	 	5-40 yrs.	
Brookfield Metlife	 	Office	 	Greenville	 	 	 	1,039		 	—		 	352		 	8,033		 	1,391		 	8,033		 	9,424		 	2,226		 	2001	 	5-40 yrs.	
Patewood I	 	Office	 	Greenville	 	 	 	942		 	5,117		 	—		 	992		 	942		 	6,109		 	7,051		 	2,315		 	1985	 	5-40 yrs.	
Patewood II	 	Office	 	Greenville	 	 	 	942		 	5,176		 	—		 	651		 	942		 	5,827		 	6,769		 	2,259		 	1987	 	5-40 yrs.	
Patewood III	 	Office	 	Greenville	 	 	 	842		 	4,776		 	—		 	489		 	842		 	5,265		 	6,107		 	2,147		 	1989	 	5-40 yrs.	
Patewood IV	 	Office	 	Greenville	 	 	 	1,219		 	6,918		 	—		 	618		 	1,219		 	7,536		 	8,755		 	3,095		 	1989	 	5-40 yrs.	
Patewood V	 	Office	 	Greenville	 	 	 	1,690		 	9,589		 	—		 	1,359		 	1,690		 	10,948		 	12,638		 	4,448		 	1990	 	5-40 yrs.	
Patewood VI	 	Office	 	Greenville	 	 	 	2,360		 	—		 	321		 	7,661		 	2,681		 	7,661		 	10,342		 	2,693		 	1999	 	5-40 yrs.	
Kansas City, MO	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Country Club Plaza	 	Retail	 	Kansas City	 	 	 	14,286		 	146,879		 	(198	)	 	126,551		 	14,088		 	273,430		 	287,518		 	98,798		 	1920-2002	 	5-40 yrs.	
Land - Hotel Land - Valencia	 	Office	 	Kansas City	 	 	 	978		 	—		 	111		 	—		 	1,089		 	—		 	1,089		 	—		 	N/A	 	N/A	
Neptune Apartments	 	Office	 	Kansas City	 	 	 	1,098		 	6,282		 	(1,098	)	 	(6,282	)	 	—		 	—		 	—		 	—		 	1988	 	5-40 yrs.	
One Ward Parkway	 	Office	 	Kansas City	 	 	 	681		 	3,937		 	(681	)	 	(3,937	)	 	—		 	—		 	—		 	—		 	1980	 	5-40 yrs.	
Park Plaza Building	 	Office	 	Kansas City	 	(1)	 	1,384		 	6,410		 	—		 	1,982		 	1,384		 	8,392		 	9,776		 	2,706		 	1983	 	5-40 yrs.	
Two Emanuel Cleaver Boulevard	 	Office	 	Kansas City	 	 	 	984		 	4,402		 	—		 	2,074		 	984		 	6,476		 	7,460		 	1,956		 	1983	 	5-40 yrs.	
Valencia Place Office	 	Office	 	Kansas City	 	(1)	 	1,576		 	—		 	970		 	36,673		 	2,546		 	36,673		 	39,219		 	13,283		 	1999	 	5-40 yrs.	
Memphis, TN	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3400 Players Club Parkway	 	Office	 	Memphis	 	 	 	1,005		 	—		 	207		 	5,260		 	1,212		 	5,260		 	6,472		 	2,020		 	1997	 	5-40 yrs.	
Triad Centre I	 	Office	 	Memphis	 	 	 	2,340		 	11,385		 	(849	)	 	4,289		 	1,491		 	15,674		 	17,165		 	4,848		 	1985	 	5-40 yrs.	
Triad Centre II	 	Office	 	Memphis	 	 	 	1,980		 	8,677		 	(404	)	 	3,269		 	1,576		 	11,946		 	13,522		 	3,713		 	1987	 	5-40 yrs.	
Atrium I & II	 	Office	 	Memphis	 	 	 	1,570		 	6,253		 	—		 	2,449		 	1,570		 	8,702		 	10,272		 	3,659		 	1984	 	5-40 yrs.	
Centrum	 	Office	 	Memphis	 	 	 	1,013		 	5,580		 	—		 	2,587		 	1,013		 	8,167		 	9,180		 	3,193		 	1979	 	5-40 yrs.	
Comcast	 	Office	 	Memphis	 	 	 	946		 	—		 	—		 	8,621		 	946		 	8,621		 	9,567		 	1,805		 	2008	 	5-40 yrs.	
International Place Phase II	 	Office	 	Memphis	 	(2)	 	4,884		 	27,782		 	—		 	4,060		 	4,884		 	31,842		 	36,726		 	13,333		 	1988	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
PennMarc Centre	 	Office	 	Memphis	 	7,028	 	3,607		 	10,240		 	—		 	1,423		 	3,607		 	11,663		 	15,270		 	1,751		 	2008	 	5-40 yrs.	
Shadow Creek I	 	Office	 	Memphis	 	 	 	924		 	—		 	466		 	6,559		 	1,390		 	6,559		 	7,949		 	2,025		 	2000	 	5-40 yrs.	
Shadow Creek II	 	Office	 	Memphis	 	 	 	734		 	—		 	467		 	7,164		 	1,201		 	7,164		 	8,365		 	1,968		 	2001	 	5-40 yrs.	
Southwind Office Center A	 	Office	 	Memphis	 	 	 	1,004		 	5,694		 	282		 	1,448		 	1,286		 	7,142		 	8,428		 	2,975		 	1991	 	5-40 yrs.	
Southwind Office Center B	 	Office	 	Memphis	 	 	 	1,366		 	7,754		 	—		 	981		 	1,366		 	8,735		 	10,101		 	3,578		 	1990	 	5-40 yrs.	
Southwind Office Center C	 	Office	 	Memphis	 	 	 	1,070		 	—		 	221		 	5,079		 	1,291		 	5,079		 	6,370		 	1,833		 	1998	 	5-40 yrs.	
Southwind Office Center D	 	Office	 	Memphis	 	 	 	744		 	—		 	193		 	5,310		 	937		 	5,310		 	6,247		 	1,666		 	1999	 	5-40 yrs.	
Colonnade	 	Office	 	Memphis	 	 	 	1,300		 	6,481		 	267		 	505		 	1,567		 	6,986		 	8,553		 	2,612		 	1998	 	5-40 yrs.	
ThyssenKrupp Elevator Mfg Headquarters	 	Office	 	Memphis	 	 	 	1,040		 	—		 	25		 	8,342		 	1,065		 	8,342		 	9,407		 	2,198		 	2007	 	5-40 yrs.	
General Services Administration	 	Office	 	Memphis	 	 	 	871		 	—		 	(871	)	 	—		 	—		 	—		 	—		 	—		 	2007	 	5-40 yrs.	
Crescent Center	 	Office	 	Memphis	 	39,805	 	7,875		 	32,756		 	—		 	4,168		 	7,875		 	36,924		 	44,799		 	2,975		 	1986	 	5-40 yrs.	
Southwind - Land	 	Office	 	Memphis	 	 	 	3,662		 	—		 	(1,477	)	 	—		 	2,185		 	—		 	2,185		 	—		 	N/A	 	N/A	
Triad Centre III	 	Office	 	Memphis	 	 	 	1,253		 	—		 	—		 	35,122		 	1,253		 	35,122		 	36,375		 	2,943		 	2009	 	5-40 yrs.	
Nashville, TN	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3322 West End	 	Office	 	Nashville	 	 	 	3,025		 	27,490		 	—		 	3,556		 	3,025		 	31,046		 	34,071		 	10,301		 	1986	 	5-40 yrs.	
3401 West End	 	Office	 	Nashville	 	 	 	5,862		 	22,917		 	—		 	5,630		 	5,862		 	28,547		 	34,409		 	12,724		 	1982	 	5-40 yrs.	
5310 Maryland Way	 	Office	 	Nashville	 	 	 	1,863		 	7,201		 	—		 	230		 	1,863		 	7,431		 	9,294		 	3,139		 	1994	 	5-40 yrs.	
BNA Corporate Center	 	Office	 	Nashville	 	 	 	—		 	18,506		 	—		 	(18,506	)	 	—		 	—		 	—		 	—		 	1985	 	5-40 yrs.	
Century City Plaza I	 	Office	 	Nashville	 	 	 	903		 	6,919		 	(903	)	 	(6,919	)	 	—		 	—		 	—		 	—		 	1987	 	5-40 yrs.	
Cool Springs 1 & 2 Deck	 	Office	 	Nashville	 	(3)	 	—		 	—		 	—		 	3,957		 	—		 	3,957		 	3,957		 	511		 	2007	 	5-40 yrs.	
Cool Springs 3 & 4 Deck	 	Office	 	Nashville	 	(1)	 	—		 	—		 	—		 	4,418		 	—		 	4,418		 	4,418		 	636		 	2007	 	5-40 yrs.	
Cool Springs I	 	Office	 	Nashville	 	(3)	 	1,583		 	—		 	15		 	12,288		 	1,598		 	12,288		 	13,886		 	4,135		 	1999	 	5-40 yrs.	
Cool Springs II	 	Office	 	Nashville	 	(3)	 	1,824		 	—		 	346		 	18,154		 	2,170		 	18,154		 	20,324		 	5,429		 	1999	 	5-40 yrs.	
Cool Springs III	 	Office	 	Nashville	 	(3)	 	1,631		 	—		 	804		 	16,949		 	2,435		 	16,949		 	19,384		 	4,089		 	2006	 	5-40 yrs.	
Cool Springs IV	 	Office	 	Nashville	 	(1)	 	1,715		 	—		 	—		 	21,371		 	1,715		 	21,371		 	23,086		 	3,546		 	2008	 	5-40 yrs.	
Cool Springs V – Healthways	 	Office	 	Nashville	 	 	 	3,688		 	—		 	295		 	52,433		 	3,983		 	52,433		 	56,416		 	8,586		 	2007	 	5-40 yrs.	
Harpeth On The Green II	 	Office	 	Nashville	 	 	 	1,419		 	5,677		 	—		 	1,292		 	1,419		 	6,969		 	8,388		 	2,941		 	1984	 	5-40 yrs.	
Harpeth On The Green III	 	Office	 	Nashville	 	 	 	1,660		 	6,649		 	—		 	1,836		 	1,660		 	8,485		 	10,145		 	3,514		 	1987	 	5-40 yrs.	
Harpeth On The Green IV	 	Office	 	Nashville	 	 	 	1,713		 	6,842		 	—		 	1,464		 	1,713		 	8,306		 	10,019		 	3,314		 	1989	 	5-40 yrs.	
Harpeth On The Green V	 	Office	 	Nashville	 	 	 	662		 	—		 	197		 	4,304		 	859		 	4,304		 	5,163		 	1,647		 	1998	 	5-40 yrs.	
Hickory Trace	 	Office	 	Nashville	 	(2)	 	1,164		 	—		 	164		 	4,657		 	1,328		 	4,657		 	5,985		 	1,350		 	2001	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Highwoods Plaza I	 	Office	 	Nashville	 	 	 	1,552		 	—		 	307		 	7,989		 	1,859		 	7,989		 	9,848		 	3,337		 	1996	 	5-40 yrs.	
Highwoods Plaza II	 	Office	 	Nashville	 	 	 	1,448		 	—		 	307		 	5,799		 	1,755		 	5,799		 	7,554		 	2,160		 	1997	 	5-40 yrs.	
Lakeview Ridge II	 	Office	 	Nashville	 	 	 	605		 	—		 	(605	)	 	—		 	—		 	—		 	—		 	—		 	1998	 	5-40 yrs.	
Lakeview Ridge III	 	Office	 	Nashville	 	 	 	1,073		 	—		 	(1,073	)	 	—		 	—		 	—		 	—		 	—		 	1999	 	5-40 yrs.	
Seven Springs - Land I	 	Office	 	Nashville	 	 	 	3,122		 	—		 	(1,314	)	 	—		 	1,808		 	—		 	1,808		 	—		 	N/A	 	N/A	
Seven Springs - Land II	 	Office	 	Nashville	 	 	 	3,715		 	—		 	(1,025	)	 	—		 	2,690		 	—		 	2,690		 	—		 	N/A	 	N/A	
Seven Springs I	 	Office	 	Nashville	 	 	 	2,076		 	—		 	592		 	12,658		 	2,668		 	12,658		 	15,326		 	4,392		 	2002	 	5-40 yrs.	
SouthPointe	 	Office	 	Nashville	 	 	 	1,655		 	—		 	310		 	6,761		 	1,965		 	6,761		 	8,726		 	2,484		 	1998	 	5-40 yrs.	
The Ramparts of Brentwood	 	Office	 	Nashville	 	 	 	2,394		 	12,806		 	—		 	2,109		 	2,394		 	14,915		 	17,309		 	4,907		 	1986	 	5-40 yrs.	
Westwood South	 	Office	 	Nashville	 	 	 	2,106		 	—		 	382		 	9,006		 	2,488		 	9,006		 	11,494		 	2,972		 	1999	 	5-40 yrs.	
100 Winners Circle	 	Office	 	Nashville	 	 	 	1,497		 	7,258		 	—		 	1,368		 	1,497		 	8,626		 	10,123		 	3,158		 	1987	 	5-40 yrs.	
Nashville - Land	 	Office	 	Nashville	 	 	 	15,000		 	—		 	—		 	—		 	15,000		 	—		 	15,000		 	—		 	N/A	 	 N/A	
Orlando, FL	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Berkshire at MetroCenter	 	Office	 	Orlando	 	 	 	1,265		 	—		 	672		 	12,781		 	1,937		 	12,781		 	14,718		 	2,984		 	2007	 	5-40 yrs.	
Capital Plaza III - Land	 	Office	 	Orlando	 	 	 	2,994		 	—		 	18		 	—		 	3,012		 	—		 	3,012		 	—		 	N/A	 	 N/A	
Eola Park - Land	 	Office	 	Orlando	 	 	 	2,027		 	—		 	—		 	—		 	2,027		 	—		 	2,027		 	—		 	N/A	 	 N/A	
Cambridge at MetroCenter	 	Office	 	Orlando	 	 	 	501		 	—		 	14		 	3,320		 	515		 	3,320		 	3,835		 	773		 	2000	 	5-40 yrs.	
Oxford - Land	 	Office	 	Orlando	 	 	 	1,100		 	—		 	51		 	—		 	1,151		 	—		 	1,151		 	—		 	N/A	 	 N/A	
MetroWest Commerce Center	 	Office	 	Orlando	 	 	 	1,354		 	7,687		 	(164	)	 	4,816		 	1,190		 	12,503		 	13,693		 	4,315		 	1988	 	5-40 yrs.	
Stratford - Land	 	Office	 	Orlando	 	 	 	2,034		 	—		 	(148	)	 	—		 	1,886		 	—		 	1,886		 	—		 	N/A	 	 N/A	
Windsor at MetroCenter	 	Office	 	Orlando	 	 	 	—		 	—		 	2,060		 	8,296		 	2,060		 	8,296		 	10,356		 	2,000		 	2002	 	5-40 yrs.	
The 1800 Eller Drive Building	 	Office	 	South Florida	 	 	 	—		 	9,851		 	—		 	2,619		 	—		 	12,470		 	12,470		 	5,550		 	1983	 	5-40 yrs.	
Piedmont Triad, NC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
101 South Stratford Road	 	Office	 	Piedmont Triad	 	 	 	1,205		 	6,916		 	—		 	1,164		 	1,205		 	8,080		 	9,285		 	3,013		 	1986	 	5-40 yrs.	
6348 Burnt Poplar	 	Industrial	 	Piedmont Triad	 	 	 	724		 	2,900		 	—		 	254		 	724		 	3,154		 	3,878		 	1,355		 	1990	 	5-40 yrs.	
6350 Burnt Poplar	 	Industrial	 	Piedmont Triad	 	 	 	341		 	1,374		 	—		 	237		 	341		 	1,611		 	1,952		 	701		 	1992	 	5-40 yrs.	
7341 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	113		 	841		 	—		 	381		 	113		 	1,222		 	1,335		 	521		 	1988	 	5-40 yrs.	
7343 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	72		 	555		 	—		 	273		 	72		 	828		 	900		 	331		 	1988	 	5-40 yrs.	

164

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
7345 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	66		 	492		 	—		 	210		 	66		 	702		 	768		 	295		 	1988	 	5-40 yrs.	
7347 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	97		 	719		 	—		 	269		 	97		 	988		 	1,085		 	407		 	1988	 	5-40 yrs.	
7349 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	53		 	393		 	—		 	161		 	53		 	554		 	607		 	202		 	1988	 	5-40 yrs.	
7351 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	106		 	788		 	—		 	153		 	106		 	941		 	1,047		 	399		 	1988	 	5-40 yrs.	
7353 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	123		 	912		 	—		 	120		 	123		 	1,032		 	1,155		 	420		 	1988	 	5-40 yrs.	
7355 West Friendly Avenue	 	Industrial	 	Piedmont Triad	 	 	 	72		 	538		 	—		 	156		 	72		 	694		 	766		 	276		 	1988	 	5-40 yrs.	
420 Gallimore Dairy Road	 	Office	 	Piedmont Triad	 	 	 	379		 	1,516		 	—		 	419		 	379		 	1,935		 	2,314		 	803		 	1990	 	5-40 yrs.	
418 Gallimore Dairy Road	 	Office	 	Piedmont Triad	 	 	 	462		 	1,849		 	—		 	414		 	462		 	2,263		 	2,725		 	949		 	1986	 	5-40 yrs.	
416 Gallimore Dairy Road	 	Office	 	Piedmont Triad	 	 	 	322		 	1,293		 	—		 	485		 	322		 	1,778		 	2,100		 	766		 	1986	 	5-40 yrs.	
7031 Albert Pick Road	 	Office	 	Piedmont Triad	 	 	 	510		 	2,921		 	—		 	1,668		 	510		 	4,589		 	5,099		 	2,008		 	1986	 	5-40 yrs.	
7029 Albert Pick Road	 	Office	 	Piedmont Triad	 	 	 	739		 	3,237		 	—		 	875		 	739		 	4,112		 	4,851		 	1,933		 	1988	 	5-40 yrs.	
7025 Albert Pick Road	 	Office	 	Piedmont Triad	 	(2)	 	2,393		 	9,576		 	—		 	2,884		 	2,393		 	12,460		 	14,853		 	5,424		 	1990	 	5-40 yrs.	
7027 Albert Pick Road	 	Office	 	Piedmont Triad	 	(2)	 	850		 	—		 	699		 	3,911		 	1,549		 	3,911		 	5,460		 	1,486		 	1997	 	5-40 yrs.	
7009 Albert Pick Road	 	Industrial	 	Piedmont Triad	 	 	 	224		 	1,068		 	—		 	320		 	224		 	1,388		 	1,612		 	748		 	1990	 	5-40 yrs.	
426 Gallimore Dairy Road	 	Office	 	Piedmont Triad	 	 	 	465		 	—		 	380		 	1,024		 	845		 	1,024		 	1,869		 	429		 	1996	 	5-40 yrs.	
422 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	145		 	1,081		 	—		 	331		 	145		 	1,412		 	1,557		 	570		 	1990	 	5-40 yrs.	
406 Gallimore Dairy Road	 	Office	 	Piedmont Triad	 	 	 	265		 	—		 	270		 	951		 	535		 	951		 	1,486		 	378		 	1996	 	5-40 yrs.	
7021 Albert Pick Road	 	Industrial	 	Piedmont Triad	 	 	 	237		 	1,103		 	—		 	199		 	237		 	1,302		 	1,539		 	567		 	1985	 	5-40 yrs.	
7019 Albert Pick Road	 	Industrial	 	Piedmont Triad	 	 	 	192		 	946		 	—		 	199		 	192		 	1,145		 	1,337		 	488		 	1985	 	5-40 yrs.	

165

Table of Contents

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
7015 Albert Pick Road	 	Industrial	 	Piedmont Triad	 	 	 	305		 	1,219		 	—		 	372		 	305		 	1,591		 	1,896		 	682		 	1985	 	5-40 yrs.	
7017 Albert Pick Road	 	Industrial	 	Piedmont Triad	 	 	 	225		 	928		 	—		 	116		 	225		 	1,044		 	1,269		 	454		 	1985	 	5-40 yrs.	
7011 Albert Pick Road	 	Industrial	 	Piedmont Triad	 	 	 	171		 	777		 	—		 	230		 	171		 	1,007		 	1,178		 	432		 	1990	 	5-40 yrs.	
424 Gallimore Dairy Road	 	Office	 	Piedmont Triad	 	 	 	271		 	—		 	239		 	989		 	510		 	989		 	1,499		 	480		 	1997	 	5-40 yrs.	
410 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	356		 	1,613		 	—		 	202		 	356		 	1,815		 	2,171		 	840		 	1985	 	5-40 yrs.	
412 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	374		 	1,523		 	—		 	377		 	374		 	1,900		 	2,274		 	787		 	1985	 	5-40 yrs.	
408 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	341		 	1,486		 	—		 	629		 	341		 	2,115		 	2,456		 	1,006		 	1986	 	5-40 yrs.	
414 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	659		 	2,676		 	—		 	646		 	659		 	3,322		 	3,981		 	1,447		 	1988	 	5-40 yrs.	
237 Burgess Road	 	Industrial	 	Piedmont Triad	 	 	 	860		 	2,919		 	—		 	550		 	860		 	3,469		 	4,329		 	1,548		 	1986	 	5-40 yrs.	
235 Burgess Road	 	Industrial	 	Piedmont Triad	 	 	 	1,302		 	4,392		 	—		 	706		 	1,302		 	5,098		 	6,400		 	2,504		 	1987	 	5-40 yrs.	
241 Burgess Road	 	Industrial	 	Piedmont Triad	 	 	 	450		 	1,517		 	—		 	897		 	450		 	2,414		 	2,864		 	964		 	1988	 	5-40 yrs.	
243 Burgess Road	 	Industrial	 	Piedmont Triad	 	 	 	452		 	1,514		 	—		 	153		 	452		 	1,667		 	2,119		 	774		 	1988	 	5-40 yrs.	
496 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	546		 	—		 	—		 	2,918		 	546		 	2,918		 	3,464		 	1,157		 	1998	 	5-40 yrs.	
494 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	749		 	—		 	—		 	2,509		 	749		 	2,509		 	3,258		 	854		 	1999	 	5-40 yrs.	
486 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	603		 	—		 	—		 	2,273		 	603		 	2,273		 	2,876		 	729		 	1999	 	5-40 yrs.	
488 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	499		 	—		 	—		 	2,075		 	499		 	2,075		 	2,574		 	661		 	1999	 	5-40 yrs.	
490 Gallimore Dairy Road	 	Industrial	 	Piedmont Triad	 	 	 	1,733		 	—		 	—		 	5,742		 	1,733		 	5,742		 	7,475		 	2,691		 	1999	 	5-40 yrs.	
7825 National Service Road	 	Office	 	Piedmont Triad	 	 	 	944		 	3,831		 	—		 	1,017		 	944		 	4,848		 	5,792		 	2,230		 	1984	 	5-40 yrs.	
7823 National Service Road	 	Office	 	Piedmont Triad	 	 	 	887		 	3,550		 	—		 	506		 	887		 	4,056		 	4,943		 	1,818		 	1985	 	5-40 yrs.	

166

Table of Contents

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
7819 National Service Road	 	Office	 	Piedmont Triad	 	 	 	227		 	907		 	—		 	430		 	227		 	1,337		 	1,564		 	644		 	1985	 	5-40 yrs.	
7817 National Service Road	 	Office	 	Piedmont Triad	 	 	 	243		 	971		 	—		 	647		 	243		 	1,618		 	1,861		 	622		 	1985	 	5-40 yrs.	
7815 National Service Road	 	Office	 	Piedmont Triad	 	 	 	327		 	1,309		 	—		 	842		 	327		 	2,151		 	2,478		 	968		 	1985	 	5-40 yrs.	
Brigham Road - Land	 	Industrial	 	Piedmont Triad	 	 	 	7,059		 	—		 	(3,720	)	 	—		 	3,339		 	—		 	3,339		 	—		 	N/A	 	N/A	
3330 Healy Drive	 	Office	 	Piedmont Triad	 	 	 	625		 	2,183		 	(235	)	 	555		 	390		 	2,738		 	3,128		 	1,344		 	1983	 	5-40 yrs.	
3334 Healy Drive	 	Office	 	Piedmont Triad	 	 	 	625		 	4,435		 	(203	)	 	(983	)	 	422		 	3,452		 	3,874		 	1,754		 	1983	 	5-40 yrs.	
1381 Old Mill Circle	 	Office	 	Piedmont Triad	 	 	 	680		 	3,572		 	(217	)	 	(963	)	 	463		 	2,609		 	3,072		 	1,317		 	1989	 	5-40 yrs.	
1399 Ashleybrook Lane	 	Office	 	Piedmont Triad	 	 	 	376		 	1,655		 	(123	)	 	(337	)	 	253		 	1,318		 	1,571		 	667		 	1989	 	5-40 yrs.	
7800 Thorndike Road	 	Office	 	Piedmont Triad	 	 	 	1,041		 	5,892		 	—		 	1,429		 	1,041		 	7,321		 	8,362		 	2,812		 	1989	 	5-40 yrs.	
651 Brigham Road	 	Industrial	 	Piedmont Triad	 	 	 	453		 	—		 	360		 	2,900		 	813		 	2,900		 	3,713		 	896		 	2002	 	5-40 yrs.	
657 Brigham Road	 	Industrial	 	Piedmont Triad	 	 	 	2,733		 	—		 	881		 	11,097		 	3,614		 	11,097		 	14,711		 	1,924		 	2006	 	5-40 yrs.	
653 Brigham Road	 	Industrial	 	Piedmont Triad	 	 	 	814		 	—		 	—		 	3,587		 	814		 	3,587		 	4,401		 	454		 	2007	 	5-40 yrs.	
2000 Frontis Plaza Boulevard	 	Office	 	Piedmont Triad	 	 	 	329		 	1,867		 	—		 	767		 	329		 	2,634		 	2,963		 	1,227		 	1985	 	5-40 yrs.	
1501 Highwoods Boulevard	 	Office	 	Piedmont Triad	 	 	 	1,476		 	—		 	—		 	7,848		 	1,476		 	7,848		 	9,324		 	2,126		 	2001	 	5-40 yrs.	
Jefferson Pilot - Land	 	Office	 	Piedmont Triad	 	 	 	11,759		 	—		 	(4,311	)	 	—		 	7,448		 	—		 	7,448		 	—		 	N/A	 	 N/A	
4200 Tudor Lane	 	Industrial	 	Piedmont Triad	 	 	 	515		 	—		 	383		 	2,352		 	898		 	2,352		 	3,250		 	988		 	1996	 	5-40 yrs.	
4224 Tudor Lane	 	Industrial	 	Piedmont Triad	 	 	 	435		 	—		 	288		 	1,838		 	723		 	1,838		 	2,561		 	724		 	1996	 	5-40 yrs.	
7023 Albert Pick Road	 	Office	 	Piedmont Triad	 	 	 	834		 	3,459		 	—		 	500		 	834		 	3,959		 	4,793		 	1,706		 	1989	 	5-40 yrs.	
380 Knollwood Street - Retail	 	Office	 	Piedmont Triad	 	 	 	—		 	1		 	—		 	227		 	—		 	228		 	228		 	117		 	1995	 	5-40 yrs.	

167

Table of Contents

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
370 Knollwood Street	 	Office	 	Piedmont Triad	 	 	 	1,826		 	7,495		 	—		 	2,627		 	1,826		 	10,122		 	11,948		 	3,716		 	1994	 	5-40 yrs.	
380 Knollwood Street	 	Office	 	Piedmont Triad	 	 	 	2,989		 	12,028		 	—		 	2,902		 	2,989		 	14,930		 	17,919		 	6,580		 	1990	 	5-40 yrs.	
799 Hanes Mall Boulevard	 	Office	 	Piedmont Triad	 	 	 	1,450		 	11,375		 	—		 	1,005		 	1,450		 	12,380		 	13,830		 	4,924		 	1970-1987	 	5-40 yrs.	
3901 Westpoint Boulevard	 	Office	 	Piedmont Triad	 	 	 	347		 	1,389		 	—		 	97		 	347		 	1,486		 	1,833		 	653		 	1990	 	5-40 yrs.	
Church St Medical Center I	 	Office	 	Piedmont Triad	 	7,764		 	2,734		 	9,129		 	—		 	—		 	2,734		 	9,129		 	11,863		 	91		 	2003	 	5-40 yrs.	
Church St Medical Center II	 	Office	 	Piedmont Triad	 	 	 	2,376		 	5,451		 	—		 	3		 	2,376		 	5,454		 	7,830		 	125		 	2007	 	5-40 yrs.	
Church St Medical Center III	 	Office	 	Piedmont Triad	 	 	 	925		 	4,551		 	—		 	76		 	925		 	4,627		 	5,552		 	91		 	2008	 	5-40 yrs.	
Pittsburgh, PA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
One PPG Place	 	Office	 	Pittsburgh	 	(4)	 	9,819		 	107,643		 	—		 	11,751		 	9,819		 	119,394		 	129,213		 	5,274		 	1983-1985	 	5-40 yrs.	
Two PPG Place-Office	 	Office	 	Pittsburgh	 	(4)	 	2,302		 	10,863		 	—		 	376		 	2,302		 	11,239		 	13,541		 	520		 	1983-1985	 	5-40 yrs.	
Two PPG Place-Retail	 	Office	 	Pittsburgh	 	(4)	 	—		 	115		 	—		 	150		 	—		 	265		 	265		 	28		 	1983-1985	 	5-40 yrs.	
Three PPG Place	 	Office	 	Pittsburgh	 	(4)	 	501		 	2,923		 	—		 	556		 	501		 	3,479		 	3,980		 	152		 	1983-1985	 	5-40 yrs.	
Four PPG Place	 	Office	 	Pittsburgh	 	(4)	 	620		 	3,239		 	—		 	689		 	620		 	3,928		 	4,548		 	154		 	1983-1985	 	5-40 yrs.	
Five PPG Place	 	Office	 	Pittsburgh	 	(4)	 	803		 	4,924		 	—		 	1,149		 	803		 	6,073		 	6,876		 	310		 	1983-1985	 	5-40 yrs.	
Six PPG Place	 	Office	 	Pittsburgh	 	(4)	 	3,353		 	25,602		 	—		 	2,744		 	3,353		 	28,346		 	31,699		 	1,698		 	1983-1985	 	5-40 yrs.	
EQT Plaza	 	Office	 	Pittsburgh	 	 	 	—		 	83,812		 	—		 	—		 	—		 	83,812		 	83,812		 	282		 	1987	 	5-40 yrs.	
Raleigh, NC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3600 Glenwood Avenue	 	Office	 	Raleigh	 	 	 	—		 	10,994		 	—		 	4,581		 	—		 	15,575		 	15,575		 	5,441		 	1986	 	5-40 yrs.	
3737 Glenwood Avenue	 	Office	 	Raleigh	 	 	 	—		 	—		 	318		 	15,347		 	318		 	15,347		 	15,665		 	4,822		 	1999	 	5-40 yrs.	
4101 Research Commons	 	Office	 	Raleigh	 	 	 	1,348		 	8,346		 	220		 	(2,109	)	 	1,568		 	6,237		 	7,805		 	2,026		 	1999	 	5-40 yrs.	
4201 Research Commons	 	Office	 	Raleigh	 	 	 	1,204		 	11,858		 	—		 	(1,284	)	 	1,204		 	10,574		 	11,778		 	4,029		 	1991	 	5-40 yrs.	
4301 Research Commons	 	Office	 	Raleigh	 	 	 	900		 	8,237		 	—		 	534		 	900		 	8,771		 	9,671		 	3,853		 	1989	 	5-40 yrs.	
4401 Research Commons	 	Office	 	Raleigh	 	 	 	1,249		 	9,387		 	—		 	2,007		 	1,249		 	11,394		 	12,643		 	4,988		 	1987	 	5-40 yrs.	
4501 Research Commons	 	Office	 	Raleigh	 	 	 	785		 	5,856		 	—		 	1,780		 	785		 	7,636		 	8,421		 	3,854		 	1985	 	5-40 yrs.	
4800 North Park	 	Office	 	Raleigh	 	 	 	2,678		 	17,630		 	—		 	7,493		 	2,678		 	25,123		 	27,801		 	11,333		 	1985	 	5-40 yrs.	
4900 North Park	 	Office	 	Raleigh	 	87	 	770		 	1,983		 	—		 	1,275		 	770		 	3,258		 	4,028		 	1,373		 	1984	 	5-40 yrs.	
5000 North Park	 	Office	 	Raleigh	 	 	 	1,010		 	4,612		 	(49	)	 	2,423		 	961		 	7,035		 	7,996		 	3,546		 	1980	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
801 Raleigh Corporate Center	 	Office	 	Raleigh	 	(3)	 	828		 	—		 	272		 	9,565		 	1,100		 	9,565		 	10,665		 	2,700		 	2002	 	5-40 yrs.	
Blue Ridge I	 	Office	 	Raleigh	 	 	 	722		 	4,606		 	—		 	1,082		 	722		 	5,688		 	6,410		 	2,705		 	1982	 	5-40 yrs.	
Blue Ridge II	 	Office	 	Raleigh	 	 	 	462		 	1,410		 	—		 	494		 	462		 	1,904		 	2,366		 	1,091		 	1988	 	5-40 yrs.	
Cape Fear	 	Office	 	Raleigh	 	 	 	131		 	1,630		 	—		 	770		 	131		 	2,400		 	2,531		 	2,224		 	1979	 	5-40 yrs.	
Catawba	 	Office	 	Raleigh	 	 	 	125		 	1,635		 	—		 	2,390		 	125		 	4,025		 	4,150		 	2,975		 	1980	 	5-40 yrs.	
CentreGreen One	 	Office	 	Raleigh	 	(2)	 	1,529		 	—		 	(378	)	 	9,400		 	1,151		 	9,400		 	10,551		 	2,677		 	2000	 	5-40 yrs.	
CentreGreen Two	 	Office	 	Raleigh	 	(2)	 	1,653		 	—		 	(389	)	 	8,885		 	1,264		 	8,885		 	10,149		 	2,655		 	2001	 	5-40 yrs.	
CentreGreen Three - Land	 	Office	 	Raleigh	 	 	 	1,876		 	—		 	(384	)	 	—		 	1,492		 	—		 	1,492		 	—		 	N/A	 	N/A	
CentreGreen Four	 	Office	 	Raleigh	 	(2)	 	1,779		 	—		 	(397	)	 	11,127		 	1,382		 	11,127		 	12,509		 	3,984		 	2002	 	5-40 yrs.	
CentreGreen Five	 	Office	 	Raleigh	 	 	 	1,280		 	—		 	69		 	12,781		 	1,349		 	12,781		 	14,130		 	2,428		 	2008	 	5-40 yrs.	
Cottonwood	 	Office	 	Raleigh	 	 	 	609		 	3,244		 	—		 	434		 	609		 	3,678		 	4,287		 	1,728		 	1983	 	5-40 yrs.	
Dogwood	 	Office	 	Raleigh	 	 	 	766		 	2,769		 	—		 	524		 	766		 	3,293		 	4,059		 	1,656		 	1983	 	5-40 yrs.	
EPA	 	Office	 	Raleigh	 	 	 	2,597		 	—		 	—		 	1,670		 	2,597		 	1,670		 	4,267		 	949		 	2003	 	5-40 yrs.	
GlenLake - Land	 	Office	 	Raleigh	 	 	 	13,003		 	—		 	(6,096	)	 	114		 	6,907		 	114		 	7,021		 	33		 	N/A	 	N/A	
GlenLake One	 	Office	 	Raleigh	 	(2)	 	924		 	—		 	1,324		 	21,914		 	2,248		 	21,914		 	24,162		 	6,652		 	2002	 	5-40 yrs.	
GlenLake Four	 	Office	 	Raleigh	 	(3)	 	1,659		 	—		 	493		 	21,920		 	2,152		 	21,920		 	24,072		 	4,717		 	2006	 	5-40 yrs.	
GlenLake Six	 	Office	 	Raleigh	 	 	 	941		 	—		 	737		 	22,186		 	1,678		 	22,186		 	23,864		 	3,557		 	2008	 	5-40 yrs.	
701 Raleigh Corporate Center	 	Office	 	Raleigh	 	(3)	 	1,304		 	—		 	540		 	13,812		 	1,844		 	13,812		 	15,656		 	5,570		 	1996	 	5-40 yrs.	
Highwoods Centre	 	Office	 	Raleigh	 	 	 	531		 	—		 	(267	)	 	7,553		 	264		 	7,553		 	7,817		 	2,918		 	1998	 	5-40 yrs.	
Highwoods Office Center North - Land	 	Office	 	Raleigh	 	 	 	357		 	49		 	—		 	—		 	357		 	49		 	406		 	31		 	N/A	 	N/A	
Highwoods Tower One	 	Office	 	Raleigh	 	 	 	203		 	16,744		 	—		 	3,377		 	203		 	20,121		 	20,324		 	10,313		 	1991	 	5-40 yrs.	
Highwoods Tower Two	 	Office	 	Raleigh	 	 	 	365		 	—		 	503		 	21,362		 	868		 	21,362		 	22,230		 	6,114		 	2001	 	5-40 yrs.	
Inveresk Parcel 2 - Land	 	Office	 	Raleigh	 	 	 	657		 	—		 	197		 	—		 	854		 	—		 	854		 	—		 	N/A	 	N/A	
Inveresk Parcel 3 - Land	 	Office	 	Raleigh	 	 	 	548		 	—		 	306		 	—		 	854		 	—		 	854		 	—		 	N/A	 	N/A	
Lake Boone Medical Center	 	Office	 	Raleigh	 	 	 	1,450		 	6,311		 	—		 	257		 	1,450		 	6,568		 	8,018		 	527		 	1998	 	5-40 yrs.	
4620 Creekstone Drive	 	Office	 	Raleigh	 	 	 	149		 	—		 	107		 	3,153		 	256		 	3,153		 	3,409		 	982		 	2001	 	5-40 yrs.	
4825 Creekstone Drive	 	Office	 	Raleigh	 	 	 	398		 	—		 	293		 	9,282		 	691		 	9,282		 	9,973		 	3,131		 	1999	 	5-40 yrs.	
Pamlico	 	Office	 	Raleigh	 	 	 	289		 	—		 	—		 	14,825		 	289		 	14,825		 	15,114		 	9,943		 	1980	 	5-40 yrs.	
ParkWest One	 	Office	 	Raleigh	 	 	 	242		 	—		 	—		 	3,315		 	242		 	3,315		 	3,557		 	946		 	2001	 	5-40 yrs.	
ParkWest Two	 	Office	 	Raleigh	 	 	 	356		 	—		 	—		 	4,099		 	356		 	4,099		 	4,455		 	1,574		 	2001	 	5-40 yrs.	
ParkWest Three - Land - Weston	 	Office	 	Raleigh	 	 	 	306		 	—		 	—		 	—		 	306		 	—		 	306		 	—		 	N/A	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Progress Center Renovation	 	Office	 	Raleigh	 	 	 	—		 	—		 	—		 	362		 	—		 	362		 	362		 	215		 	2003	 	5-40 yrs.	
Raleigh Corp Center Lot D	 	Office	 	Raleigh	 	 	 	1,211		 	—		 	8		 	—		 	1,219		 	—		 	1,219		 	—		 	N/A	 	N/A	
PNC Plaza	 	Office	 	Raleigh	 	45,662	 	1,206		 	—		 	—		 	71,553		 	1,206		 	71,553		 	72,759		 	9,831		 	2008	 	5-40 yrs.	
Rexwoods Center I	 	Office	 	Raleigh	 	 	 	878		 	3,730		 	—		 	1,224		 	878		 	4,954		 	5,832		 	2,798		 	1990	 	5-40 yrs.	
Rexwoods Center II	 	Office	 	Raleigh	 	 	 	362		 	1,818		 	—		 	1,001		 	362		 	2,819		 	3,181		 	930		 	1993	 	5-40 yrs.	
Rexwoods Center III	 	Office	 	Raleigh	 	 	 	919		 	2,816		 	—		 	751		 	919		 	3,567		 	4,486		 	1,889		 	1992	 	5-40 yrs.	
Rexwoods Center IV	 	Office	 	Raleigh	 	 	 	586		 	—		 	—		 	3,888		 	586		 	3,888		 	4,474		 	1,574		 	1995	 	5-40 yrs.	
Rexwoods Center V	 	Office	 	Raleigh	 	 	 	1,301		 	—		 	184		 	5,241		 	1,485		 	5,241		 	6,726		 	1,942		 	1998	 	5-40 yrs.	
Riverbirch	 	Office	 	Raleigh	 	 	 	469		 	4,038		 	23		 	6,409		 	492		 	10,447		 	10,939		 	599		 	1987	 	5-40 yrs.	
Situs I	 	Office	 	Raleigh	 	 	 	692		 	4,646		 	178		 	(1,189	)	 	870		 	3,457		 	4,327		 	1,334		 	1996	 	5-40 yrs.	
Situs II	 	Office	 	Raleigh	 	 	 	718		 	6,254		 	181		 	(1,081	)	 	899		 	5,173		 	6,072		 	1,857		 	1998	 	5-40 yrs.	
Situs III	 	Office	 	Raleigh	 	 	 	440		 	4,078		 	119		 	(1,008	)	 	559		 	3,070		 	3,629		 	1,025		 	2000	 	5-40 yrs.	
Six Forks Center I	 	Office	 	Raleigh	 	 	 	666		 	2,665		 	—		 	1,268		 	666		 	3,933		 	4,599		 	1,774		 	1982	 	5-40 yrs.	
Six Forks Center II	 	Office	 	Raleigh	 	 	 	1,086		 	4,533		 	—		 	1,582		 	1,086		 	6,115		 	7,201		 	2,803		 	1983	 	5-40 yrs.	
Six Forks Center III	 	Office	 	Raleigh	 	 	 	862		 	4,411		 	—		 	1,897		 	862		 	6,308		 	7,170		 	2,956		 	1987	 	5-40 yrs.	
Smoketree Tower	 	Office	 	Raleigh	 	 	 	2,353		 	11,743		 	—		 	4,245		 	2,353		 	15,988		 	18,341		 	7,083		 	1984	 	5-40 yrs.	
4601 Creekstone Drive	 	Office	 	Raleigh	 	 	 	255		 	—		 	217		 	5,184		 	472		 	5,184		 	5,656		 	1,945		 	1997	 	5-40 yrs.	
Weston - Land	 	Office	 	Raleigh	 	 	 	22,771		 	—		 	(8,938	)	 	—		 	13,833		 	—		 	13,833		 	—		 	N/A	 	N/A	
4625 Creekstone Drive	 	Office	 	Raleigh	 	 	 	458		 	—		 	268		 	5,142		 	726		 	5,142		 	5,868		 	2,200		 	1995	 	5-40 yrs.	
11000 Weston Parkway	 	Office	 	Raleigh	 	 	 	2,651		 	18,850		 	—		 	233		 	2,651		 	19,083		 	21,734		 	572		 	1998	 	5-40 yrs.	
Other Property	 	Other	 	Raleigh	 	 	 	24,976		 	9,495		 	(23,151	)	 	4,574		 	1,825		 	14,069		 	15,894		 	7,467		 	N/A	 	 N/A	
Richmond, VA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4900 Cox Road	 	Office	 	Richmond	 	 	 	1,324		 	5,311		 	—		 	3,006		 	1,324		 	8,317		 	9,641		 	3,605		 	1991	 	5-40 yrs.	
Colonnade Building	 	Office	 	Richmond	 	(2)	 	1,364		 	6,105		 	—		 	722		 	1,364		 	6,827		 	8,191		 	1,967		 	2003	 	5-40 yrs.	
Dominion Place - Pitts Parcel - Land	 	Office	 	Richmond	 	 	 	1,101		 	—		 	(189	)	 	—		 	912		 	—		 	912		 	—		 	N/A	 	N/A	
Markel 4521	 	Office	 	Richmond	 	10,142	 	1,581		 	13,299		 	—		 	(1,746	)	 	1,581		 	11,553		 	13,134		 	3,683		 	1999	 	5-40 yrs.	
Grove Park I	 	Office	 	Richmond	 	 	 	713		 	—		 	319		 	5,230		 	1,032		 	5,230		 	6,262		 	1,974		 	1997	 	5-40 yrs.	
Hamilton Beach/Proctor-Silex	 	Office	 	Richmond	 	 	 	1,086		 	4,345		 	—		 	2,025		 	1,086		 	6,370		 	7,456		 	3,028		 	1986	 	5-40 yrs.	
Highwoods Commons	 	Office	 	Richmond	 	 	 	521		 	—		 	446		 	3,343		 	967		 	3,343		 	4,310		 	1,133		 	1999	 	5-40 yrs.	
Highwoods One	 	Office	 	Richmond	 	 	 	1,688		 	—		 	—		 	11,014		 	1,688		 	11,014		 	12,702		 	4,249		 	1996	 	5-40 yrs.	
Highwoods Two	 	Office	 	Richmond	 	(2)	 	786		 	—		 	213		 	6,070		 	999		 	6,070		 	7,069		 	2,370		 	1997	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Highwoods Five	 	Office	 	Richmond	 	 	 	783		 	—		 	—		 	5,339		 	783		 	5,339		 	6,122		 	1,961		 	1998	 	5-40 yrs.	
Highwoods Plaza	 	Office	 	Richmond	 	 	 	909		 	—		 	176		 	5,719		 	1,085		 	5,719		 	6,804		 	1,785		 	2000	 	5-40 yrs.	
Markel 4551	 	Office	 	Richmond	 	4,809	 	1,300		 	6,958		 	(144	)	 	(414	)	 	1,156		 	6,544		 	7,700		 	1,475		 	1987	 	5-40 yrs.	
Innslake Center	 	Office	 	Richmond	 	 	 	845		 	—		 	195		 	5,396		 	1,040		 	5,396		 	6,436		 	1,521		 	2001	 	5-40 yrs.	
Highwoods Centre	 	Office	 	Richmond	 	 	 	1,205		 	4,825		 	—		 	1,098		 	1,205		 	5,923		 	7,128		 	2,374		 	1990	 	5-40 yrs.	
Markel 4501	 	Office	 	Richmond	 	7,992	 	1,300		 	13,259		 	72		 	(4,410	)	 	1,372		 	8,849		 	10,221		 	2,013		 	1998	 	5-40 yrs.	
Markel 4600	 	Office	 	Richmond	 	10,142	 	1,700		 	17,081		 	(386	)	 	(5,389	)	 	1,314		 	11,692		 	13,006		 	2,617		 	1989	 	5-40 yrs.	
North Park	 	Office	 	Richmond	 	 	 	2,163		 	8,659		 	(14	)	 	1,846		 	2,149		 	10,505		 	12,654		 	4,849		 	1989	 	5-40 yrs.	
North Shore Commons I	 	Office	 	Richmond	 	(2)	 	951		 	—		 	—		 	11,361		 	951		 	11,361		 	12,312		 	3,189		 	2002	 	5-40 yrs.	
North Shore Commons II	 	Office	 	Richmond	 	(2)	 	2,067		 	—		 	(103	)	 	11,075		 	1,964		 	11,075		 	13,039		 	2,215		 	2007	 	5-40 yrs.	
North Shore Commons C - Land	 	Office	 	Richmond	 	 	 	1,497		 	—		 	—		 	—		 	1,497		 	—		 	1,497		 	—		 	N/A	 	 N/A	
North Shore Commons D - Land	 	Office	 	Richmond	 	 	 	1,261		 	—		 	—		 	—		 	1,261		 	—		 	1,261		 	—		 	N/A	 	N/A	
Nucklos Corner Land	 	Office	 	Richmond	 	 	 	1,259		 	—		 	—		 	—		 	1,259		 	—		 	1,259		 	—		 	N/A	 	N/A	
One Shockoe Plaza	 	Office	 	Richmond	 	 	 	—		 	—		 	356		 	15,164		 	356		 	15,164		 	15,520		 	6,684		 	1996	 	5-40 yrs.	
Pavilion Land	 	Office	 	Richmond	 	 	 	181		 	46		 	20		 	(46	)	 	201		 	—		 	201		 	—		 	N/A	 	N/A	
Lake Brook Commons	 	Office	 	Richmond	 	 	 	1,600		 	8,864		 	—		 	2,063		 	1,600		 	10,927		 	12,527		 	1,332		 	1996	 	5-40 yrs.	
Sadler & Cox Land	 	Office	 	Richmond	 	 	 	1,535		 	—		 	—		 	—		 	1,535		 	—		 	1,535		 	—		 	N/A	 	 N/A	
4840 Cox Road	 	Office	 	Richmond	 	(2)	 	1,918		 	—		 	337		 	13,550		 	2,255		 	13,550		 	15,805		 	4,075		 	2005	 	5-40 yrs.	
Stony Point F Land	 	Office	 	Richmond	 	 	 	1,841		 	—		 	—		 	—		 	1,841		 	—		 	1,841		 	—		 	N/A	 	 N/A	
Stony Point I	 	Office	 	Richmond	 	(2)	 	1,384		 	11,630		 	59		 	2,480		 	1,443		 	14,110		 	15,553		 	5,268		 	1990	 	5-40 yrs.	
Stony Point II	 	Office	 	Richmond	 	 	 	1,240		 	—		 	—		 	11,826		 	1,240		 	11,826		 	13,066		 	3,896		 	1999	 	5-40 yrs.	
Stony Point III	 	Office	 	Richmond	 	(2)	 	995		 	—		 	—		 	9,270		 	995		 	9,270		 	10,265		 	2,738		 	2002	 	5-40 yrs.	
Stony Point IV	 	Office	 	Richmond	 	 	 	955		 	—		 	—		 	11,459		 	955		 	11,459		 	12,414		 	2,868		 	2006	 	5-40 yrs.	
Technology Park I	 	Office	 	Richmond	 	 	 	541		 	2,166		 	—		 	363		 	541		 	2,529		 	3,070		 	1,054		 	1991	 	5-40 yrs.	
Technology Park II	 	Office	 	Richmond	 	 	 	264		 	1,058		 	—		 	109		 	264		 	1,167		 	1,431		 	507		 	1991	 	5-40 yrs.	
Vantage Place-A	 	Office	 	Richmond	 	(2)	 	203		 	811		 	—		 	168		 	203		 	979		 	1,182		 	449		 	1987	 	5-40 yrs.	
Vantage Place-B	 	Office	 	Richmond	 	(2)	 	233		 	931		 	—		 	254		 	233		 	1,185		 	1,418		 	513		 	1988	 	5-40 yrs.	
Vantage Place-C	 	Office	 	Richmond	 	(2)	 	235		 	940		 	—		 	282		 	235		 	1,222		 	1,457		 	542		 	1987	 	5-40 yrs.	
Vantage Place-D	 	Office	 	Richmond	 	(2)	 	218		 	873		 	—		 	283		 	218		 	1,156		 	1,374		 	515		 	1988	 	5-40 yrs.	
Vantage Pointe	 	Office	 	Richmond	 	(2)	 	1,089		 	4,500		 	—		 	1,279		 	1,089		 	5,779		 	6,868		 	2,547		 	1990	 	5-40 yrs.	
Virginia Mutual	 	Office	 	Richmond	 	 	 	1,301		 	6,036		 	—		 	709		 	1,301		 	6,745		 	8,046		 	2,137		 	1996	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Waterfront Plaza	 	Office	 	Richmond	 	 	 	585		 	2,347		 	—		 	1,180		 	585		 	3,527		 	4,112		 	1,572		 	1988	 	5-40 yrs.	
West Shore I	 	Office	 	Richmond	 	 	 	332		 	1,431		 	—		 	195		 	332		 	1,626		 	1,958		 	668		 	1995	 	5-40 yrs.	
West Shore II	 	Office	 	Richmond	 	 	 	489		 	2,181		 	—		 	593		 	489		 	2,774		 	3,263		 	1,096		 	1995	 	5-40 yrs.	
West Shore III	 	Office	 	Richmond	 	 	 	961		 	—		 	141		 	4,295		 	1,102		 	4,295		 	5,397		 	1,505		 	1997	 	5-40 yrs.	
Tampa, FL	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
380 Park Place	 	Office	 	Tampa	 	 	 	1,502		 	—		 	240		 	6,946		 	1,742		 	6,946		 	8,688		 	2,059		 	2001	 	5-40 yrs.	
4200 Cypress	 	Office	 	Tampa	 	 	 	2,673		 	16,470		 	—		 	897		 	2,673		 	17,367		 	20,040		 	2,425		 	1989	 	5-40 yrs.	
Anchor Plaza	 	Office	 	Tampa	 	 	 	1,281		 	11,318		 	—		 	1,241		 	1,281		 	12,559		 	13,840		 	4,773		 	1988	 	5-40 yrs.	
Avion Park - Land	 	Office	 	Tampa	 	 	 	5,237		 	—		 	—		 	1,487		 	5,237		 	1,487		 	6,724		 	158		 	N/A	 	N/A	
Bayshore Place	 	Office	 	Tampa	 	 	 	2,276		 	11,817		 	—		 	1,244		 	2,276		 	13,061		 	15,337		 	4,960		 	1990	 	5-40 yrs.	
General Services Administration	 	Office	 	Tampa	 	(3)	 	4,054		 	—		 	406		 	27,273		 	4,460		 	27,273		 	31,733		 	6,330		 	2005	 	5-40 yrs.	
Feather Sound Corporate Ctr II	 	Office	 	Tampa	 	 	 	802		 	7,463		 	(802	)	 	(7,463	)	 	—		 	—		 	—		 	—		 	1986	 	5-40 yrs.	
Harborview Plaza	 	Office	 	Tampa	 	 	 	3,537		 	29,944		 	969		 	(5,138	)	 	4,506		 	24,806		 	29,312		 	6,143		 	2001	 	5-40 yrs.	
Highwoods Preserve Building I	 	Office	 	Tampa	 	(3)	 	991		 	—		 	—		 	22,216		 	991		 	22,216		 	23,207		 	7,350		 	1999	 	5-40 yrs.	
Highwoods Preserve - Land	 	Office	 	Tampa	 	 	 	1,485		 	—		 	485		 	—		 	1,970		 	—		 	1,970		 	—		 	N/A	 	N/A	
Highwoods Preserve Building V	 	Office	 	Tampa	 	(3)	 	881		 	—		 	—		 	27,282		 	881		 	27,282		 	28,163		 	10,195		 	2001	 	5-40 yrs.	
Highwoods Bay Center I	 	Office	 	Tampa	 	 	 	3,565		 	—		 	(64	)	 	37,754		 	3,501		 	37,754		 	41,255		 	7,307		 	2007	 	5-40 yrs.	
HIW Bay Center II - Land	 	Office	 	Tampa	 	 	 	3,482		 	—		 	—		 	—		 	3,482		 	—		 	3,482		 	—		 	N/A	 	N/A	
Highwoods Preserve Building VII	 	Office	 	Tampa	 	 	 	790		 	—		 	—		 	12,498		 	790		 	12,498		 	13,288		 	1,781		 	2007	 	5-40 yrs.	
HIW Preserve VII Garage	 	Office	 	Tampa	 	 	 	—		 	—		 	—		 	6,789		 	—		 	6,789		 	6,789		 	1,004		 	2007	 	5-40 yrs.	
Horizon	 	Office	 	Tampa	 	 	 	—		 	6,257		 	—		 	2,724		 	—		 	8,981		 	8,981		 	3,850		 	1980	 	5-40 yrs.	
LakePointe One	 	Office	 	Tampa	 	 	 	2,106		 	89		 	—		 	36,297		 	2,106		 	36,386		 	38,492		 	13,845		 	1986	 	5-40 yrs.	
LakePointe Two	 	Office	 	Tampa	 	 	 	2,000		 	15,848		 	672		 	7,803		 	2,672		 	23,651		 	26,323		 	7,974		 	1999	 	5-40 yrs.	
Lakeside	 	Office	 	Tampa	 	 	 	—		 	7,369		 	—		 	965		 	—		 	8,334		 	8,334		 	3,172		 	1978	 	5-40 yrs.	
Lakeside/Parkside Garage	 	Office	 	Tampa	 	 	 	—		 	—		 	—		 	3,571		 	—		 	3,571		 	3,571		 	658		 	2004	 	5-40 yrs.	
One Harbour Place	 	Office	 	Tampa	 	 	 	2,016		 	25,252		 	—		 	6,730		 	2,016		 	31,982		 	33,998		 	10,983		 	1985	 	5-40 yrs.	
Parkside	 	Office	 	Tampa	 	 	 	—		 	9,407		 	—		 	3,502		 	—		 	12,909		 	12,909		 	5,864		 	1979	 	5-40 yrs.	
Pavilion	 	Office	 	Tampa	 	 	 	—		 	16,394		 	—		 	3,209		 	—		 	19,603		 	19,603		 	7,501		 	1982	 	5-40 yrs.	
Pavilion Parking Garage	 	Office	 	Tampa	 	 	 	—		 	—		 	—		 	5,689		 	—		 	5,689		 	5,689		 	1,851		 	1999	 	5-40 yrs.	
Spectrum	 	Office	 	Tampa	 	 	 	1,454		 	14,502		 	—		 	5,261		 	1,454		 	19,763		 	21,217		 	7,447		 	1984	 	5-40 yrs.	
Tower Place	 	Office	 	Tampa	 	(3)	 	3,218		 	19,898		 	—		 	2,764		 	3,218		 	22,662		 	25,880		 	9,467		 	1988	 	5-40 yrs.	

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HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
 
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)	
																																												
 	 	 	 	 	 	 	 	Initial Costs	 	Costs Capitalized
Subsequent to
Acquisition	 	Gross Value at Close of Period	 	 	 	 	 	 	
Description	 	Segment
Type	 	City	 	2012
Encumbrance	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Land	 	Bldg &
Improv	 	Total
Assets	 	Accumulated
Depreciation	 	Date of
Construction	 	Life on
Which
Depreciation
is
Calculated	
Westshore Square	 	Office	 	Tampa	 	 	 	1,126		 	5,186		 	—		 	1,641		 	1,126		 	6,827		 	7,953		 	2,258		 	1976	 	5-40 yrs.	
Independence Park - Land	 	Office	 	Tampa	 	 	 	4,943		 	—		 	—		 	—		 	4,943		 	—		 	4,943		 	—		 	N/A	 	N/A	
Independence Park I	 	Office	 	Tampa	 	 	 	2,531		 	4,526		 	—		 	4,716		 	2,531		 	9,242		 	11,773		 	561		 	1983	 	5-40 yrs.	
 	 	 	 	 	 		 	533,198		 	1,809,760		 	(41,202	)	 	1,494,708		 	491,996		 	3,304,468		 	3,796,464		 	947,567		 	 	 	 	

2012 Encumbrance Notes

(1)	These assets are pledged as collateral for a $67,604,000 first mortgage loan.	

(2)	These assets are pledged as collateral for a $116,977,000 first mortgage loan.	

(3)	These assets are pledged as collateral for a $110,671,000 first mortgage loan.	

(4)	These assets are pledged as collateral for a $120,924,000 first mortgage loan.	

173

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on February 12, 2013 .

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

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

	
					
Signature	 	Title	 	Date	
 	 	 	 	 	
/s/ O. Temple Sloan, Jr.	 	Chairman of the Board of Directors	 	February 12, 2013	
O. Temple Sloan, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Edward J. Fritsch	 	President, Chief Executive Officer and Director	 	February 12, 2013	
Edward J. Fritsch	 	 	 	 	
 	 	 	 	 	
/s/ Thomas W. Adler	 	Director	 	February 12, 2013	
Thomas W. Adler	 	 	 	 	
 	 	 	 	 	
/s/ Gene H. Anderson	 	Director	 	February 12, 2013	
Gene H. Anderson	 	 	 	 	
 	 	 	 	 	
/s/ David J. Hartzell	 	Director	 	February 12, 2013	
David J. Hartzell	 	 	 	 	
 	 	 	 	 	
/s/ Sherry A. Kellett	 	Director	 	February 12, 2013	
Sherry A. Kellett	 	 	 	 	
 	 	 	 	 	
/s/ Mark F. Mulhern	 	Director	 	February 12, 2013	
Mark F. Mulhern	 	 	 	 	
 	 	 	 	 	
/s/ L. Glenn Orr, Jr.	 	Director	 	February 12, 2013	
L. Glenn Orr, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Terry L. Stevens	 	Senior Vice President and Chief Financial Officer	 	February 12, 2013	
Terry L. Stevens	 	 	 	 	
 	 	 	 	 	
/s/ Daniel L. Clemmens	 	Vice President and Chief Accounting Officer	 	February 12, 2013	
Daniel L. Clemmens	 	 	 	 	

174

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on February 12, 2013 .

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

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

	
					
Signature	 	Title	 	Date	
 	 	 	 	 	
/s/ O. Temple Sloan, Jr.	 	Chairman of the Board of Directors of the General Partner	 	February 12, 2013	
O. Temple Sloan, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Edward J. Fritsch	 	President, Chief Executive Officer and Director of the General Partner	 	February 12, 2013	
Edward J. Fritsch	 	 	 	 	
 	 	 	 	 	
/s/ Thomas W. Adler	 	Director of the General Partner	 	February 12, 2013	
Thomas W. Adler	 	 	 	 	
 	 	 	 	 	
/s/ Gene H. Anderson	 	Director of the General Partner	 	February 12, 2013	
Gene H. Anderson	 	 	 	 	
 	 	 	 	 	
/s/ David J. Hartzell	 	Director of the General Partner	 	February 12, 2013	
David J. Hartzell	 	 	 	 	
 	 	 	 	 	
/s/ Sherry A. Kellett	 	Director of the General Partner	 	February 12, 2013	
Sherry A. Kellett	 	 	 	 	
 	 	 	 	 	
/s/ Mark F. Mulhern	 	Director of the General Partner	 	February 12, 2013	
Mark F. Mulhern	 	 	 	 	
 	 	 	 	 	
/s/ L. Glenn Orr, Jr.	 	Director of the General Partner	 	February 12, 2013	
L. Glenn Orr, Jr.	 	 	 	 	
 	 	 	 	 	
/s/ Terry L. Stevens	 	Senior Vice President and Chief Financial Officer of the General Partner	 	February 12, 2013	
Terry L. Stevens	 	 	 	 	
 	 	 	 	 	
/s/ Daniel L. Clemmens	 	Vice President and Chief Accounting Officer of the General Partner	 	February 12, 2013	
Daniel L. Clemmens	 	 	 	 	

175

Exhibit 10.11

AMENDED AND RESTATED
EXECUTIVE SUPPLEMENTAL EMPLOYMENT AGREEMENT

AGREEMENT by and between HIGHWOODS PROPERTIES, INC., a Maryland corporation (the “Company”), and Edward J. Fritsch (the “Executive”), dated as of February 12, 2013.

The Compensation Committee of the Board of Directors of the Company (the “Board”) has deter-mined that it is in the best interests of the Company and its stockholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

SECTION 1.      Certain Definitions .

(a)      The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

(b)      The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

(c)      For purposes of this Agreement, a “Change of Control” shall mean:

(i)      The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”);

provided, however, that the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I), (II) and (III) of subsection (i) of this Section 1(c) are satisfied; or

(ii)      Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a‑11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)      Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions, as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(iv)      Approval by the stockholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (I) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Out-standing Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be,

(II) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company.

(d)      “ Separation from Service, “Termination of Employment,” “Terminates Employment” and similar terms mean the date that Executive separated from service within the meaning of section 409A of the Code. Generally, Executive will separate from service if the Executive dies, retires, or otherwise has a Separation from Service with the Company, determined in accordance with the following:
 
(i)      Leaves of Absence . The employment relationship is treated as continuing intact while Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or, if longer, so long as Executive retains a right to reemployment with the Company under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that Executive will return to perform services for the Company. If the period of leave exceeds six (6) months and Executive does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six (6)-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, where such impairment causes Executive to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a twenty-nine (29)-month period of absence shall be substituted for such six (6)-month period.

(ii)      Dual Status . Generally if Executive performs services both as an employee and an independent contractor, Executive must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in the Treasury Regulations, to be treated as having a Separation from Service. However, if Executive provides services to the Company as an employee and as a member of the Board, and if any plan in which such person participates as a Board member is not aggregated with this Agreement pursuant to Treasury Regulation Section 1.409A-1(c)(2)(ii), then the services provided as a director are not taken into account in determining whether Executive has a Separation from Service as an employee for purposes of this Agreement.

(iii)      Separation from Service . Whether a Separation from Service has occurred is determined based on whether the facts and circumstances indicate that the Company and Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services Executive would perform after such date (whether as an employee or as an independent contractor except as provided in the preceding paragraph) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor, except as provided in the preceding paragraph) over the immediately preceding thirty six (36) month period (or the full period of services to the Company if Executive has been providing services to the Company less than thirty six (36) months). For periods during which Executive is on a paid bona fide leave of absence and has not otherwise terminated employment as described above, for purposes of this paragraph Executive is treated as providing bona fide services at a level equal to the level of services that Executive

would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which Executive is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this paragraph (including for purposes of determining the applicable thirty six (36) month (or shorter) period).

(iv)      Service with Related Companies . For purposes of determining whether a Separation from Service has occurred under the above provisions, the “Company” shall include the Company and all Related Companies. “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.
 
(e)      “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.

SECTION 2.      Employment Period . The term of this Agreement shall commence on the Effective Date and end on the third anniversary of such date (the “Employment Period”), subject to the termination provisions in Sections 4 and 5 herein.

SECTION 3.  Terms of Employment .

(a)	Position and Duties .	

(i)      During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is the headquarters of the Company and is less than 35 miles from such location.

(ii)      During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not hereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.

		
(b)	Compensation.	

(i)      Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(ii)      Annual Bonus . In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the average bonus paid or payable, including by reason of any deferral, to the Executive (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the “Recent Average Bonus”). Without limitation, for purposes of this Agreement, the terms “Annual Bonus” and “Recent Average Bonus” shall be deemed to include amounts earned (whether or not paid) with respect to any applicable period under any Non‑Equity Incentive Plan (as such term is defined in Item 402(a)(6)(iii) of Regulation S‑K promulgated under the Exchange Act and the Securities Act of 1933, as amended, including any successor thereto). Each such Annual Bonus shall be paid within 2 ½ months following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect, pursuant to a plan of nonqualified deferred compensation adopted by the Company, if any, under which the Annual Bonus may be deferred, to defer the receipt of such Annual Bonus.

(iii)      Special Bonus . In addition to Annual Base Salary and Annual Bonus payable as hereinabove provided, if the Executive remains employed with the Company and its affiliated companies through the first anniversary of the Effective Date, the Company shall pay to the Executive a special bonus (the “Special Bonus”) in recognition of the Executive's services during the critical one-year transition period following the Change of Control in cash equal to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (1) the Annual Bonus paid or payable, which for this purpose shall include any portion of the Annual Bonus with a deferred payment date, to the Executive for the most recently completed fiscal year during the Employment Period, if any, and (2) the Recent Average Bonus (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) (such greater amount shall be hereinafter referred to as the “Highest Annual Bonus”). The Special Bonus shall be paid no later than 30 days following the first anniversary of the Effective Date.

(iv)      Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and pro-grams applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less

favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90‑day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(v)      Welfare Benefit Plans . During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favor-able to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(vi)      Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vii)      Fringe Benefits . During the Employment Period, the Executive shall be entitled to fringe benefits no less favorable, in the aggregate, than the plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(viii)      Office and Support Staff.  During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(ix)      Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

SECTION 4.      Termination of Employment .

(a)      Death or Disability . The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of its intention to

terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full‑time performance of the Executive's duties. For purposes of this Agreement, “Disability” shall mean the Executive is: (1) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (2) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.

(b)      Cause . The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” occurs when the Executive does any of the following:

(i)      is convicted of a felony involving moral turpitude under federal, state or local law;

(ii)      materially breaches the Executive's obligations under Section 3(a) (other than as a result of incapacity due to physical or mental illness) that is demonstrably willful and deliberate on the Executive's part, that is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and that is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach); and/or

(iii)      is convicted of any applicable local, state or federal law or Company policy related to discrimination or harassment.

(c)      Good Reason . The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

(i)      the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirement), authority, duties or responsibilities as contemplated by Section 3(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii)      any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii)      the Company's requiring the Executive to be based at any office or location other than that described in Section 3(a) (i) (B);

(iv)      any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or

(v)      any failure by the Company to comply with and satisfy Section 9(c), provided that such successor has received at least ten days' prior written notice from the Company or the Executive of the requirements of Section 9(c).

For purposes of this Section 4(c), any good faith determination of “Good Reason” made by the Executive shall be conclusive.

(d)      Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b). For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date of such notice. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. Executive shall be required to provide notice to the Company of the existence of any condition that constitutes Good Reason within 90 days of the initial existence of the condition, and upon the receipt of such notice the Company shall have a period of 30 days during which it may remedy the condition.

(e)      Date of Termination . “Date of Termination” means the date the Executive experiences a Separation from Service.

SECTION 5.      Obligations of the Company upon Termination .

(a)      Good Reason; Other than for Cause, Death or Disability . If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

(i)      the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A)      the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Highest Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) the Special Bonus, if due to the Executive pursuant to Section 3(b)(iii), to the extent not theretofore paid, and (4) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter referred to as the “Accrued Obligations”); and

(B)      the amount (such amount shall be hereinafter referred to as the “Severance Amount”) equal to the product of (1) 2.99 and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus (provided, however, that if the Special Bonus has not been paid to the Executive, such amount shall be increased by the amount of the Special Bonus); and

(C)      a separate lump‑sum supplemental retirement benefit (the amount of such benefit shall be hereinafter referred to as the “Supplemental Retirement Amount”) equal to the difference between (1) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Company's Retirement Plan (or any successor plan thereto) (the “Retirement Plan”) during the 90-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the “SERP”) which the Executive would receive if the Executive's

employment continued at the compensation level provided for in Sections 3(b)(i) and 3(b)(ii) for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Effective Date, and (2) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; and

(ii)      for each month during the remainder of the Employment Period, the Company shall make a cash payment equal to the excess of (x) 1.25 times one-twelfth of the annual insurance premium (or, in the case of any benefit provided on a self-insured basis, an amount equal to a market-based insurance premium for the same coverage) for the plans, programs, policies and practices described in Section 3(b)(v) other than health and dental benefits, covering the Executive and/or the Executive's family on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination (such payments and the payments described in Section 5(a)(iii) shall be hereinafter referred to as the “Welfare Benefit Payments”); and

(iii)      for each month following the Date of Termination and until the date the Executive becomes eligible for Medicare, the Company shall make a cash payment equal to the excess of (x) 1.25 times the maximum allowable monthly contribution that the Executive can be required to pay for continued health and dental plan coverage under Section 4980B of the Code for the health and dental coverage provided to the Executive, the Executive's spouse and the Executive's dependents on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination.

(iv)      to the extent not otherwise paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits pursuant to the terms of any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives of the Company and its affiliated companies and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(v)      to the extent not otherwise provided for herein, all options, warrants or other rights to acquire capital stock of the Company and any stock appreciation rights plan or other similar plan benefits held by or for the benefit of the Executive shall become fully vested and eligible for immediate exercise.

(vi)      Notwithstanding anything contained in this Agreement to the contrary, if the Executive is a “specified employee” (determined in accordance with Code Section 409A and Treasury Regulation Section 1.409A-3(i)(2)) as of the date of Separation from Service (other than a Separation from Service due to death), then any payment, benefit or entitlement provided for in this Agreement that is “deferred compensation” that is subject to Section 409A of the Code and that is payable during the first six months following the date of Separation from Service shall be paid or provided to the Executive in a lump sum cash payment to be made on the earlier of (a) the Executive's death or (b) the first business day (or within 30 days after such first business day) of the seventh calendar month immediately following the month in which the date of Separation from Service occurs. If any payment is delayed pursuant to this provision, the Company shall pay interest at the rate described below on the postponed payments from the date the payment would have been due but for this provision to the date on which such amounts are paid. Interest shall be credited

at an annual rate equal to the greater of 6% or the Prime Rate, as determined by the Company, in effect on the first day of such delay compounded annually.

(b)      Death . If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits (excluding, in each case, Death Benefits (as defined below)) and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive or the Executive's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of life insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the “Death Benefits”).

(c)      Disability . If the Executive becomes Disabled during the Employment Period, the Company's only obligation to the Executive will be (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of disability) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits and (ii) payment to the Executive in a lump sum in cash within 30 days following the Date of Disability of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount.

(d)      Cause; Other than for Good Reason . If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

(e)      Non-exclusivity of Rights . Except as provided in Sections 5(a)(ii), 5(b) and 5(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect any rights the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or pro-gram or contract or agreement except as explicitly modified by this Agreement.

SECTION 6.      Full Settlement; Resolution of Disputes .

(a)      The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set‑off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of

the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), provided that the Executive takes and maintains his position in good faith; plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.

(b)      If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) as though such termination were by the Company without Cause, or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amount pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. If the Executive has maintained his or her position in the dispute in good faith (in the sole opinion of the court, which for this purpose shall include any mediator or arbitrator, if the dispute is settled through mediation or arbitration), the Company shall reimburse the Executive for any attorneys' fees and expenses incurred by the Executive with respect to such dispute related to this Agreement, and including any actions taken by either party to appeal or enforce the judgment rendered therein. Such reimbursement shall be made by direct payment to the Executive upon delivery to the Company of valid invoices and/or receipts relating to such attorneys' fees and expenses.
 
SECTION 7.      Parachute Payments .

(a)      In the event that it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute a “parachute payment” as defined in 280G(b)(2) of the Code (a “Parachute Payment”), then the Payments will be reduced in accordance with this Section 7 if, and only to the extent that, a reduction will allow the Executive to receive a greater Net After Tax Amount than the Executive would receive absent a reduction.

(b)      An independent registered public accounting firm selected by the Company immediately prior to the Change of Control (the “Accounting Firm”) will first determine the total amount of any Parachute Payments that are payable to the Executive. The Accounting Firm also will determine the Net After Tax Amount attributable to the Executive's total Parachute Payments.

(c)      The Accounting Firm will next determine the largest amount of Payments that may be made to or on behalf of the Executive without subjecting the Executive to tax under Section 4999 of the Code (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

(d)      The Executive will receive the total Parachute Payments or the Capped Parachute Payments, whichever provides the Executive with the higher Net After Tax Amount. If the Executive will received the Capped Payments, the total Parachute Payments will be adjusted by first reducing any Payments that do not constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash) and next, if necessary, by reducing any Payments that do constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash). The Accounting Firm will notify the Executive and the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and will send the Executive and the Company a copy of its detailed calculations supporting that determination and showing the Payments that will be reduced.

(e)      As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time the Accounting Firm makes its determinations under this Section 7, it is possible that amounts will have been paid or distributed to the Executive that should not have been paid or distributed under this Section 7 (“Overpayments”) or that additional amounts should be paid or distributed to the Executive under this Section 7 (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Accounting Firm will notify the Executive and the Company of that determination and the Executive must repay the Overpayment to the Company, without interest; provided, however, that no amount will be payable by the Executive unless, and then only to the extent that, the repayment would either reduce the amount on which the Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Executive and the Company of that determination and the amount of the Underpayment will be paid to the Executive, without interest, promptly by the Company.

(f)      For purposes of this Section 7, the term “Net After Tax Amount” means that amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Executive on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.

SECTION 8.      Confidential Information . The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

SECTION 9.      Successors .

(a)      This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

(b)      This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)      The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

SECTION 10. Miscellaneous .

(a)      This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)      All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

	
				
 	If to the Executive:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Edward J. Fritsch	
 	 	 	 	
 	If to the Company:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Chairman of the Board of Directors	

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c)      The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d)      The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e)      The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company

may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)‑(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f)      The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement.

(g)      Payments under this Agreement shall be in lieu of payment under any other separation pay plan or arrangement for which the Executive may otherwise be eligible. Notwithstanding the terms of any such other separation pay plan or arrangement, the Executive agrees that he shall not be eligible for any benefits thereunder.

(h)      Any reimbursements or in-kind benefits to be provided pursuant to this Agreement (including but not limited to Sections 3(b)(v), 3(b)(vi), 3(b)(vii), 5(a)(iii) and 6) that are taxable to Executive shall be subject to the following restrictions: (a) each reimbursement must be paid no later than the last day of the calendar year following the Executive's tax year during which the expense was incurred or tax was remitted, as the case may be; (b) the amount of expenses or taxes eligible for reimbursement, or in kind benefits provided, during a tax year of the Executive may not affect the expenses or taxes eligible for reimbursement, or in-kind benefits to be provided, in any other tax year of the Executive; (c) the period during which any reimbursement may be paid or in-kind benefit may be provided is the later of ten years after termination of this Agreement; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

SECTION 11. Termination of Previous Executive Supplemental Employment Agreement . Each of the parties hereto agrees that the Executive Supplemental Employment Agreement between the Company and the Executive, dated as of April 13, 2007 and amended as of November 10, 2008 (collectively and as amended, the “Prior Agreement”), has been terminated concurrently with the execution of this Agreement and that none of the provisions of the Prior Agreement shall be deemed to survive the execution of this Agreement in any respect.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Compensation Committee of its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

	
				
 	 	EXECUTIVE:	
 	 	 	/s/ Edward J. Fritsch	
 	 	 	Edward J. Fritsch	

	
				
 	 	HIGHWOODS PROPERTIES, INC.	
 	 	By: 	/s/ Jeffrey D. Miller	
 	 	 	Jeffrey D. Miller	
 	 	 	Vice President, General Counsel and Secretary	

Exhibit 10.12

AMENDED AND RESTATED
EXECUTIVE SUPPLEMENTAL EMPLOYMENT AGREEMENT

AGREEMENT by and between HIGHWOODS PROPERTIES, INC., a Maryland corporation (the “Company”), and Michael E. Harris (the “Executive”), dated as of February 12, 2013.

The Compensation Committee of the Board of Directors of the Company (the “Board”) has deter-mined that it is in the best interests of the Company and its stockholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

SECTION 1.      Certain Definitions .

(a)      The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

(b)      The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

(c)      For purposes of this Agreement, a “Change of Control” shall mean:

(i)      The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”);

provided, however, that the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I), (II) and (III) of subsection (i) of this Section 1(c) are satisfied; or

(ii)      Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a‑11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)      Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions, as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(iv)      Approval by the stockholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (I) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Out-standing Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be,

(II) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company.

(d)      “ Separation from Service, “Termination of Employment,” “Terminates Employment” and similar terms mean the date that Executive separated from service within the meaning of section 409A of the Code. Generally, Executive will separate from service if the Executive dies, retires, or otherwise has a Separation from Service with the Company, determined in accordance with the following:
 
(i)      Leaves of Absence . The employment relationship is treated as continuing intact while Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or, if longer, so long as Executive retains a right to reemployment with the Company under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that Executive will return to perform services for the Company. If the period of leave exceeds six (6) months and Executive does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six (6)-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, where such impairment causes Executive to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a twenty-nine (29)-month period of absence shall be substituted for such six (6)-month period.

(ii)      Dual Status . Generally if Executive performs services both as an employee and an independent contractor, Executive must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in the Treasury Regulations, to be treated as having a Separation from Service. However, if Executive provides services to the Company as an employee and as a member of the Board, and if any plan in which such person participates as a Board member is not aggregated with this Agreement pursuant to Treasury Regulation Section 1.409A-1(c)(2)(ii), then the services provided as a director are not taken into account in determining whether Executive has a Separation from Service as an employee for purposes of this Agreement.

(iii)      Separation from Service . Whether a Separation from Service has occurred is determined based on whether the facts and circumstances indicate that the Company and Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services Executive would perform after such date (whether as an employee or as an independent contractor except as provided in the preceding paragraph) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor, except as provided in the preceding paragraph) over the immediately preceding thirty six (36) month period (or the full period of services to the Company if Executive has been providing services to the Company less than thirty six (36) months). For periods during which Executive is on a paid bona fide leave of absence and has not otherwise terminated employment as described above, for purposes of this paragraph Executive is treated as providing bona fide services at a level equal to the level of services that Executive

would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which Executive is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this paragraph (including for purposes of determining the applicable thirty six (36) month (or shorter) period).

(iv)      Service with Related Companies . For purposes of determining whether a Separation from Service has occurred under the above provisions, the “Company” shall include the Company and all Related Companies. “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.
 
(e)      “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.

SECTION 2.      Employment Period . The term of this Agreement shall commence on the Effective Date and end on the third anniversary of such date (the “Employment Period”), subject to the termination provisions in Sections 4 and 5 herein.

SECTION 3.      Terms of Employment .

(a)	Position and Duties .	

(i)      During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is the headquarters of the Company and is less than 35 miles from such location.

(ii)      During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not hereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.

		
(b)	Compensation.	

(i)      Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(ii)      Annual Bonus . In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the average bonus paid or payable, including by reason of any deferral, to the Executive (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the “Recent Average Bonus”). Without limitation, for purposes of this Agreement, the terms “Annual Bonus” and “Recent Average Bonus” shall be deemed to include amounts earned (whether or not paid) with respect to any applicable period under any Non‑Equity Incentive Plan (as such term is defined in Item 402(a)(6)(iii) of Regulation S‑K promulgated under the Exchange Act and the Securities Act of 1933, as amended, including any successor thereto). Each such Annual Bonus shall be paid within 2 ½ months following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect, pursuant to a plan of nonqualified deferred compensation adopted by the Company, if any, under which the Annual Bonus may be deferred, to defer the receipt of such Annual Bonus.

(iii)      Special Bonus . In addition to Annual Base Salary and Annual Bonus payable as hereinabove provided, if the Executive remains employed with the Company and its affiliated companies through the first anniversary of the Effective Date, the Company shall pay to the Executive a special bonus (the “Special Bonus”) in recognition of the Executive's services during the critical one-year transition period following the Change of Control in cash equal to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (1) the Annual Bonus paid or payable, which for this purpose shall include any portion of the Annual Bonus with a deferred payment date, to the Executive for the most recently completed fiscal year during the Employment Period, if any, and (2) the Recent Average Bonus (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) (such greater amount shall be hereinafter referred to as the “Highest Annual Bonus”). The Special Bonus shall be paid no later than 30 days following the first anniversary of the Effective Date.

(iv)      Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and pro-grams applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less

favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90‑day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(v)      Welfare Benefit Plans . During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favor-able to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(vi)      Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vii)      Fringe Benefits . During the Employment Period, the Executive shall be entitled to fringe benefits no less favorable, in the aggregate, than the plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(viii)      Office and Support Staff.  During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(ix)      Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

SECTION 4.      Termination of Employment .

(a)      Death or Disability . The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of its intention to

terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full‑time performance of the Executive's duties. For purposes of this Agreement, “Disability” shall mean the Executive is: (1) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (2) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.

(b)      Cause . The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” occurs when the Executive does any of the following:

(i)      is convicted of a felony involving moral turpitude under federal, state or local law;

(ii)      materially breaches the Executive's obligations under Section 3(a) (other than as a result of incapacity due to physical or mental illness) that is demonstrably willful and deliberate on the Executive's part, that is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and that is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach); and/or

(iii)      is convicted of any applicable local, state or federal law or Company policy related to discrimination or harassment.

(c)      Good Reason . The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

(i)      the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirement), authority, duties or responsibilities as contemplated by Section 3(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii)      any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii)      the Company's requiring the Executive to be based at any office or location other than that described in Section 3(a) (i) (B);

(iv)      any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or

(v)      any failure by the Company to comply with and satisfy Section 9(c), provided that such successor has received at least ten days' prior written notice from the Company or the Executive of the requirements of Section 9(c).

For purposes of this Section 4(c), any good faith determination of “Good Reason” made by the Executive shall be conclusive.

(d)      Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b). For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date of such notice. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. Executive shall be required to provide notice to the Company of the existence of any condition that constitutes Good Reason within 90 days of the initial existence of the condition, and upon the receipt of such notice the Company shall have a period of 30 days during which it may remedy the condition.

(e)      Date of Termination . “Date of Termination” means the date the Executive experiences a Separation from Service.

SECTION 5.      Obligations of the Company upon Termination .

(a)      Good Reason; Other than for Cause, Death or Disability . If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

(i)      the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A)      the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Highest Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) the Special Bonus, if due to the Executive pursuant to Section 3(b)(iii), to the extent not theretofore paid, and (4) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter referred to as the “Accrued Obligations”); and

(B)      the amount (such amount shall be hereinafter referred to as the “Severance Amount”) equal to the product of (1) 2.99 and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus (provided, however, that if the Special Bonus has not been paid to the Executive, such amount shall be increased by the amount of the Special Bonus); and

(C)      a separate lump‑sum supplemental retirement benefit (the amount of such benefit shall be hereinafter referred to as the “Supplemental Retirement Amount”) equal to the difference between (1) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Company's Retirement Plan (or any successor plan thereto) (the “Retirement Plan”) during the 90-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the “SERP”) which the Executive would receive if the Executive's

employment continued at the compensation level provided for in Sections 3(b)(i) and 3(b)(ii) for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Effective Date, and (2) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; and

(ii)      for each month during the remainder of the Employment Period, the Company shall make a cash payment equal to the excess of (x) 1.25 times one-twelfth of the annual insurance premium (or, in the case of any benefit provided on a self-insured basis, an amount equal to a market-based insurance premium for the same coverage) for the plans, programs, policies and practices described in Section 3(b)(v) other than health and dental benefits, covering the Executive and/or the Executive's family on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination (such payments and the payments described in Section 5(a)(iii) shall be hereinafter referred to as the “Welfare Benefit Payments”); and

(iii)      for each month following the Date of Termination and until the date the Executive becomes eligible for Medicare, the Company shall make a cash payment equal to the excess of (x) 1.25 times the maximum allowable monthly contribution that the Executive can be required to pay for continued health and dental plan coverage under Section 4980B of the Code for the health and dental coverage provided to the Executive, the Executive's spouse and the Executive's dependents on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination.
 
(iv)      to the extent not otherwise paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits pursuant to the terms of any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives of the Company and its affiliated companies and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(v)      to the extent not otherwise provided for herein, all options, warrants or other rights to acquire capital stock of the Company and any stock appreciation rights plan or other similar plan benefits held by or for the benefit of the Executive shall become fully vested and eligible for immediate exercise.

(vi)      Notwithstanding anything contained in this Agreement to the contrary, if the Executive is a “specified employee” (determined in accordance with Code Section 409A and Treasury Regulation Section 1.409A-3(i)(2)) as of the date of Separation from Service (other than a Separation from Service due to death), then any payment, benefit or entitlement provided for in this Agreement that is “deferred compensation” that is subject to Section 409A of the Code and that is payable during the first six months following the date of Separation from Service shall be paid or provided to the Executive in a lump sum cash payment to be made on the earlier of (a) the Executive's death or (b) the first business day (or within 30 days after such first business day) of the seventh calendar month immediately following the month in which the date of Separation from Service occurs. If any payment is delayed pursuant to this provision, the Company shall pay interest at the rate described below on the postponed payments from the date the payment would have been due but for this provision to the date on which such amounts are paid. Interest shall be credited

at an annual rate equal to the greater of 6% or the Prime Rate, as determined by the Company, in effect on the first day of such delay compounded annually.

(b)      Death . If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits (excluding, in each case, Death Benefits (as defined below)) and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive or the Executive's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of life insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the “Death Benefits”).

(c)      Disability . If the Executive becomes Disabled during the Employment Period, the Company's only obligation to the Executive will be (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of disability) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits and (ii) payment to the Executive in a lump sum in cash within 30 days following the Date of Disability of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount.

(d)      Cause; Other than for Good Reason . If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

(e)      Non-exclusivity of Rights . Except as provided in Sections 5(a)(ii), 5(b) and 5(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect any rights the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or pro-gram or contract or agreement except as explicitly modified by this Agreement.

SECTION 6.      Full Settlement; Resolution of Disputes .

(a)      The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set‑off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of

the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), provided that the Executive takes and maintains his position in good faith; plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.

(b)      If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) as though such termination were by the Company without Cause, or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amount pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. If the Executive has maintained his or her position in the dispute in good faith (in the sole opinion of the court, which for this purpose shall include any mediator or arbitrator, if the dispute is settled through mediation or arbitration), the Company shall reimburse the Executive for any attorneys' fees and expenses incurred by the Executive with respect to such dispute related to this Agreement, and including any actions taken by either party to appeal or enforce the judgment rendered therein. Such reimbursement shall be made by direct payment to the Executive upon delivery to the Company of valid invoices and/or receipts relating to such attorneys' fees and expenses.

SECTION 7.      Parachute Payments .

(a)      In the event that it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute a “parachute payment” as defined in 280G(b)(2) of the Code (a “Parachute Payment”), then the Payments will be reduced in accordance with this Section 7 if, and only to the extent that, a reduction will allow the Executive to receive a greater Net After Tax Amount than the Executive would receive absent a reduction.

(b)      An independent registered public accounting firm selected by the Company immediately prior to the Change of Control (the “Accounting Firm”) will first determine the total amount of any Parachute Payments that are payable to the Executive. The Accounting Firm also will determine the Net After Tax Amount attributable to the Executive's total Parachute Payments.

(c)      The Accounting Firm will next determine the largest amount of Payments that may be made to or on behalf of the Executive without subjecting the Executive to tax under Section 4999 of the Code (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

(d)      The Executive will receive the total Parachute Payments or the Capped Parachute Payments, whichever provides the Executive with the higher Net After Tax Amount. If the Executive will received the Capped Payments, the total Parachute Payments will be adjusted by first reducing any Payments that do not constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash) and next, if necessary, by reducing any Payments that do constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash). The Accounting Firm will notify the Executive and the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and will send the Executive and the Company a copy of its detailed calculations supporting that determination and showing the Payments that will be reduced.

(e)      As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time the Accounting Firm makes its determinations under this Section 7, it is possible that amounts will have been paid or distributed to the Executive that should not have been paid or distributed under this Section 7 (“Overpayments”) or that additional amounts should be paid or distributed to the Executive under this Section 7 (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Accounting Firm will notify the Executive and the Company of that determination and the Executive must repay the Overpayment to the Company, without interest; provided, however, that no amount will be payable by the Executive unless, and then only to the extent that, the repayment would either reduce the amount on which the Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Executive and the Company of that determination and the amount of the Underpayment will be paid to the Executive, without interest, promptly by the Company.

(f)      For purposes of this Section 7, the term “Net After Tax Amount” means that amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Executive on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.

SECTION 8.      Confidential Information . The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

SECTION 9.      Successors .

(a)      This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

(b)      This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)      The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

SECTION 10. Miscellaneous .

(a)      This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)      All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

	
				
 	If to the Executive:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Michael E. Harris	
 	 	 	 	
 	If to the Company:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Chairman of the Board of Directors	

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c)      The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d)      The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e)      The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company

may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)‑(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f)      The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement.

(g)      Payments under this Agreement shall be in lieu of payment under any other separation pay plan or arrangement for which the Executive may otherwise be eligible. Notwithstanding the terms of any such other separation pay plan or arrangement, the Executive agrees that he shall not be eligible for any benefits thereunder.
 
(h)      Any reimbursements or in-kind benefits to be provided pursuant to this Agreement (including but not limited to Sections 3(b)(v), 3(b)(vi), 3(b)(vii), 5(a)(iii) and 6) that are taxable to Executive shall be subject to the following restrictions: (a) each reimbursement must be paid no later than the last day of the calendar year following the Executive's tax year during which the expense was incurred or tax was remitted, as the case may be; (b) the amount of expenses or taxes eligible for reimbursement, or in kind benefits provided, during a tax year of the Executive may not affect the expenses or taxes eligible for reimbursement, or in-kind benefits to be provided, in any other tax year of the Executive; (c) the period during which any reimbursement may be paid or in-kind benefit may be provided is the later of ten years after termination of this Agreement; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

SECTION 11. Termination of Previous Executive Supplemental Employment Agreement . Each of the parties hereto agrees that the Executive Supplemental Employment Agreement between the Company and the Executive, dated as of April 13, 2007 and amended as of November 10, 2008 (collectively and as amended, the “Prior Agreement”), has been terminated concurrently with the execution of this Agreement and that none of the provisions of the Prior Agreement shall be deemed to survive the execution of this Agreement in any respect.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Compensation Committee of its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

	
				
 	 	EXECUTIVE:	
 	 	 	/s/ Michael E. Harris	
 	 	 	Michael E. Harris	

	
				
 	 	HIGHWOODS PROPERTIES, INC.	
 	 	By: 	/s/ Edward J. Fritsch	
 	 	 	Edward J. Fritsch	
 	 	 	President and Chief Executive Officer	

Exhibit 10.13

AMENDED AND RESTATED
EXECUTIVE SUPPLEMENTAL EMPLOYMENT AGREEMENT

AGREEMENT by and between HIGHWOODS PROPERTIES, INC., a Maryland corporation (the “Company”), and Terry L. Stevens (the “Executive”), dated as of February 12, 2013.

The Compensation Committee of the Board of Directors of the Company (the “Board”) has deter-mined that it is in the best interests of the Company and its stockholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

SECTION 1.      Certain Definitions .

(a)      The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

(b)      The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

(c)      For purposes of this Agreement, a “Change of Control” shall mean:

(i)      The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”);

provided, however, that the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I), (II) and (III) of subsection (i) of this Section 1(c) are satisfied; or

(ii)      Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a‑11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)      Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions, as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(iv)      Approval by the stockholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (I) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Out-standing Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be,

(II) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company.

(d)      “ Separation from Service, “Termination of Employment,” “Terminates Employment” and similar terms mean the date that Executive separated from service within the meaning of section 409A of the Code. Generally, Executive will separate from service if the Executive dies, retires, or otherwise has a Separation from Service with the Company, determined in accordance with the following:
 
(i)      Leaves of Absence . The employment relationship is treated as continuing intact while Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or, if longer, so long as Executive retains a right to reemployment with the Company under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that Executive will return to perform services for the Company. If the period of leave exceeds six (6) months and Executive does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six (6)-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, where such impairment causes Executive to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a twenty-nine (29)-month period of absence shall be substituted for such six (6)-month period.

(ii)      Dual Status . Generally if Executive performs services both as an employee and an independent contractor, Executive must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in the Treasury Regulations, to be treated as having a Separation from Service. However, if Executive provides services to the Company as an employee and as a member of the Board, and if any plan in which such person participates as a Board member is not aggregated with this Agreement pursuant to Treasury Regulation Section 1.409A-1(c)(2)(ii), then the services provided as a director are not taken into account in determining whether Executive has a Separation from Service as an employee for purposes of this Agreement.

(iii)      Separation from Service . Whether a Separation from Service has occurred is determined based on whether the facts and circumstances indicate that the Company and Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services Executive would perform after such date (whether as an employee or as an independent contractor except as provided in the preceding paragraph) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor, except as provided in the preceding paragraph) over the immediately preceding thirty six (36) month period (or the full period of services to the Company if Executive has been providing services to the Company less than thirty six (36) months). For periods during which Executive is on a paid bona fide leave of absence and has not otherwise terminated employment as described above, for purposes of this paragraph Executive is treated as providing bona fide services at a level equal to the level of services that Executive

would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which Executive is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this paragraph (including for purposes of determining the applicable thirty six (36) month (or shorter) period).

(iv)      Service with Related Companies . For purposes of determining whether a Separation from Service has occurred under the above provisions, the “Company” shall include the Company and all Related Companies. “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.
 
(e)      “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.

SECTION 2.      Employment Period . The term of this Agreement shall commence on the Effective Date and end on the third anniversary of such date (the “Employment Period”), subject to the termination provisions in Sections 4 and 5 herein.

SECTION 3.      Terms of Employment .

(a)	Position and Duties .	

(i)      During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is the headquarters of the Company and is less than 35 miles from such location.

(ii)      During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not hereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.

		
(b)	Compensation.	

(i)      Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(ii)      Annual Bonus . In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the average bonus paid or payable, including by reason of any deferral, to the Executive (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the “Recent Average Bonus”). Without limitation, for purposes of this Agreement, the terms “Annual Bonus” and “Recent Average Bonus” shall be deemed to include amounts earned (whether or not paid) with respect to any applicable period under any Non‑Equity Incentive Plan (as such term is defined in Item 402(a)(6)(iii) of Regulation S‑K promulgated under the Exchange Act and the Securities Act of 1933, as amended, including any successor thereto). Each such Annual Bonus shall be paid within 2 ½ months following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect, pursuant to a plan of nonqualified deferred compensation adopted by the Company, if any, under which the Annual Bonus may be deferred, to defer the receipt of such Annual Bonus.

(iii)      Special Bonus . In addition to Annual Base Salary and Annual Bonus payable as hereinabove provided, if the Executive remains employed with the Company and its affiliated companies through the first anniversary of the Effective Date, the Company shall pay to the Executive a special bonus (the “Special Bonus”) in recognition of the Executive's services during the critical one-year transition period following the Change of Control in cash equal to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (1) the Annual Bonus paid or payable, which for this purpose shall include any portion of the Annual Bonus with a deferred payment date, to the Executive for the most recently completed fiscal year during the Employment Period, if any, and (2) the Recent Average Bonus (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) (such greater amount shall be hereinafter referred to as the “Highest Annual Bonus”). The Special Bonus shall be paid no later than 30 days following the first anniversary of the Effective Date.

(iv)      Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and pro-grams applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less

favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90‑day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(v)      Welfare Benefit Plans . During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favor-able to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(vi)      Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vii)      Fringe Benefits . During the Employment Period, the Executive shall be entitled to fringe benefits no less favorable, in the aggregate, than the plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(viii)      Office and Support Staff.  During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(ix)      Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

SECTION 4.      Termination of Employment .

(a)      Death or Disability . The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of its intention to

terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full‑time performance of the Executive's duties. For purposes of this Agreement, “Disability” shall mean the Executive is: (1) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (2) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.

(b)      Cause . The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” occurs when the Executive does any of the following:

(i)      is convicted of a felony involving moral turpitude under federal, state or local law;

(ii)      materially breaches the Executive's obligations under Section 3(a) (other than as a result of incapacity due to physical or mental illness) that is demonstrably willful and deliberate on the Executive's part, that is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and that is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach); and/or

(iii)      is convicted of any applicable local, state or federal law or Company policy related to discrimination or harassment.

(c)      Good Reason . The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

(i)      the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirement), authority, duties or responsibilities as contemplated by Section 3(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii)      any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii)      the Company's requiring the Executive to be based at any office or location other than that described in Section 3(a) (i) (B);

(iv)      any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or

(v)      any failure by the Company to comply with and satisfy Section 9(c), provided that such successor has received at least ten days' prior written notice from the Company or the Executive of the requirements of Section 9(c).

For purposes of this Section 4(c), any good faith determination of “Good Reason” made by the Executive shall be conclusive.

(d)      Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b). For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date of such notice. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. Executive shall be required to provide notice to the Company of the existence of any condition that constitutes Good Reason within 90 days of the initial existence of the condition, and upon the receipt of such notice the Company shall have a period of 30 days during which it may remedy the condition.

(e)      Date of Termination . “Date of Termination” means the date the Executive experiences a Separation from Service.

SECTION 5.      Obligations of the Company upon Termination .

(a)      Good Reason; Other than for Cause, Death or Disability . If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

(i)      the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A)      the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Highest Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) the Special Bonus, if due to the Executive pursuant to Section 3(b)(iii), to the extent not theretofore paid, and (4) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter referred to as the “Accrued Obligations”); and

(B)      the amount (such amount shall be hereinafter referred to as the “Severance Amount”) equal to the product of (1) 2.99 and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus (provided, however, that if the Special Bonus has not been paid to the Executive, such amount shall be increased by the amount of the Special Bonus); and

(C)      a separate lump‑sum supplemental retirement benefit (the amount of such benefit shall be hereinafter referred to as the “Supplemental Retirement Amount”) equal to the difference between (1) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Company's Retirement Plan (or any successor plan thereto) (the “Retirement Plan”) during the 90-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the “SERP”) which the Executive would receive if the Executive's

employment continued at the compensation level provided for in Sections 3(b)(i) and 3(b)(ii) for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Effective Date, and (2) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; and

(ii)      for each month during the remainder of the Employment Period, the Company shall make a cash payment equal to the excess of (x) 1.25 times one-twelfth of the annual insurance premium (or, in the case of any benefit provided on a self-insured basis, an amount equal to a market-based insurance premium for the same coverage) for the plans, programs, policies and practices described in Section 3(b)(v) other than health and dental benefits, covering the Executive and/or the Executive's family on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination (such payments and the payments described in Section 5(a)(iii) shall be hereinafter referred to as the “Welfare Benefit Payments”); and

(iii)      for each month during the remainder of the Employment Period, the Company shall make a cash payment equal to the excess of (x) 1.25 times the maximum allowable monthly contribution that the Executive can be required to pay for continued health and dental plan coverage under Section 4980B of the Code for the health and dental coverage provided to the Executive, the Executive's spouse and the Executive's dependents on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination.
 
(iv)      to the extent not otherwise paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits pursuant to the terms of any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives of the Company and its affiliated companies and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(v)      to the extent not otherwise provided for herein, all options, warrants or other rights to acquire capital stock of the Company and any stock appreciation rights plan or other similar plan benefits held by or for the benefit of the Executive shall become fully vested and eligible for immediate exercise.

(vi)      Notwithstanding anything contained in this Agreement to the contrary, if the Executive is a “specified employee” (determined in accordance with Code Section 409A and Treasury Regulation Section 1.409A-3(i)(2)) as of the date of Separation from Service (other than a Separation from Service due to death), then any payment, benefit or entitlement provided for in this Agreement that is “deferred compensation” that is subject to Section 409A of the Code and that is payable during the first six months following the date of Separation from Service shall be paid or provided to the Executive in a lump sum cash payment to be made on the earlier of (a) the Executive's death or (b) the first business day (or within 30 days after such first business day) of the seventh calendar month immediately following the month in which the date of Separation from Service occurs. If any payment is delayed pursuant to this provision, the Company shall pay interest at the rate described below on the postponed payments from the date the payment would have been due but for this provision to the date on which such amounts are paid. Interest shall be credited at an annual rate equal to the greater of 6% or the Prime Rate, as determined by the Company, in effect on the first day of such delay compounded annually.

(b)      Death . If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits (excluding, in each case, Death Benefits (as defined below)) and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive or the Executive's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of life insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the “Death Benefits”).

(c)      Disability . If the Executive becomes Disabled during the Employment Period, the Company's only obligation to the Executive will be (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of disability) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits and (ii) payment to the Executive in a lump sum in cash within 30 days following the Date of Disability of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount.

(d)      Cause; Other than for Good Reason . If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

(e)      Non-exclusivity of Rights . Except as provided in Sections 5(a)(ii), 5(b) and 5(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect any rights the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or pro-gram or contract or agreement except as explicitly modified by this Agreement.

SECTION 6.      Full Settlement; Resolution of Disputes .

(a)      The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set‑off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment.

The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), provided that the Executive takes and maintains his position in good faith; plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.

(b)      If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) as though such termination were by the Company without Cause, or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amount pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. If the Executive has maintained his or her position in the dispute in good faith (in the sole opinion of the court, which for this purpose shall include any mediator or arbitrator, if the dispute is settled through mediation or arbitration), the Company shall reimburse the Executive for any attorneys' fees and expenses incurred by the Executive with respect to such dispute related to this Agreement, and including any actions taken by either party to appeal or enforce the judgment rendered therein. Such reimbursement shall be made by direct payment to the Executive upon delivery to the Company of valid invoices and/or receipts relating to such attorneys' fees and expenses.
 
SECTION 7.      Parachute Payments .

(a)      In the event that it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute a “parachute payment” as defined in 280G(b)(2) of the Code (a “Parachute Payment”), then the Payments will be reduced in accordance with this Section 7 if, and only to the extent that, a reduction will allow the Executive to receive a greater Net After Tax Amount than the Executive would receive absent a reduction.

(b)      An independent registered public accounting firm selected by the Company immediately prior to the Change of Control (the “Accounting Firm”) will first determine the total amount of any Parachute Payments that are payable to the Executive. The Accounting Firm also will determine the Net After Tax Amount attributable to the Executive's total Parachute Payments.

(c)      The Accounting Firm will next determine the largest amount of Payments that may be made to or on behalf of the Executive without subjecting the Executive to tax under Section 4999 of the Code (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

(d)      The Executive will receive the total Parachute Payments or the Capped Parachute Payments, whichever provides the Executive with the higher Net After Tax Amount. If the Executive will received the Capped Payments, the total Parachute Payments will be adjusted by first reducing any Payments that do not

constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash) and next, if necessary, by reducing any Payments that do constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash). The Accounting Firm will notify the Executive and the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and will send the Executive and the Company a copy of its detailed calculations supporting that determination and showing the Payments that will be reduced.

(e)      As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time the Accounting Firm makes its determinations under this Section 7, it is possible that amounts will have been paid or distributed to the Executive that should not have been paid or distributed under this Section 7 (“Overpayments”) or that additional amounts should be paid or distributed to the Executive under this Section 7 (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Accounting Firm will notify the Executive and the Company of that determination and the Executive must repay the Overpayment to the Company, without interest; provided, however, that no amount will be payable by the Executive unless, and then only to the extent that, the repayment would either reduce the amount on which the Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Executive and the Company of that determination and the amount of the Underpayment will be paid to the Executive, without interest, promptly by the Company.

(f)      For purposes of this Section 7, the term “Net After Tax Amount” means that amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Executive on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.

SECTION 8.      Confidential Information . The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

SECTION 9.      Successors .

(a)      This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

(b)      This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)      The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

SECTION 10. Miscellaneous .

(a)      This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)      All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

	
				
 	If to the Executive:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Terry L. Stevens	
 	 	 	 	
 	If to the Company:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Chairman of the Board of Directors	

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c)      The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d)      The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e)      The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)‑(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f)      The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive

by the Company is “at will” and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement.

(g)      Payments under this Agreement shall be in lieu of payment under any other separation pay plan or arrangement for which the Executive may otherwise be eligible. Notwithstanding the terms of any such other separation pay plan or arrangement, the Executive agrees that he shall not be eligible for any benefits thereunder.
 
(h)      Any reimbursements or in-kind benefits to be provided pursuant to this Agreement (including but not limited to Sections 3(b)(v), 3(b)(vi), 3(b)(vii), 5(a)(iii) and 6) that are taxable to Executive shall be subject to the following restrictions: (a) each reimbursement must be paid no later than the last day of the calendar year following the Executive's tax year during which the expense was incurred or tax was remitted, as the case may be; (b) the amount of expenses or taxes eligible for reimbursement, or in kind benefits provided, during a tax year of the Executive may not affect the expenses or taxes eligible for reimbursement, or in-kind benefits to be provided, in any other tax year of the Executive; (c) the period during which any reimbursement may be paid or in-kind benefit may be provided is the later of ten years after termination of this Agreement; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

SECTION 11. Termination of Previous Executive Supplemental Employment Agreement . Each of the parties hereto agrees that the Executive Supplemental Employment Agreement between the Company and the Executive, dated as of April 13, 2007 and amended as of November 10, 2008 (collectively and as amended, the “Prior Agreement”), has been terminated concurrently with the execution of this Agreement and that none of the provisions of the Prior Agreement shall be deemed to survive the execution of this Agreement in any respect.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Compensation Committee of its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

	
				
 	 	EXECUTIVE:	
 	 	 	/s/ Terry L. Stevens	
 	 	 	Terry L. Stevens	

	
				
 	 	HIGHWOODS PROPERTIES, INC.	
 	 	By: 	/s/ Edward J. Fritsch	
 	 	 	Edward J. Fritsch	
 	 	 	President and Chief Executive Officer	

Exhibit 10.14

AMENDED AND RESTATED
EXECUTIVE SUPPLEMENTAL EMPLOYMENT AGREEMENT

AGREEMENT by and between HIGHWOODS PROPERTIES, INC., a Maryland corporation (the “Company”), and Jeffrey D. Miller (the “Executive”), dated as of February 12, 2013.

The Compensation Committee of the Board of Directors of the Company (the “Board”) has deter-mined that it is in the best interests of the Company and its stockholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

SECTION 1.      Certain Definitions .

(a)      The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

(b)      The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

(c)      For purposes of this Agreement, a “Change of Control” shall mean:

(i)      The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I), (II) and (III) of subsection (i) of this Section 1(c) are satisfied; or

(ii)      Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a‑11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)      Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions, as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(iv)      Approval by the stockholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (I) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the

combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Out-standing Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (II) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company.

(d)      “ Separation from Service, “Termination of Employment,” “Terminates Employment” and similar terms mean the date that Executive separated from service within the meaning of section 409A of the Code. Generally, Executive will separate from service if the Executive dies, retires, or otherwise has a Separation from Service with the Company, determined in accordance with the following:
 
(i)      Leaves of Absence . The employment relationship is treated as continuing intact while Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or, if longer, so long as Executive retains a right to reemployment with the Company under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that Executive will return to perform services for the Company. If the period of leave exceeds six (6) months and Executive does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six (6)-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, where such impairment causes Executive to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a twenty-nine (29)-month period of absence shall be substituted for such six (6)-month period.

(ii)      Dual Status . Generally if Executive performs services both as an employee and an independent contractor, Executive must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in the Treasury Regulations, to be treated as having a Separation from Service. However, if Executive provides services to the Company as an employee and as a member of the Board, and if any plan in which such person participates as a Board member is not aggregated with this Agreement pursuant to Treasury Regulation Section 1.409A-1(c)(2)(ii), then the services provided as a director are not taken into account in determining whether Executive has a Separation from Service as an employee for purposes of this Agreement.

(iii)      Separation from Service . Whether a Separation from Service has occurred is determined based on whether the facts and circumstances indicate that the Company and Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services Executive would perform after such date (whether as an employee or as an independent contractor except as provided in the preceding paragraph) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent

contractor, except as provided in the preceding paragraph) over the immediately preceding thirty six (36) month period (or the full period of services to the Company if Executive has been providing services to the Company less than thirty six (36) months). For periods during which Executive is on a paid bona fide leave of absence and has not otherwise terminated employment as described above, for purposes of this paragraph Executive is treated as providing bona fide services at a level equal to the level of services that Executive would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which Executive is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this paragraph (including for purposes of determining the applicable thirty six (36) month (or shorter) period).

(iv)      Service with Related Companies . For purposes of determining whether a Separation from Service has occurred under the above provisions, the “Company” shall include the Company and all Related Companies. “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.
 
(e)      “ Related Company ” means: (1) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b) that includes the Company); and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c) with the Company. For purposes of applying Code Sections 414(b) and (c), 50% is substituted for the 80% ownership level.

SECTION 2.      Employment Period . The term of this Agreement shall commence on the Effective Date and end on the third anniversary of such date (the “Employment Period”), subject to the termination provisions in Sections 4 and 5 herein.

SECTION 3.  Terms of Employment .

(a)	Position and Duties .	

(i)      During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is the headquarters of the Company and is less than 35 miles from such location.

(ii)      During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and

scope thereto) subsequent to the Effective Date shall not hereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.

(b)	Compensation.	

(i)      Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(ii)      Annual Bonus . In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the average bonus paid or payable, including by reason of any deferral, to the Executive (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the “Recent Average Bonus”). Without limitation, for purposes of this Agreement, the terms “Annual Bonus” and “Recent Average Bonus” shall be deemed to include amounts earned (whether or not paid) with respect to any applicable period under any Non‑Equity Incentive Plan (as such term is defined in Item 402(a)(6)(iii) of Regulation S‑K promulgated under the Exchange Act and the Securities Act of 1933, as amended, including any successor thereto). Each such Annual Bonus shall be paid within 2 ½ months following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect, pursuant to a plan of nonqualified deferred compensation adopted by the Company, if any, under which the Annual Bonus may be deferred, to defer the receipt of such Annual Bonus.

(iii)      Special Bonus . In addition to Annual Base Salary and Annual Bonus payable as hereinabove provided, if the Executive remains employed with the Company and its affiliated companies through the first anniversary of the Effective Date, the Company shall pay to the Executive a special bonus (the “Special Bonus”) in recognition of the Executive's services during the critical one-year transition period following the Change of Control in cash equal to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (1) the Annual Bonus paid or payable, which for this purpose shall include any portion of the Annual Bonus with a deferred payment date, to the Executive for the most recently completed fiscal year during the Employment Period, if any, and (2) the Recent Average Bonus (or, if the Executive has been employed by the Company for less than three full fiscal years, then the average bonus paid or payable to the executive officer who was employed by the Company in a similar capacity as the Executive during such three full fiscal years) (such greater amount shall be hereinafter referred to as the “Highest Annual Bonus”). The Special Bonus shall be paid no later than 30 days following the first anniversary of the Effective Date.

(iv)      Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and pro-grams applicable generally to other peer executives of the Company and its affiliated companies, but in n

o event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90‑day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(v)      Welfare Benefit Plans . During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favor-able to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(vi)      Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vii)      Fringe Benefits . During the Employment Period, the Executive shall be entitled to fringe benefits no less favorable, in the aggregate, than the plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date, or if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(viii)      Office and Support Staff.  During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(ix)      Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

SECTION 4.      Termination of Employment .

(a)      Death or Disability . The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full‑time performance of the Executive's duties. For purposes of this Agreement, “Disability” shall mean the Executive is: (1) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (2) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.

(b)      Cause . The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” occurs when the Executive does any of the following:

(i)      is convicted of a felony involving moral turpitude under federal, state or local law;

(ii)      materially breaches the Executive's obligations under Section 3(a) (other than as a result of incapacity due to physical or mental illness) that is demonstrably willful and deliberate on the Executive's part, that is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and that is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach); and/or

(iii)      is convicted of any applicable local, state or federal law or Company policy related to discrimination or harassment.

(c)      Good Reason . The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

(i)      the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirement), authority, duties or responsibilities as contemplated by Section 3(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii)      any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii)      the Company's requiring the Executive to be based at any office or location other than that described in Section 3(a) (i) (B);

(iv)      any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or

(v)      any failure by the Company to comply with and satisfy Section 9(c), provided that such successor has received at least ten days' prior written notice from the Company or the Executive of the requirements of Section 9(c).

For purposes of this Section 4(c), any good faith determination of “Good Reason” made by the Executive shall be conclusive.

(d)      Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b). For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date of such notice. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. Executive shall be required to provide notice to the Company of the existence of any condition that constitutes Good Reason within 90 days of the initial existence of the condition, and upon the receipt of such notice the Company shall have a period of 30 days during which it may remedy the condition.

(e)      Date of Termination . “Date of Termination” means the date the Executive experiences a Separation from Service.

SECTION 5.      Obligations of the Company upon Termination .

(a)      Good Reason; Other than for Cause, Death or Disability . If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

(i)      the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A)      the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Highest Annual Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) the Special Bonus, if due to the Executive pursuant to Section 3(b)(iii), to the extent not theretofore paid, and (4) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter referred to as the “Accrued Obligations”); and

(B)      the amount (such amount shall be hereinafter referred to as the “Severance Amount”) equal to the product of (1) 2.99 and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus (provided, however, that if the Special Bonus has not been paid to the Executive, such amount shall be increased by the amount of the Special Bonus); and

(C)      a separate lump‑sum supplemental retirement benefit (the amount of such benefit shall be hereinafter referred to as the “Supplemental Retirement Amount”) equal to the difference between (1) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized w

ith respect to the Company's Retirement Plan (or any successor plan thereto) (the “Retirement Plan”) during the 90-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the “SERP”) which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 3(b)(i) and 3(b)(ii) for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Effective Date, and (2) the lump sum actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; and

(ii)      for each month during the remainder of the Employment Period, the Company shall make a cash payment equal to the excess of (x) 1.25 times one-twelfth of the annual insurance premium (or, in the case of any benefit provided on a self-insured basis, an amount equal to a market-based insurance premium for the same coverage) for the plans, programs, policies and practices described in Section 3(b)(v) other than health and dental benefits, covering the Executive and/or the Executive's family on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination (such payments and the payments described in Section 5(a)(iii) shall be hereinafter referred to as the “Welfare Benefit Payments”); and

(iii)      for each month during the remainder of the Employment Period, the Company shall make a cash payment equal to the excess of (x) 1.25 times the maximum allowable monthly contribution that the Executive can be required to pay for continued health and dental plan coverage under Section 4980B of the Code for the health and dental coverage provided to the Executive, the Executive's spouse and the Executive's dependents on the Date of Termination over (y) the amount that the Executive paid or contributed toward the cost of such benefits immediately before the Date of Termination.
 
(iv)      to the extent not otherwise paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits pursuant to the terms of any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives of the Company and its affiliated companies and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(v)      to the extent not otherwise provided for herein, all options, warrants or other rights to acquire capital stock of the Company and any stock appreciation rights plan or other similar plan benefits held by or for the benefit of the Executive shall become fully vested and eligible for immediate exercise.

(vi)      Notwithstanding anything contained in this Agreement to the contrary, if the Executive is a “specified employee” (determined in accordance with Code Section 409A and Treasury Regulation Section 1.409A-3(i)(2)) as of the date of Separation from Service (other than a Separation from Service due to death), then any payment, benefit or entitlement provided for in this Agreement that is “deferred compensation” that is subject to Section 409A of the Code and that is payable during the first six months following the date of Separation from Service shall be paid or provided to the Executive in a lump sum cash payment to be made on the earlier of (a) the Executive's death or (b) the first business day (or within 30 days after such first business day) of the seventh calendar month immediately following the month in which the date of Separation from Service occurs. If any payment is delayed pursuant to this provision, the Company

shall pay interest at the rate described below on the postponed payments from the date the payment would have been due but for this provision to the date on which such amounts are paid. Interest shall be credited at an annual rate equal to the greater of 6% or the Prime Rate, as determined by the Company, in effect on the first day of such delay compounded annually.

(b)      Death . If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits (excluding, in each case, Death Benefits (as defined below)) and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive or the Executive's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of life insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the “Death Benefits”).

(c)      Disability . If the Executive becomes Disabled during the Employment Period, the Company's only obligation to the Executive will be (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of disability) and the timely payment or provision of the Welfare Benefit Payments and Other Benefits and (ii) payment to the Executive in a lump sum in cash within 30 days following the Date of Disability of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount.

(d)      Cause; Other than for Good Reason . If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

(e)      Non-exclusivity of Rights . Except as provided in Sections 5(a)(ii), 5(b) and 5(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect any rights the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or pro-gram or contract or agreement except as explicitly modified by this Agreement.

SECTION 6.      Full Settlement; Resolution of Disputes .

(a)      The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set‑off, counterclaim, recoupment, defense

or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), provided that the Executive takes and maintains his position in good faith; plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.

(b)      If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) as though such termination were by the Company without Cause, or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amount pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. If the Executive has maintained his or her position in the dispute in good faith (in the sole opinion of the court, which for this purpose shall include any mediator or arbitrator, if the dispute is settled through mediation or arbitration), the Company shall reimburse the Executive for any attorneys' fees and expenses incurred by the Executive with respect to such dispute related to this Agreement, and including any actions taken by either party to appeal or enforce the judgment rendered therein. Such reimbursement shall be made by direct payment to the Executive upon delivery to the Company of valid invoices and/or receipts relating to such attorneys' fees and expenses.
 
SECTION 7.      Parachute Payments .

(a)      In the event that it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute a “parachute payment” as defined in 280G(b)(2) of the Code (a “Parachute Payment”), then the Payments will be reduced in accordance with this Section 7 if, and only to the extent that, a reduction will allow the Executive to receive a greater Net After Tax Amount than the Executive would receive absent a reduction.

(b)      An independent registered public accounting firm selected by the Company immediately prior to the Change of Control (the “Accounting Firm”) will first determine the total amount of any Parachute Payments that are payable to the Executive. The Accounting Firm also will determine the Net After Tax Amount attributable to the Executive's total Parachute Payments.

(c)      The Accounting Firm will next determine the largest amount of Payments that may be made to or on behalf of the Executive without subjecting the Executive to tax under Section 4999 of the Code (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

(d)      The Executive will receive the total Parachute Payments or the Capped Parachute Payments, whichever provides the Executive with the higher Net After Tax Amount. If the Executive will received the Capped Payments, the total Parachute Payments will be adjusted by first reducing any Payments that do not constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash) and next, if necessary, by reducing any Payments that do constitute “deferred compensation” under Section 409A of the Code (by first reducing any such Payments that are not payable in cash and then by reducing the amount of any such Payments that are payable in cash). The Accounting Firm will notify the Executive and the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and will send the Executive and the Company a copy of its detailed calculations supporting that determination and showing the Payments that will be reduced.

(e)      As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time the Accounting Firm makes its determinations under this Section 7, it is possible that amounts will have been paid or distributed to the Executive that should not have been paid or distributed under this Section 7 (“Overpayments”) or that additional amounts should be paid or distributed to the Executive under this Section 7 (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Accounting Firm will notify the Executive and the Company of that determination and the Executive must repay the Overpayment to the Company, without interest; provided, however, that no amount will be payable by the Executive unless, and then only to the extent that, the repayment would either reduce the amount on which the Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Executive and the Company of that determination and the amount of the Underpayment will be paid to the Executive, without interest, promptly by the Company.

(f)      For purposes of this Section 7, the term “Net After Tax Amount” means that amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Executive on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.

SECTION 8.      Confidential Information . The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

SECTION 9.      Successors .

(a)      This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

(b)      This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c)      The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

SECTION 10. Miscellaneous .

(a)      This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b)      All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

	
				
 	If to the Executive:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Jeffrey D. Miller	
 	 	 	 	
 	If to the Company:	 	Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Chairman of the Board of Directors	

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c)      The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d)      The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e)      The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for

Good Reason pursuant to Section 4(c)(i)‑(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f)      The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement.

(g)      Payments under this Agreement shall be in lieu of payment under any other separation pay plan or arrangement for which the Executive may otherwise be eligible. Notwithstanding the terms of any such other separation pay plan or arrangement, the Executive agrees that he shall not be eligible for any benefits thereunder.
 
(h)      Any reimbursements or in-kind benefits to be provided pursuant to this Agreement (including but not limited to Sections 3(b)(v), 3(b)(vi), 3(b)(vii), 5(a)(iii) and 6) that are taxable to Executive shall be subject to the following restrictions: (a) each reimbursement must be paid no later than the last day of the calendar year following the Executive's tax year during which the expense was incurred or tax was remitted, as the case may be; (b) the amount of expenses or taxes eligible for reimbursement, or in kind benefits provided, during a tax year of the Executive may not affect the expenses or taxes eligible for reimbursement, or in-kind benefits to be provided, in any other tax year of the Executive; (c) the period during which any reimbursement may be paid or in-kind benefit may be provided is the later of ten years after termination of this Agreement; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

SECTION 11. Termination of Previous Executive Supplemental Employment Agreement . Each of the parties hereto agrees that the Executive Supplemental Employment Agreement between the Company and the Executive, dated as of April 13, 2007 and amended as of November 10, 2008 (collectively and as amended, the “Prior Agreement”), has been terminated concurrently with the execution of this Agreement and that none of the provisions of the Prior Agreement shall be deemed to survive the execution of this Agreement in any respect.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Compensation Committee of its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

	
				
 	 	EXECUTIVE:	
 	 	 	/s/ Jeffrey D. Miller	
 	 	 	Jeffrey D. Miller	

	
				
 	 	HIGHWOODS PROPERTIES, INC.	
 	 	By: 	/s/ Edward J. Fritsch	
 	 	 	Edward J. Fritsch	
 	 	 	President and Chief Executive Officer	

Exhibit 12.1

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

	

 	 	2012	 	2011	 	2010	 	2009	 	2008	
Earnings:	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before equity in earnings of unconsolidated affiliates	 	$	45,683		 	$	34,128		 	$	60,271		 	$	34,639		 	$	25,900		
Fixed charges	 	98,647		 	97,535		 	95,894		 	92,589		 	107,999		
Capitalized interest	 	(1,031	)	 	(589	)	 	(1,419	)	 	(4,555	)	 	(8,312	)	
Distributions of earnings from unconsolidated affiliates	 	4,618		 	5,029		 	4,433		 	4,180		 	5,994		
Total earnings	 	$	147,917		 	$	136,103		 	$	159,179		 	$	126,853		 	$	131,581		
 	 	 	 	 	 	 	 	 	 	 	
Fixed charges and Preferred Stock dividends:	 	 	 	 	 	 	 	 	 	 	
Contractual interest expense	 	$	92,838		 	$	91,458		 	$	87,409		 	$	81,703		 	$	92,682		
Amortization of deferred financing costs	 	3,685		 	3,312		 	3,385		 	2,760		 	2,716		
Financing obligations interest expense	 	(409	)	 	740		 	2,157		 	1,963		 	2,822		
Capitalized interest	 	1,031		 	589		 	1,419		 	4,555		 	8,312		
Interest component of rental expense	 	1,502		 	1,436		 	1,524		 	1,608		 	1,467		
Total fixed charges	 	98,647		 	97,535		 	95,894		 	92,589		 	107,999		
Preferred Stock dividends	 	2,508		 	4,553		 	6,708		 	6,708		 	9,804		
Total fixed charges and Preferred Stock dividends	 	$	101,155		 	$	102,088		 	$	102,602		 	$	99,297		 	$	117,803		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	1.50		 	1.40		 	1.66		 	1.37		 	1.22		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and Preferred Stock dividends	 	1.46		 	1.33		 	1.55		 	1.28		 	1.12		

Exhibit 12.2

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

	

 	 	2012	 	2011	 	2010	 	2009	 	2008	
Earnings:	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before equity in earnings of unconsolidated affiliates	 	$	45,683		 	$	34,128		 	$	60,271		 	$	34,639		 	$	25,840		
Fixed charges	 	98,647		 	97,535		 	95,894		 	92,589		 	107,999		
Capitalized interest	 	(1,031	)	 	(589	)	 	(1,419	)	 	(4,555	)	 	(8,312	)	
Distributions of earnings from unconsolidated affiliates	 	4,592		 	5,005		 	4,377		 	4,103		 	5,978		
Total earnings	 	$	147,891		 	$	136,079		 	$	159,123		 	$	126,776		 	$	131,505		
 	 	 	 	 	 	 	 	 	 	 	
Fixed charges and Preferred Unit distributions:	 	 	 	 	 	 	 	 	 	 	
Contractual interest expense	 	$	92,838		 	$	91,458		 	$	87,409		 	$	81,703		 	$	92,682		
Amortization of deferred financing costs	 	3,685		 	3,312		 	3,385		 	2,760		 	2,716		
Financing obligations interest expense	 	(409	)	 	740		 	2,157		 	1,963		 	2,822		
Capitalized interest	 	1,031		 	589		 	1,419		 	4,555		 	8,312		
Interest component of rental expense	 	1,502		 	1,436		 	1,524		 	1,608		 	1,467		
Total fixed charges	 	98,647		 	97,535		 	95,894		 	92,589		 	107,999		
Preferred Unit distributions	 	2,508		 	4,553		 	6,708		 	6,708		 	9,804		
Total fixed charges and Preferred Unit distributions	 	$	101,155		 	$	102,088		 	$	102,602		 	$	99,297		 	$	117,803		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	1.50		 	1.40		 	1.66		 	1.37		 	1.22		
 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and Preferred Unit distributions	 	1.46		 	1.33		 	1.55		 	1.28		 	1.12		

Exhibit 21
 
Subsidiaries of Highwoods Properties, Inc.

Highwoods Realty Limited Partnership, a North Carolina limited partnership
 
HRLP Riverwood, LLC, a Delaware limited liability company

HRLP Fourth Avenue, LLC, a Delaware limited liability company

HRLP NC-VA, L.P., a Delaware limited partnership

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

Subsidiaries of Highwoods Realty Limited Partnership

HRLP Riverwood, LLC, a Delaware limited liability company

HRLP Fourth Avenue, LLC, a Delaware limited liability company

HRLP NC-VA, L.P., a Delaware limited partnership

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

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-12117, 333-29759, 333-55901, 333-160521, and 333-168356 on Form S-8, and Registration Statements No. 333-149736, 333-158408 and 333-172134 on Form S-3, of our reports dated February 12, 2013 , relating to the consolidated financial statements and financial statement schedules of Highwoods Properties, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2012 .

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 12, 2013

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-172134-01 on Form S-3, of our reports dated February 12, 2013 , relating to the consolidated financial statements and financial statement schedules of Highwoods Realty Limited Partnership and subsidiaries (the “Operating Partnership”) appearing in this Annual Report on Form 10-K of the Operating Partnership for the year ended December 31, 2012 .

/s/ Deloitte & Touche LLP

Raleigh, North Carolina
February 12, 2013

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Edward J. Fritsch, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 12, 2013

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

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Terry L. Stevens, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 12, 2013

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

Exhibit 31.3

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Edward J. Fritsch, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 12, 2013

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

Exhibit 31.4

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT

I, Terry L. Stevens, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 12, 2013

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer of the General Partner	

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Properties, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Fritsch, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

	
	
/s/ Edward J. Fritsch	
Edward J. Fritsch
President and Chief Executive Officer	
February 12, 2013	

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Properties, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry L. Stevens, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer	
February 12, 2013	

Exhibit 32.3

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Realty Limited Partnership (the “Operating Partnership”) on Form 10-K for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Fritsch, President and Chief Executive Officer of Highwoods Properties, Inc., general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.	

	
	
/s/ Edward J. Fritsch	
Edward J. Fritsch
President and Chief Executive Officer of the General Partner	
February 12, 2013	

Exhibit 32.4

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT

In connection with the Annual Report of Highwoods Realty Limited Partnership (the “Operating Partnership”) on Form 10-K for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry L. Stevens, Senior Vice President and Chief Financial Officer of Highwoods Properties, Inc., general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
		
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.	

	
	
/s/ Terry L. Stevens	
Terry L. Stevens
Senior Vice President and Chief Financial Officer of the General Partner	
February 12, 2013