HIGHWOODS PROPERTIES, INC., 10-Q filed on 8/4/2015
Quarterly Report
Document and Entity Information Document
6 Months Ended
Jun. 30, 2015
Jul. 27, 2015
Entity Information [Line Items]
 
 
Entity Registrant Name
HIGHWOODS PROPERTIES INC. 
 
Entity Central Index Key
0000921082 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
94,118,906 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Highwoods Realty Limited Partnership [Member]
 
 
Entity Information [Line Items]
 
 
Entity Registrant Name
HIGHWOODS REALTY LIMITED PARTNERSHIP 
 
Entity Central Index Key
0000941713 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Non-accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Real estate assets, at cost:
 
 
Land
$ 407,180 
$ 384,301 
Buildings and tenant improvements
3,991,536 
3,807,315 
Development in process
104,693 
205,971 
Land held for development
76,955 
79,355 
Total real estate assets
4,580,364 
4,476,942 
Less-accumulated depreciation
(1,066,945)
(1,024,936)
Net real estate assets
3,513,419 
3,452,006 
Real estate and other assets, net, held for sale
10,631 
1,038 
Cash and cash equivalents
4,939 
8,832 
Restricted cash
15,703 
14,595 
Accounts receivable, net of allowance of $1,487 and $1,314, respectively
27,027 
48,557 
Mortgages and notes receivable, net of allowance of $410 and $275, respectively
5,935 
13,116 
Accrued straight-line rents receivable, net of allowance of $1,022 and $600, respectively
151,028 
142,037 
Investments in and advances to unconsolidated affiliates
43,979 
50,685 
Deferred financing and leasing costs, net of accumulated amortization of $119,396 and $112,804, respectively
223,380 
228,768 
Prepaid expenses and other assets, net of accumulated amortization of $15,242 and $14,259, respectively
43,601 
39,489 
Total Assets
4,039,642 
3,999,123 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
Mortgages and notes payable
2,124,028 
2,071,389 
Accounts payable, accrued expenses and other liabilities
214,131 
237,633 
Financing obligation
8,962 
8,962 
Total Liabilities
2,347,121 
2,317,984 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
116,260 
130,048 
Equity/Capital:
 
 
Preferred Stock, $.01 par value, 50,000,000 authorized shares; 8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 29,050 and 29,060 shares issued and outstanding, respectively
29,050 
29,060 
Common Stock, $.01 par value, 200,000,000 authorized shares; 94,118,006 and 92,907,310 shares issued and outstanding, respectively
941 
929 
Additional paid-in capital
2,525,227 
2,464,275 
Distributions in excess of net income available for common stockholders
(992,425)
(957,370)
Accumulated other comprehensive loss
(4,514)
(3,912)
Total Stockholders’ Equity
1,558,279 
1,532,982 
Noncontrolling interests in consolidated affiliates
17,982 
18,109 
Total Equity/Capital
1,576,261 
1,551,091 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital
4,039,642 
3,999,123 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
407,180 
384,301 
Buildings and tenant improvements
3,991,536 
3,807,315 
Development in process
104,693 
205,971 
Land held for development
76,955 
79,355 
Total real estate assets
4,580,364 
4,476,942 
Less-accumulated depreciation
(1,066,945)
(1,024,936)
Net real estate assets
3,513,419 
3,452,006 
Real estate and other assets, net, held for sale
10,631 
1,038 
Cash and cash equivalents
4,939 
8,938 
Restricted cash
15,703 
14,595 
Accounts receivable, net of allowance of $1,487 and $1,314, respectively
27,027 
48,557 
Mortgages and notes receivable, net of allowance of $410 and $275, respectively
5,935 
13,116 
Accrued straight-line rents receivable, net of allowance of $1,022 and $600, respectively
151,028 
142,037 
Investments in and advances to unconsolidated affiliates
43,979 
50,685 
Deferred financing and leasing costs, net of accumulated amortization of $119,396 and $112,804, respectively
223,380 
228,768 
Prepaid expenses and other assets, net of accumulated amortization of $15,242 and $14,259, respectively
43,601 
39,489 
Total Assets
4,039,642 
3,999,229 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
Mortgages and notes payable
2,124,028 
2,071,389 
Accounts payable, accrued expenses and other liabilities
214,131 
237,547 
Financing obligation
8,962 
8,962 
Total Liabilities
2,347,121 
2,317,898 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units:
 
 
Common Units, 2,910,135 and 2,936,955 outstanding, respectively
116,260 
130,048 
Series A Preferred Units (liquidation preference $1,000 per unit), 29,050 and 29,060 units issued and outstanding, respectively
29,050 
29,060 
Total Redeemable Operating Partnership Units
145,310 
159,108 
Equity/Capital:
 
 
General partner Common Units, 966,193 and 954,355 outstanding, respectively
15,335 
15,078 
Limited partner Common Units, 92,743,004 and 91,544,146 outstanding, respectively
1,518,408 
1,492,948 
Accumulated other comprehensive loss
(4,514)
(3,912)
Noncontrolling interests in consolidated affiliates
17,982 
18,109 
Total Equity/Capital
1,547,211 
1,522,223 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital
$ 4,039,642 
$ 3,999,229 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2015
Dec. 31, 2014
Assets:
 
 
Accounts receivable allowance
$ 1,487 
$ 1,314 
Mortgages and notes receivable allowance
410 
275 
Accrued straight-line rents receivable allowance
1,022 
600 
Deferred financing and leasing costs, accumulated amortization
119,396 
112,804 
Prepaid expenses and other assets, accumulated amortization
15,242 
14,259 
Equity/Capital:
 
 
Series A Preferred Stock, dividend rate percentage (in hundredths)
8.625% 
8.625% 
Series A Preferred Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Series A Preferred Stock, authorized shares (in shares)
50,000,000 
50,000,000 
Series A Preferred Stock, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Stock, shares issued (in shares)
29,050 
29,060 
Series A Preferred Stock, shares outstanding (in shares)
29,050 
29,060 
Common Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common Stock, authorized shares (in shares)
200,000,000 
200,000,000 
Common Stock, shares issued (in shares)
94,118,006 
92,907,310 
Common Stock, shares outstanding (in shares)
94,118,006 
92,907,310 
Highwoods Realty Limited Partnership [Member]
 
 
Assets:
 
 
Accounts receivable allowance
1,487 
1,314 
Mortgages and notes receivable allowance
410 
275 
Accrued straight-line rents receivable allowance
1,022 
600 
Deferred financing and leasing costs, accumulated amortization
119,396 
112,804 
Prepaid expenses and other assets, accumulated amortization
$ 15,242 
$ 14,259 
Redeemable Operating Partnership Units: [Abstract]
 
 
Redeemable Common Units outstanding (in shares)
2,910,135 
2,936,955 
Series A Preferred Units, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Units, issued (in shares)
29,050 
29,060 
Series A Preferred Units, outstanding (in shares)
29,050 
29,060 
Common Units: [Abstract]
 
 
General partners' capital account, units outstanding (in shares)
966,193 
954,355 
Limited partners' capital account, units outstanding (in shares)
92,743,004 
91,544,146 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Rental and other revenues
$ 161,136 
$ 152,722 
$ 318,446 
$ 301,175 
Operating expenses:
 
 
 
 
Rental property and other expenses
57,278 
55,275 
114,791 
111,665 
Depreciation and amortization
51,240 
50,443 
101,548 
98,608 
Impairments of real estate assets
588 
588 
General and administrative
8,892 
8,733 
20,329 
19,447 
Total operating expenses
117,410 
115,039 
236,668 
230,308 
Interest expense:
 
 
 
 
Contractual
20,857 
20,640 
41,299 
41,390 
Amortization of deferred financing costs
828 
799 
1,628 
1,451 
Financing obligation
317 
(226)
498 
(266)
Total interest expense
22,002 
21,213 
43,425 
42,575 
Other income:
 
 
 
 
Interest and other income
1,199 
1,410 
2,437 
2,809 
Gains/(losses) on debt extinguishment
(220)
18 
(220)
18 
Total other income
979 
1,428 
2,217 
2,827 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
22,703 
17,898 
40,570 
31,119 
Gains on disposition of property
2,412 
5,947 
3,569 
5,947 
Equity in earnings of unconsolidated affiliates
1,776 
667 
3,587 
638 
Income from continuing operations
26,891 
24,512 
47,726 
37,704 
Discontinued operations:
 
 
 
 
Net gains on disposition of discontinued operations
384 
Total discontinued operations
384 
Net income
26,891 
24,512 
47,726 
38,088 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(782)
(742)
(1,378)
(1,140)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(328)
(438)
(624)
(861)
Dividends on Preferred Stock
(626)
(627)
(1,253)
(1,254)
Net income available for common stockholders
25,155 
22,705 
44,471 
34,833 
Earnings per Common Share – basic:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.47 
$ 0.38 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.00 
$ 0.00 
$ 0.01 
Net income available for common stockholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.47 
$ 0.39 
Weighted average Common Shares outstanding - basic (in shares)
94,055 
90,254 
93,641 
90,111 
Earnings per Common Share - diluted:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.47 
$ 0.38 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.00 
$ 0.00 
$ 0.01 
Net income available for common stockholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.47 
$ 0.39 
Weighted average Common Shares outstanding - diluted (in shares)
97,049 1 2
93,312 1 2
96,666 1 2
93,172 1 2
Dividends declared per Common Share (in dollars per share)
$ 0.425 
$ 0.425 
$ 0.850 
$ 0.850 
Net income available for common stockholders:
 
 
 
 
Income from continuing operations available for common stockholders
25,155 
22,705 
44,471 
34,461 
Income from discontinued operations available for common stockholders
372 
Net income available for common stockholders
25,155 
22,705 
44,471 
34,833 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Rental and other revenues
161,136 
152,722 
318,446 
301,175 
Operating expenses:
 
 
 
 
Rental property and other expenses
57,278 
55,258 
114,791 
111,632 
Depreciation and amortization
51,240 
50,443 
101,548 
98,608 
Impairments of real estate assets
588 
588 
General and administrative
8,892 
8,750 
20,329 
19,480 
Total operating expenses
117,410 
115,039 
236,668 
230,308 
Interest expense:
 
 
 
 
Contractual
20,857 
20,640 
41,299 
41,390 
Amortization of deferred financing costs
828 
799 
1,628 
1,451 
Financing obligation
317 
(226)
498 
(266)
Total interest expense
22,002 
21,213 
43,425 
42,575 
Other income:
 
 
 
 
Interest and other income
1,199 
1,410 
2,437 
2,809 
Gains/(losses) on debt extinguishment
(220)
18 
(220)
18 
Total other income
979 
1,428 
2,217 
2,827 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
22,703 
17,898 
40,570 
31,119 
Gains on disposition of property
2,412 
5,947 
3,569 
5,947 
Equity in earnings of unconsolidated affiliates
1,776 
667 
3,587 
638 
Income from continuing operations
26,891 
24,512 
47,726 
37,704 
Discontinued operations:
 
 
 
 
Net gains on disposition of discontinued operations
384 
Total discontinued operations
384 
Net income
26,891 
24,512 
47,726 
38,088 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(328)
(438)
(624)
(861)
Distributions on Preferred Units
(626)
(627)
(1,253)
(1,254)
Net income available for common unitholders
25,937 
23,447 
45,849 
35,973 
Earnings per Common Unit - basic:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.48 
$ 0.38 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.00 
$ 0.00 
$ 0.01 
Net income available for common unitholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.48 
$ 0.39 
Weighted average Common Units outstanding - basic (in shares)
96,556 
92,782 
96,153 
92,640 
Earnings per Common Unit - diluted:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.48 
$ 0.38 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.00 
$ 0.00 
$ 0.01 
Net income available for common unitholders (in dollars per share)
$ 0.27 
$ 0.25 
$ 0.48 
$ 0.39 
Weighted average Common Units outstanding - diluted (in shares)
96,640 2 3
92,903 2 3
96,257 2 3
92,763 2 3
Distributions declared per Common Unit (in dollars per unit)
$ 0.425 
$ 0.425 
$ 0.850 
$ 0.850 
Net income available for common unitholders:
 
 
 
 
Income from continuing operations available for common unitholders
25,937 
23,447 
45,849 
35,589 
Income from discontinued operations available for common unitholders
384 
Net income available for common unitholders
$ 25,937 
$ 23,447 
$ 45,849 
$ 35,973 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Comprehensive income:
 
 
 
 
Net income
$ 26,891 
$ 24,512 
$ 47,726 
$ 38,088 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains on tax increment financing bond
105 
194 
270 
Unrealized gains/(losses) on cash flow hedges
269 
(2,846)
(2,645)
(4,250)
Amortization of cash flow hedges
925 
944 
1,849 
1,872 
Total other comprehensive income/(loss)
1,195 
(1,797)
(602)
(2,108)
Total comprehensive income
28,086 
22,715 
47,124 
35,980 
Less-comprehensive (income) attributable to noncontrolling interests
(1,110)
(1,180)
(2,002)
(2,001)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
26,976 
21,535 
45,122 
33,979 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Comprehensive income:
 
 
 
 
Net income
26,891 
24,512 
47,726 
38,088 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains on tax increment financing bond
105 
194 
270 
Unrealized gains/(losses) on cash flow hedges
269 
(2,846)
(2,645)
(4,250)
Amortization of cash flow hedges
925 
944 
1,849 
1,872 
Total other comprehensive income/(loss)
1,195 
(1,797)
(602)
(2,108)
Total comprehensive income
28,086 
22,715 
47,124 
35,980 
Less-comprehensive (income) attributable to noncontrolling interests
(328)
(438)
(624)
(861)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
$ 27,758 
$ 22,277 
$ 46,500 
$ 35,119 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Highwoods Realty Limited Partnership [Member]
Common Stock [Member]
Series A Cumulative Redeemable Preferred Shares [Member]
General Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Limited Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Highwoods Realty Limited Partnership [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Highwoods Realty Limited Partnership [Member]
Distributions in Excess of Net Income Available for Common Stockholders [Member]
Balance at Dec. 31, 2013
$ 1,507,467 
$ 1,478,562 
$ 899 
$ 29,077 
$ 14,596 
$ 1,445,181 
$ 2,370,368 
$ (2,611)
$ (2,611)
$ 21,396 
$ 21,396 
$ (911,662)
Balance (in shares) at Dec. 31, 2013
 
 
89,920,915 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of issuance costs and tax withholdings
 
8,712 
 
 
87 
8,625 
 
 
 
 
Redemptions of Common Units
 
(93)
 
 
(1)
(92)
 
 
 
 
Distributions paid on Common Units
 
(78,754)
 
 
(788)
(77,966)
 
 
 
 
Distributions paid on Preferred Units
 
(1,254)
 
 
(13)
(1,241)
 
 
 
 
Issuances of Common Stock - Shares
 
 
281,992 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of issuance costs and tax withholdings
8,712 
 
 
 
8,709 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
4,417 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
162 
 
 
 
162 
 
 
Dividends on Common Stock
(76,605)
 
 
 
 
 
(76,605)
Dividends on Preferred Stock
(1,254)
 
 
 
 
 
(1,254)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(18,337)
 
 
 
(18,337)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(940)
(940)
(940)
(940)
Issuances of restricted stock - shares
 
 
154,383 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense, net of forfeitures
5,381 
5,381 
54 
5,327 
5,379 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(17,175)
 
 
(171)
(17,004)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,140)
 
 
 
 
 
(1,140)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(9)
(852)
861 
861 
(861)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
38,088 
38,088 
381 
37,707 
38,088 
Other comprehensive loss
(2,108)
(2,108)
(2,108)
(2,108)
Total comprehensive income
35,980 
35,980 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2014
1,459,426 
1,430,419 
904 
29,077 
14,136 
1,399,685 
2,366,281 
(4,719)
(4,719)
21,317 
21,317 
(953,434)
Balance (in shares) at Jun. 30, 2014
 
 
90,361,707 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(742)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
24,512 
24,512 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
(1,797)
(1,797)
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
22,715 
22,715 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2014
1,459,426 
1,430,419 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2014
1,551,091 
1,522,223 
929 
29,060 
15,078 
1,492,948 
2,464,275 
(3,912)
(3,912)
18,109 
18,109 
(957,370)
Balance (in shares) at Dec. 31, 2014
92,907,310 
 
92,907,310 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of issuance costs and tax withholdings
 
43,216 
 
 
432 
42,784 
 
 
 
 
Distributions paid on Common Units
 
(81,663)
 
 
(817)
(80,846)
 
 
 
 
Distributions paid on Preferred Units
 
(1,253)
 
 
(13)
(1,240)
 
 
 
 
Issuances of Common Stock - Shares
 
 
1,055,491 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of issuance costs and tax withholdings
43,216 
 
11 
 
 
43,205 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
26,820 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
1,206 
 
 
 
1,206 
 
 
Dividends on Common Stock
(79,526)
 
 
 
 
 
(79,526)
Dividends on Preferred Stock
(1,253)
 
 
 
 
 
(1,253)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
11,475 
 
 
 
11,475 
 
 
Distributions to noncontrolling interests in consolidated affiliates
(751)
(751)
(751)
(751)
Issuances of restricted stock - shares
 
 
128,951 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Redemptions/repurchases of Preferred Stock
(10)
 
(10)
 
 
 
 
Share-based compensation expense, net of forfeitures - shares
 
 
(566)
 
 
 
 
 
 
 
 
 
Share-based compensation expense, net of forfeitures
5,067 
5,067 
51 
5,016 
5,066 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
13,248 
 
 
133 
13,115 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,378)
 
 
 
 
 
(1,378)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(6)
(618)
624 
624 
(624)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
47,726 
47,726 
477 
47,249 
47,726 
Other comprehensive loss
(602)
(602)
(602)
(602)
Total comprehensive income
47,124 
47,124 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2015
1,576,261 
1,547,211 
941 
29,050 
15,335 
1,518,408 
2,525,227 
(4,514)
(4,514)
17,982 
17,982 
(992,425)
Balance (in shares) at Jun. 30, 2015
94,118,006 
 
94,118,006 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(782)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
26,891 
26,891 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
1,195 
1,195 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
28,086 
28,086 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2015
$ 1,576,261 
$ 1,547,211 
 
 
 
 
 
 
 
 
 
 
Balance (in shares) at Jun. 30, 2015
94,118,006 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Operating activities:
 
 
Net income
$ 47,726 
$ 38,088 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
101,548 
98,608 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
234 
Share-based compensation expense
5,067 
5,381 
Allowance for losses on accounts and accrued straight-line rents receivable
1,174 
1,278 
Accrued interest on mortgages and notes receivable
(268)
(232)
Amortization of deferred financing costs
1,628 
1,451 
Amortization of cash flow hedges
1,849 
1,872 
Amortization of mortgages and notes payable fair value adjustments
84 
(902)
Impairments of real estate assets
588 
(Gains)/losses on debt extinguishment
220 
(18)
Net gains on disposition of property
(3,569)
(6,331)
Equity in earnings of unconsolidated affiliates
(3,587)
(638)
Changes in financing obligation
162 
(628)
Distributions of earnings from unconsolidated affiliates
3,438 
1,216 
Changes in operating assets and liabilities:
 
 
Accounts receivable
1,723 
1,491 
Prepaid expenses and other assets
(4,365)
(4,962)
Accrued straight-line rents receivable
(11,417)
(10,365)
Accounts payable, accrued expenses and other liabilities
(19,127)
(11,597)
Net cash provided by operating activities
122,295 
114,534 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(4,277)
Investments in development in process
(44,601)
(69,928)
Investments in tenant improvements and deferred leasing costs
(61,282)
(54,794)
Investments in building improvements
(23,513)
(28,877)
Net proceeds from disposition of real estate assets
6,070 
8,975 
Distributions of capital from unconsolidated affiliates
10,077 
468 
Investments in mortgages and notes receivable
(1,772)
(234)
Repayments of mortgages and notes receivable
9,221 
16,817 
Investments in and advances to unconsolidated affiliates
(6,225)
Changes in restricted cash and other investing activities
(6,741)
686 
Net cash used in investing activities
(116,818)
(133,112)
Financing activities:
 
 
Dividends on Common Stock
(79,526)
(76,605)
Redemptions/repurchases of Preferred Stock
(10)
Redemptions of Common Units
(93)
Dividends on Preferred Stock
(1,253)
(1,254)
Distributions to noncontrolling interests in the Operating Partnership
(2,485)
(2,497)
Distributions to noncontrolling interests in consolidated affiliates
(751)
(940)
Proceeds from the issuance of Common Stock
47,678 
11,404 
Costs paid for the issuance of Common Stock
(735)
(42)
Repurchase of shares related to tax withholdings
(3,727)
(2,650)
Borrowings on revolving credit facility
183,900 
302,100 
Repayments of revolving credit facility
(233,900)
(360,800)
Borrowings on mortgages and notes payable
125,000 
296,949 
Repayments of mortgages and notes payable
(41,887)
(134,648)
Payments on financing obligation
(162)
(1,364)
Additions to deferred financing costs and other financing activities
(1,512)
(2,467)
Net cash provided by/(used in) financing activities
(9,370)
27,093 
Net increase/(decrease) in cash and cash equivalents
(3,893)
8,515 
Cash and cash equivalents at beginning of the period
8,832 
10,184 
Cash and cash equivalents at end of the period
4,939 
18,699 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
40,540 
41,468 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized losses on cash flow hedges
(2,645)
(4,250)
Conversions of Common Units to Common Stock
1,206 
162 
Changes in accrued capital expenditures
(3,250)
10,726 
Write-off of fully depreciated real estate assets
31,011 
16,994 
Write-off of fully amortized deferred financing and leasing costs
17,812 
13,273 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(11,475)
18,337 
Unrealized gains on tax increment financing bond
194 
270 
Assumption of mortgages and notes payable related to acquisition activities
19,277 
Receivable related to redemption of investment in unconsolidated affiliate
4,660 
Reduction in the carrying amount of real estate purchased from unconsolidated affiliate by our share of the unconsolidated affiliate's gain
3,124 
Contingent consideration in connection with the acquisition of land
900 
Highwoods Realty Limited Partnership [Member]
 
 
Operating activities:
 
 
Net income
47,726 
38,088 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
101,548 
98,608 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
234 
Share-based compensation expense
5,067 
5,381 
Allowance for losses on accounts and accrued straight-line rents receivable
1,174 
1,278 
Accrued interest on mortgages and notes receivable
(268)
(232)
Amortization of deferred financing costs
1,628 
1,451 
Amortization of cash flow hedges
1,849 
1,872 
Amortization of mortgages and notes payable fair value adjustments
84 
(902)
Impairments of real estate assets
588 
(Gains)/losses on debt extinguishment
220 
(18)
Net gains on disposition of property
(3,569)
(6,331)
Equity in earnings of unconsolidated affiliates
(3,587)
(638)
Changes in financing obligation
162 
(628)
Distributions of earnings from unconsolidated affiliates
3,438 
1,216 
Changes in operating assets and liabilities:
 
 
Accounts receivable
1,723 
1,491 
Prepaid expenses and other assets
(4,365)
(4,892)
Accrued straight-line rents receivable
(11,417)
(10,365)
Accounts payable, accrued expenses and other liabilities
(19,041)
(11,568)
Net cash provided by operating activities
122,381 
114,633 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(4,277)
Investments in development in process
(44,601)
(69,928)
Investments in tenant improvements and deferred leasing costs
(61,282)
(54,794)
Investments in building improvements
(23,513)
(28,877)
Net proceeds from disposition of real estate assets
6,070 
8,975 
Distributions of capital from unconsolidated affiliates
10,077 
468 
Investments in mortgages and notes receivable
(1,772)
(234)
Repayments of mortgages and notes receivable
9,221 
16,817 
Investments in and advances to unconsolidated affiliates
(6,225)
Changes in restricted cash and other investing activities
(6,741)
686 
Net cash used in investing activities
(116,818)
(133,112)
Financing activities:
 
 
Distributions on Common Units
(81,663)
(78,754)
Redemptions/repurchases of Preferred Units
(10)
Redemptions of Common Units
(93)
Distributions on Preferred Units
(1,253)
(1,254)
Distributions to noncontrolling interests in consolidated affiliates
(751)
(940)
Proceeds from the issuance of Common Units
47,678 
11,404 
Costs paid for the issuance of Common Units
(735)
(42)
Repurchase of units related to tax withholdings
(3,727)
(2,650)
Borrowings on revolving credit facility
183,900 
302,100 
Repayments of revolving credit facility
(233,900)
(360,800)
Borrowings on mortgages and notes payable
125,000 
296,949 
Repayments of mortgages and notes payable
(41,887)
(134,648)
Payments on financing obligation
(162)
(1,364)
Additions to deferred financing costs and other financing activities
(2,052)
(2,917)
Net cash provided by/(used in) financing activities
(9,562)
26,991 
Net increase/(decrease) in cash and cash equivalents
(3,999)
8,512 
Cash and cash equivalents at beginning of the period
8,938 
10,281 
Cash and cash equivalents at end of the period
4,939 
18,793 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
40,540 
41,468 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized losses on cash flow hedges
(2,645)
(4,250)
Changes in accrued capital expenditures
(3,250)
10,726 
Write-off of fully depreciated real estate assets
31,011 
16,994 
Write-off of fully amortized deferred financing and leasing costs
17,812 
13,273 
Adjustment of Redeemable Common Units to fair value
(13,788)
16,725 
Unrealized gains on tax increment financing bond
194 
270 
Assumption of mortgages and notes payable related to acquisition activities
19,277 
Receivable related to redemption of investment in unconsolidated affiliate
4,660 
Reduction in the carrying amount of real estate purchased from unconsolidated affiliate by our share of the unconsolidated affiliate's gain
3,124 
Contingent consideration in connection with the acquisition of land
$ 900 
$ 0 
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc. (the “Company”) is a fully integrated real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At June 30, 2015, we owned or had an interest in 31.4 million rentable square feet of in-service properties, 0.9 million rentable square feet of properties under development and approximately 500 acres of development land.
 
The Company is the sole general partner of the Operating Partnership. At June 30, 2015, the Company owned all of the Preferred Units and 93.7 million, or 97.0%, of the Common Units in the Operating Partnership. Limited partners own the remaining 2.9 million Common Units. During the six months ended June 30, 2015, the Company redeemed 26,820 Common Units for a like number of shares of Common Stock.

Common Stock Offerings
 
During the three and six months ended June 30, 2015, the Company issued 58,533 and 972,659 shares, respectively, of Common Stock under its equity sales agreements at an average gross sales price of $41.72 and $45.12 per share, respectively, and received net proceeds, after sales commissions, of $2.4 million and $43.2 million, respectively. As a result of this activity and the redemptions discussed above, the percentage of Common Units owned by the Company increased from 96.9% at December 31, 2014 to 97.0% at June 30, 2015.

Basis of Presentation
 
Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company's Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership's Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. All intercompany transactions and accounts have been eliminated. At December 31, 2014, we had involvement with, but were not the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3).
 
During the second quarter of 2015, as a result of our partner’s irrevocable exercise of a buy-sell provision in one of our joint venture agreements, our partner’s right to put its 80.0% equity interest back to us became no longer exercisable. As a result, we recorded the original contribution transaction as a partial sale and recognized $2.2 million of gain. Our investment in this joint venture now qualifies for the equity method of accounting, which resulted in the retrospective revision of the Consolidated Balance Sheets and Consolidated Statements of Equity and Capital for all prior periods presented. The effects of the retrospective application of the equity method of accounting to the Consolidated Statements of Income, Comprehensive Income and Cash Flows were not material. The effects of the retrospective application of the equity method of accounting to the Company's December 31, 2014 Balance Sheet were as follows:
 
 
December 31,
2014
 
Previously Reported
 
As Revised
Net real estate assets
$
3,481,406

 
$
3,452,006

Investments in and advances to unconsolidated affiliates
$
27,071

 
$
50,685

Total Assets
$
4,004,909

 
$
3,999,123

Financing obligations
$
23,519

 
$
8,962

Distributions in excess of net income available for common stockholders
$
(966,141
)
 
$
(957,370
)
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
$
4,004,909

 
$
3,999,123



1.    Description of Business and Significant Accounting Policies – Continued
 
The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have condensed or omitted certain notes and other information from the interim Consolidated Financial Statements presented in this Quarterly Report as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2014 Annual Report on Form 10-K.

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

Recently Issued Accounting Standards

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

The FASB recently issued an accounting standards update that amends consolidation requirements. The amendments significantly change the consolidation analysis required under GAAP and will require companies to reevaluate all previous consolidation conclusions. The accounting standards update is required to be adopted in 2016. We are in the process of evaluating this accounting standards update.

The FASB recently issued an accounting standards update that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The accounting standards update is required to be adopted in 2016. Retrospective application is required. We are in the process of evaluating this accounting standards update.
Real Estate Assets
Real Estate Assets
Real Estate Assets

Acquisitions

During the second quarter of 2015, we acquired:

land in Atlanta, GA for a purchase price and related transaction costs of $5.2 million (including contingent consideration of $0.9 million); and

our Highwoods DLF 98/29, LLC joint venture partner’s 77.2% interest in a building in Orlando, FL encompassing 168,000 rentable square feet in exchange for the assumption of secured debt recorded at fair value of $19.3 million (see Note 6). We expensed $0.1 million of acquisition costs (included in general and administrative expenses) related to this acquisition.

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.

Dispositions
 
During the second quarter of 2015, we sold land for a sale price of $0.5 million and recorded a gain on disposition of property of $0.2 million.

During the first quarter of 2015, we sold:

two buildings for an aggregate sale price of $3.5 million and recorded aggregate gains on disposition of property of $0.4 million; and

land for a sale price of $2.5 million and recorded a gain on disposition of property of $0.8 million.
Mortgages and Notes Receivable
Mortgages and Notes Receivable
Mortgages and Notes Receivable

Mortgages and notes receivable were $5.9 million and $13.1 million at June 30, 2015 and December 31, 2014, respectively, and consisted primarily of secured financing provided to a third party. During the second quarter of 2015, $9.9 million of secured acquisition financing provided to a third party in 2012 was repaid, including accrued interest. Previously, we concluded this arrangement to be an interest in a variable interest entity. However, since we did not have the power to direct matters that most significantly impact the activities of the entity, we did not qualify as the primary beneficiary. Accordingly, the entity was not consolidated. Our risk of loss with respect to this arrangement was limited to the carrying value of the mortgage receivable.

We evaluate the ability to collect our mortgages and notes receivable by monitoring the leasing statistics and/or market fundamentals of these assets. As of June 30, 2015, our mortgages and notes receivable were not in default and there were no other indicators of impairment.
Investments In and Advances To Unconsolidated Affiliates
Investments In and Advances To Unconsolidated Affiliates
Investments in and Advances to 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 financial policies.
 
The following table sets forth the summarized income statements of our unconsolidated affiliates:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Income Statements:
 
 
 
 
 
 
 
Rental and other revenues
$
12,423

 
$
12,845

 
$
24,654

 
$
25,278

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
6,031

 
6,236

 
11,698

 
12,439

Depreciation and amortization
3,110

 
3,328

 
6,225

 
6,817

Interest expense
2,032

 
2,301

 
4,181

 
4,512

Total expenses
11,173

 
11,865

 
22,104

 
23,768

Income before disposition of property
1,250

 
980

 
2,550

 
1,510

Gains on disposition of property
16,054

 

 
18,181

 
1,949

Net income
$
17,304

 
$
980

 
$
20,731

 
$
3,459


 
We have a 20.0% interest in SF-HIW Harborview Plaza, LP (“Harborview”). We are the manager and leasing agent for Harborview’s property in Tampa, FL and receive customary management and leasing fees. During 2012, we also provided a three-year $20.8 million interest-only secured loan to Harborview that is scheduled to mature in September 2015. The loan bears interest at LIBOR plus 500 basis points, subject to a LIBOR floor of 0.5%. Previously, we accounted for the original contribution transaction as a financing obligation since our partner had the right to put its 80.0% equity interest back to us any time during the one-year period prior to September 11, 2015. During the second quarter of 2015, as a result of our partner’s irrevocable exercise of a buy-sell provision in our joint venture agreement, our partner’s right to put its 80.0% equity interest back to us became no longer exercisable, which resulted in recording the original contribution transaction as a partial sale. Harborview is now accounted for using the equity method of accounting. See Note 1.

See Note 2 for a description of our acquisition of a building in Orlando, FL from Highwoods DLF 98/29, LLC during the second quarter of 2015. The joint venture recorded a gain on disposition of property of $13.7 million. Our share of $3.1 million was recorded as a reduction to real estate assets.

During the second quarter of 2015, Highwoods KC Glenridge Office, LLC and Highwoods KC Glenridge Land, LLC collectively sold two buildings and land to an unrelated third party for an aggregate sale price of $24.5 million (before closing credits to buyer of $0.3 million for unfunded tenant improvements) and recorded gains on disposition of property of $2.4 million. We recorded $0.9 million as our share of these gains through equity in earnings of unconsolidated affiliates.

During the first quarter of 2015, Highwoods DLF 97/26 DLF 99/32, LP sold a building to an unrelated third party for a sale price of $7.0 million and recorded a gain on disposition of property of $2.1 million. We recorded $1.1 million as our share of this gain through equity in earnings of unconsolidated affiliates.
Intangible Assets and Below Market Lease Liabilities
Intangible Assets and Below Market Lease Liabilities
Intangible Assets and Below Market Lease Liabilities
 
The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:
 
 
June 30,
2015
 
December 31,
2014
Assets:
 
 
 
Deferred financing costs
$
19,508

 
$
19,478

Less accumulated amortization
(8,093
)
 
(7,953
)
 
11,415

 
11,525

Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
323,268

 
322,094

Less accumulated amortization
(111,303
)
 
(104,851
)
 
211,965

 
217,243

Deferred financing and leasing costs, net
$
223,380

 
$
228,768

 
 
 
 
Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
55,166

 
$
55,783

Less accumulated amortization
(16,300
)
 
(13,548
)
 
$
38,866

 
$
42,235


The following table sets forth amortization of intangible assets and below market lease liabilities:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Amortization of deferred financing costs
$
828

 
$
799

 
$
1,628

 
$
1,451

Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
10,169

 
$
10,050

 
$
20,462

 
$
19,978

Amortization of lease incentives (in rental and other revenues)
$
422

 
$
399

 
$
784

 
$
750

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
1,189

 
$
1,114

 
$
2,355

 
$
2,230

Amortization of acquisition-related intangible assets (in rental property and other expenses)
$
139

 
$
139

 
$
276

 
$
276

Amortization of acquisition-related below market lease liabilities (in rental and other revenues)
$
(1,674
)
 
$
(1,500
)
 
$
(3,406
)
 
$
(3,022
)


5.    Intangible Assets and Below Market Lease Liabilities - Continued
 
The following table sets forth scheduled future amortization of intangible assets and below market lease liabilities:
 
 
 
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)
July 1 through December 31, 2015
 
$
1,643

 
$
20,519

 
$
706

 
$
2,213

 
$
273

 
$
(3,098
)
2016
 
3,035

 
35,511

 
1,238

 
3,294

 
553

 
(5,555
)
2017
 
2,720

 
30,630

 
1,121

 
2,294

 
553

 
(5,284
)
2018
 
1,538

 
26,145

 
1,015

 
1,474

 
553

 
(5,123
)
2019
 
1,130

 
21,716

 
822

 
1,054

 
553

 
(4,810
)
Thereafter
 
1,349

 
53,743

 
2,582

 
2,870

 
533

 
(14,996
)
 
 
$
11,415

 
$
188,264

 
$
7,484

 
$
13,199

 
$
3,018

 
$
(38,866
)
Weighted average remaining amortization periods as of June 30, 2015 (in years)
 
4.3

 
7.0

 
7.9

 
6.1

 
5.5

 
7.8



The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of 2015 acquisition activity:

 
 
Acquisition-Related Intangible Assets (amortized in Rental and Other Revenues)
 
Acquisition-Related Intangible Assets (amortized in Depreciation and Amortization)
 
Acquisition-Related Below Market Lease Liabilities (amortized in Rental and Other Revenues)
Amount recorded from acquisition activity
 
$
498

 
$
1,671

 
$
(37
)
Weighted average remaining amortization periods as of June 30, 2015 (in years)
 
2.1

 
2.3

 
4.8

Mortgages and Notes Payable
Mortgages and Notes Payable
Mortgages and Notes Payable
 
The following table sets forth our mortgages and notes payable:
 
 
June 30,
2015
 
December 31,
2014
Secured indebtedness
$
290,101

 
$
312,868

Unsecured indebtedness
1,833,927

 
1,758,521

Total mortgages and notes payable
$
2,124,028

 
$
2,071,389


 
At June 30, 2015, our secured mortgage loans were collateralized by real estate assets with an aggregate undepreciated book value of $545.5 million.
 

6.    Mortgages and Notes Payable - Continued

Our $475.0 million unsecured revolving credit facility is scheduled to mature in January 2018 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 two additional six-month periods. The interest rate at our current credit ratings is LIBOR plus 110 basis points and the annual facility fee is 20 basis points. There was $159.0 million and $158.0 million outstanding under our revolving credit facility at June 30, 2015 and July 27, 2015, respectively. At both June 30, 2015 and July 27, 2015, we had $0.4 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 June 30, 2015 and July 27, 2015 was $315.6 million and $316.6 million, respectively.

During the second quarter of 2015, we amended our $225.0 million, seven-year unsecured bank term loan, which was scheduled to mature in January 2019. We increased the borrowed amount to $350.0 million. The amended term loan is now scheduled to mature in June 2020 and the interest rate, based on our current credit ratings, was reduced from LIBOR plus 175 basis points to LIBOR plus 110 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. The financial and other covenants under the amended term loan are unchanged. We incurred $1.3 million of deferred financing fees in connection with this amendment, which will be amortized along with existing unamortized deferred loan fees over the remaining term of the new loan.

During the second quarter of 2015, we prepaid without penalty the remaining $39.4 million balance on a secured mortgage loan with an effective interest rate of 6.43% that was originally scheduled to mature in November 2015. We recorded $0.2 million of loss on debt extinguishment related to this prepayment.

During the second quarter of 2015, we acquired our joint venture partner’s 77.2% interest in a building in Orlando, FL. Simultaneously with this acquisition, the joint venture's previously existing mortgage note was restructured into a new $18.0 million first mortgage note and a $10.2 million subordinated note, both of which are scheduled to mature in July 2017. The first mortgage note is interest only with an effective interest rate of 5.36%, payable monthly. The subordinated note has an effective interest rate of 8.6%. Additionally, we deposited $3.0 million into escrow to fund tenant improvements, leasing commissions and building improvements. The first mortgage note and subordinated note can be prepaid at any time commencing October 2016 upon a sale or refinancing of the property. In such event, the subordinated note and any and all accrued interest thereon would be deemed fully satisfied upon payment of a "waterfall payment," if any. Such "waterfall payment" would be a cash payment equal to 50.0% of the amount, if any, by which the net sale proceeds or appraised value in the event of a refinancing exceeds (1) the outstanding principal of the first mortgage note, (2) the funds deposited by us into escrow to fund tenant improvements, leasing commissions and building improvements and (3) a 10.0% return on such funds deposited by us into escrow. As of June 30, 2015, the fair value of the first mortgage note was $18.3 million and the fair value of the subordinated note equaled the projected waterfall payment of $1.0 million.

We are currently in compliance with financial covenants and other requirements with respect to our consolidated debt.
Derivative Financial Instruments
Derivative Financial Instruments
Derivative Financial Instruments
 
Our interest rate swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income/(loss) each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the six months ended June 30, 2015 and 2014. We have no collateral requirements related to our interest rate swaps.
 
Amounts reported in accumulated other comprehensive loss ("AOCL") related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the period from July 1, 2015 through June 30, 2016, we estimate that $2.9 million will be reclassified to interest expense.
 

7.
Derivative Financial Instruments - Continued

The following table sets forth the fair value of our derivatives:
 
 
June 30,
2015
 
December 31,
2014
Derivatives:
 
 
 
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:
 
 
 
Interest rate swaps
$
3,366

 
$
2,412



The following table sets forth the effect of our cash flow hedges on AOCL and interest expense:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Derivatives Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Amount of unrealized gains/(losses) recognized in AOCL on derivatives (effective portion):
 
 
 
 
 
 
 
Interest rate swaps
$
269

 
$
(2,846
)
 
$
(2,645
)
 
$
(4,250
)
Amount of losses reclassified out of AOCL into contractual interest expense (effective portion):
 
 
 
 
 
 
 
Interest rate swaps
$
925

 
$
944

 
$
1,849

 
$
1,872

Noncontrolling Interests
Noncontrolling Interests
Noncontrolling Interests

Noncontrolling Interests in Consolidated Affiliates
 
At June 30, 2015, our noncontrolling interests in consolidated affiliates relate to our joint venture partner's 50.0% interest in office properties in Richmond, VA. Our joint venture partner is an unrelated third party.

Noncontrolling Interests in the Operating Partnership

The following table sets forth the Company's noncontrolling interests in the Operating Partnership:
 
 
Six Months Ended
June 30,
 
2015
 
2014
Beginning noncontrolling interests in the Operating Partnership
$
130,048

 
$
106,480

Adjustment of noncontrolling interests in the Operating Partnership to fair value
(11,475
)
 
18,337

Conversions of Common Units to Common Stock
(1,206
)
 
(162
)
Redemptions of Common Units

 
(93
)
Net income attributable to noncontrolling interests in the Operating Partnership
1,378

 
1,140

Distributions to noncontrolling interests in the Operating Partnership
(2,485
)
 
(2,497
)
Total noncontrolling interests in the Operating Partnership
$
116,260

 
$
123,205



8.
Noncontrolling Interests - Continued

The following table sets forth net income available for common stockholders and transfers from the Company's noncontrolling interests in the Operating Partnership:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net income available for common stockholders
$
25,155

 
$
22,705

 
$
44,471

 
$
34,833

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

 

 
1,206

 
162

Change from net income available for common stockholders and transfers from noncontrolling interests
$
25,155

 
$
22,705

 
$
45,677

 
$
34,995

Disclosure About Fair Value of Financial Instruments
Disclosure About Fair Value of Financial Instruments
Disclosure About Fair Value of Financial Instruments

The following summarizes the three levels of inputs that we use to measure fair value.

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

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

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

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

The fair value of mortgages and notes receivable and mortgages and notes payable is estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of interest rate swaps are based on the expectation of future 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, and (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.
 
Our Level 3 liability is the fair value of our financing obligation, which was 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.


9.
Disclosure About Fair Value of Financial Instruments - Continued

The following table sets forth our assets and liabilities and the Company's noncontrolling interests in the Operating Partnership that are measured at fair value within the fair value hierarchy.
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
Total
 
Quoted Prices
in Active
Markets for Identical Assets or Liabilities
 
Significant Observable Inputs
 
Significant Unobservable Inputs
Fair Value at June 30, 2015:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Mortgages and notes receivable, at fair value (1)
 
$
5,943

 
$

 
$
2,167

 
$
3,776

Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
 
3,512

 
3,512

 

 

Tax increment financing bond (in prepaid expenses and other assets)
 
12,641

 

 

 
12,641

Total Assets
 
$
22,096

 
$
3,512

 
$
2,167

 
$
16,417

Noncontrolling Interests in the Operating Partnership
 
$
116,260

 
$
116,260

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
 
Mortgages and notes payable, at fair value (1)
 
$
2,178,032