HIGHWOODS PROPERTIES, INC., 10-Q filed on 7/29/2014
Quarterly Report
Document and Entity Information Document
6 Months Ended
Jun. 30, 2014
Jul. 21, 2014
Entity Information [Line Items]
 
 
Entity Registrant Name
HIGHWOODS PROPERTIES INC. 
 
Entity Central Index Key
0000921082 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
90,361,707 
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, 2014 
 
Document Fiscal Year Focus
2014 
 
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, 2014
Dec. 31, 2013
Real estate assets, at cost:
 
 
Land
$ 382,575 
$ 393,602 
Buildings and tenant improvements
3,724,554 
3,748,869 
Development in process
114,790 
44,621 
Land held for development
104,873 
110,374 
Total real estate assets
4,326,792 
4,297,466 
Less-accumulated depreciation
(1,011,477)
(985,244)
Net real estate assets
3,315,315 
3,312,222 
Real estate and other assets, net, held for sale
68,159 
Cash and cash equivalents
18,699 
10,184 
Restricted cash
10,602 
14,169 
Accounts receivable, net of allowance of $1,390 and $1,648, respectively
27,972 
26,430 
Mortgages and notes receivable, net of allowance of $275 and $302, respectively
10,140 
26,409 
Accrued straight-line rents receivable, net of allowance of $798 and $1,063, respectively
132,051 
126,014 
Investments in unconsolidated affiliates
30,387 
29,901 
Deferred financing and leasing costs, net of accumulated amortization of $102,430 and $92,220, respectively
218,022 
222,211 
Prepaid expenses and other assets, net of accumulated amortization of $13,466 and $12,905, respectively
45,453 
39,561 
Total Assets
3,876,800 
3,807,101 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Equity:
 
 
Mortgages and notes payable
2,058,972 
1,956,299 
Accounts payable, accrued expenses and other liabilities
219,296 
218,962 
Financing obligations
24,672 
26,664 
Total Liabilities
2,302,940 
2,201,925 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
123,205 
106,480 
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; 90,361,707 and 89,920,915 shares issued and outstanding, respectively
904 
899 
Additional paid-in capital
2,366,281 
2,370,368 
Distributions in excess of net income available for common stockholders
(962,205)
(920,433)
Accumulated other comprehensive loss
(4,719)
(2,611)
Total Stockholders’ Equity
1,429,338 
1,477,300 
Noncontrolling interests in consolidated affiliates
21,317 
21,396 
Total Equity
1,450,655 
1,498,696 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Equity
3,876,800 
3,807,101 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
382,575 
393,602 
Buildings and tenant improvements
3,724,554 
3,748,869 
Development in process
114,790 
44,621 
Land held for development
104,873 
110,374 
Total real estate assets
4,326,792 
4,297,466 
Less-accumulated depreciation
(1,011,477)
(985,244)
Net real estate assets
3,315,315 
3,312,222 
Real estate and other assets, net, held for sale
68,159 
Cash and cash equivalents
18,793 
10,281 
Restricted cash
10,602 
14,169 
Accounts receivable, net of allowance of $1,390 and $1,648, respectively
27,972 
26,430 
Mortgages and notes receivable, net of allowance of $275 and $302, respectively
10,140 
26,409 
Accrued straight-line rents receivable, net of allowance of $798 and $1,063, respectively
132,051 
126,014 
Investments in unconsolidated affiliates
30,387 
29,901 
Deferred financing and leasing costs, net of accumulated amortization of $102,430 and $92,220, respectively
218,022 
222,211 
Prepaid expenses and other assets, net of accumulated amortization of $13,466 and $12,905, respectively
45,383 
39,561 
Total Assets
3,876,824 
3,807,198 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Equity:
 
 
Mortgages and notes payable
2,058,972 
1,956,299 
Accounts payable, accrued expenses and other liabilities
219,250 
218,887 
Financing obligations
24,672 
26,664 
Total Liabilities
2,302,894 
2,201,850 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units:
 
 
Common Units, 2,936,955 and 2,943,872 outstanding, respectively
123,205 
106,480 
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
152,282 
135,557 
Equity:
 
 
General partner Common Units, 928,899 and 924,560 outstanding, respectively
14,048 
14,508 
Limited partner Common Units, 89,024,000 and 88,587,546 outstanding, respectively
1,391,002 
1,436,498 
Accumulated other comprehensive loss
(4,719)
(2,611)
Noncontrolling interests in consolidated affiliates
21,317 
21,396 
Total Equity
1,421,648 
1,469,791 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Equity
$ 3,876,824 
$ 3,807,198 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Assets:
 
 
Accounts receivable allowance
$ 1,390 
$ 1,648 
Mortgages and notes receivable allowance
275 
302 
Accrued straight-line rents receivable allowance
798 
1,063 
Deferred financing and leasing costs, accumulated amortization
102,430 
92,220 
Prepaid expenses and other assets, accumulated amortization
13,466 
12,905 
Equity:
 
 
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)
29,077 
29,077 
Series A Preferred Stock, shares outstanding (in shares)
29,077 
29,077 
Common Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common Stock, authorized shares (in shares)
200,000,000 
200,000,000 
Common Stock, shares issued (in shares)
90,361,707 
89,920,915 
Common Stock, shares outstanding (in shares)
90,361,707 
89,920,915 
Highwoods Realty Limited Partnership [Member]
 
 
Assets:
 
 
Accounts receivable allowance
1,390 
1,648 
Mortgages and notes receivable allowance
275 
302 
Accrued straight-line rents receivable allowance
798 
1,063 
Deferred financing and leasing costs, accumulated amortization
102,430 
92,220 
Prepaid expenses and other assets, accumulated amortization
$ 13,466 
$ 12,905 
Redeemable Operating Partnership Units: [Abstract]
 
 
Redeemable Common Units outstanding (in shares)
2,936,955 
2,943,872 
Series A Preferred Units, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Units, issued (in shares)
29,077 
29,077 
Series A Preferred Units, outstanding (in shares)
29,077 
29,077 
Common Units: [Abstract]
 
 
General partners' capital account, units outstanding (in shares)
928,899 
924,560 
Limited partners' capital account, units outstanding (in shares)
89,024,000 
88,587,546 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Rental and other revenues
$ 152,722 
$ 132,618 
$ 301,175 
$ 262,995 
Operating expenses:
 
 
 
 
Rental property and other expenses
55,275 
47,317 
111,665 
93,911 
Depreciation and amortization
50,443 
40,624 
98,608 
80,712 
Impairments of real estate assets
588 
588 
General and administrative
8,733 
8,397 
19,447 
18,979 
Total operating expenses
115,039 
96,338 
230,308 
193,602 
Interest expense:
 
 
 
 
Contractual
20,640 
22,398 
41,390 
45,196 
Amortization of deferred financing costs
799 
948 
1,451 
1,897 
Financing obligations
(226)
(60)
(266)
61 
Total interest expense
21,213 
23,286 
42,575 
47,154 
Other income:
 
 
 
 
Interest and other income
1,410 
1,617 
2,809 
3,400 
Gains/(losses) on debt extinguishment
18 
18 
(164)
Total other income
1,428 
1,617 
2,827 
3,236 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
17,898 
14,611 
31,119 
25,475 
Gains/(losses) on disposition of property
5,947 
(37)
5,947 
(37)
Equity in earnings of unconsolidated affiliates
667 
913 
638 
1,349 
Income from continuing operations
24,512 
15,487 
37,704 
26,787 
Discontinued operations:
 
 
 
 
Income from discontinued operations
1,995 
4,339 
Impairments of real estate assets
(1,066)
(2,194)
Net gains on disposition of discontinued operations
13,163 
384 
14,407 
Total discontinued operations
14,092 
384 
16,552 
Net income
24,512 
29,579 
38,088 
43,339 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(742)
(1,243)
(1,140)
(1,824)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(438)
(187)
(861)
(390)
Dividends on Preferred Stock
(627)
(627)
(1,254)
(1,254)
Net income available for common stockholders
22,705 
27,522 
34,833 
39,871 
Earnings per Common Share – basic:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.25 
$ 0.17 
$ 0.38 
$ 0.30 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.16 
$ 0.01 
$ 0.19 
Net income available for common stockholders (in dollars per share)
$ 0.25 
$ 0.33 
$ 0.39 
$ 0.49 
Weighted average Common Shares outstanding - basic (in shares)
90,254 1 2
82,811 1 2
90,111 1 2
81,925 1 2
Earnings per Common Share - diluted:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.25 
$ 0.17 
$ 0.38 
$ 0.30 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.16 
$ 0.01 
$ 0.19 
Net income available for common stockholders (in dollars per share)
$ 0.25 
$ 0.33 
$ 0.39 
$ 0.49 
Weighted average Common Shares outstanding - diluted (in shares)
93,312 1 2
86,631 1 2
93,172 1 2
85,752 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
22,705 
14,033 
34,461 
24,031 
Income from discontinued operations available for common stockholders
13,489 
372 
15,840 
Net income available for common stockholders
22,705 
27,522 
34,833 
39,871 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Rental and other revenues
152,722 
132,618 
301,175 
262,995 
Operating expenses:
 
 
 
 
Rental property and other expenses
55,258 
47,295 
111,632 
93,915 
Depreciation and amortization
50,443 
40,624 
98,608 
80,712 
Impairments of real estate assets
588 
588 
General and administrative
8,750 
8,419 
19,480 
18,975 
Total operating expenses
115,039 
96,338 
230,308 
193,602 
Interest expense:
 
 
 
 
Contractual
20,640 
22,398 
41,390 
45,196 
Amortization of deferred financing costs
799 
948 
1,451 
1,897 
Financing obligations
(226)
(60)
(266)
61 
Total interest expense
21,213 
23,286 
42,575 
47,154 
Other income:
 
 
 
 
Interest and other income
1,410 
1,617 
2,809 
3,400 
Gains/(losses) on debt extinguishment
18 
18 
(164)
Total other income
1,428 
1,617 
2,827 
3,236 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
17,898 
14,611 
31,119 
25,475 
Gains/(losses) on disposition of property
5,947 
(37)
5,947 
(37)
Equity in earnings of unconsolidated affiliates
667 
916 
638 
1,299 
Income from continuing operations
24,512 
15,490 
37,704 
26,737 
Discontinued operations:
 
 
 
 
Income from discontinued operations
1,995 
4,339 
Impairments of real estate assets
(1,066)
(2,194)
Net gains on disposition of discontinued operations
13,163 
384 
14,407 
Total discontinued operations
14,092 
384 
16,552 
Net income
24,512 
29,582 
38,088 
43,289 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(438)
(187)
(861)
(390)
Distributions on Preferred Units
(627)
(627)
(1,254)
(1,254)
Net income available for common unitholders
23,447 
28,768 
35,973 
41,645 
Earnings per Common Unit - basic:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.25 
$ 0.17 
$ 0.38 
$ 0.30 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.16 
$ 0.01 
$ 0.19 
Net income available for common unitholders (in dollars per share)
$ 0.25 
$ 0.33 
$ 0.39 
$ 0.49 
Weighted average Common Units outstanding - basic (in shares)
92,782 1 3
86,090 1 3
92,640 1 3
85,223 1 3
Earnings per Common Unit - diluted:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.25 
$ 0.17 
$ 0.38 
$ 0.30 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.16 
$ 0.01 
$ 0.19 
Net income available for common unitholders (in dollars per share)
$ 0.25 
$ 0.33 
$ 0.39 
$ 0.49 
Weighted average Common Units outstanding - diluted (in shares)
92,903 1 3
86,222 1 3
92,763 1 3
85,343 1 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
23,447 
14,676 
35,589 
25,093 
Income from discontinued operations available for common unitholders
14,092 
384 
16,552 
Net income available for common unitholders
$ 23,447 
$ 28,768 
$ 35,973 
$ 41,645 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Comprehensive income:
 
 
 
 
Net income
$ 24,512 
$ 29,579 
$ 38,088 
$ 43,339 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains/(losses) on tax increment financing bond
105 
(91)
270 
299 
Unrealized gains/(losses) on cash flow hedges
(2,846)
6,319 
(4,250)
6,599 
Amortization of cash flow hedges
944 
800 
1,872 
1,588 
Total other comprehensive income/(loss)
(1,797)
7,028 
(2,108)
8,486 
Total comprehensive income
22,715 
36,607 
35,980 
51,825 
Less-comprehensive (income) attributable to noncontrolling interests
(1,180)
(1,430)
(2,001)
(2,214)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
21,535 
35,177 
33,979 
49,611 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Comprehensive income:
 
 
 
 
Net income
24,512 
29,582 
38,088 
43,289 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains/(losses) on tax increment financing bond
105 
(91)
270 
299 
Unrealized gains/(losses) on cash flow hedges
(2,846)
6,319 
(4,250)
6,599 
Amortization of cash flow hedges
944 
800 
1,872 
1,588 
Total other comprehensive income/(loss)
(1,797)
7,028 
(2,108)
8,486 
Total comprehensive income
22,715 
36,610 
35,980 
51,775 
Less-comprehensive (income) attributable to noncontrolling interests
(438)
(187)
(861)
(390)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
$ 22,277 
$ 36,423 
$ 35,119 
$ 51,385 
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, 2012
$ 1,164,893 
$ 1,135,033 
$ 803 
$ 29,077 
$ 11,427 
$ 1,131,481 
$ 2,040,306 
$ (12,628)
$ (12,628)
$ 4,753 
$ 4,753 
$ (897,418)
Balance (in shares) at Dec. 31, 2012
 
 
80,311,437 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of units redeemed for tax withholdings
 
122,490 
 
 
1,225 
121,265 
 
 
 
 
Distributions paid on Common Units
 
(72,355)
 
 
(724)
(71,631)
 
 
 
 
Distributions paid on Preferred Units
 
(1,254)
 
 
(13)
(1,241)
 
 
 
 
Issuances of Common Stock - Shares
 
 
3,434,687 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of shares redeemed for tax withholdings
122,490 
 
34 
 
 
122,456 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
72,471 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
2,851 
 
 
 
2,851 
 
 
Dividends on Common Stock
(69,563)
 
 
 
 
 
(69,563)
Dividends on Preferred Stock
(1,254)
 
 
 
 
 
(1,254)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(9,649)
 
 
 
(9,649)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(408)
(408)
(408)
(408)
Issuances of restricted stock - shares
 
 
151,630 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense, net of forfeitures - Shares
 
 
(1,813)
 
 
 
 
 
 
 
 
 
Share-based compensation expense, net of forfeitures
4,737 
4,737 
47 
4,690 
4,734 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(5,986)
 
 
(59)
(5,927)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,824)
 
 
 
 
 
(1,824)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(4)
(386)
390 
390 
(390)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
43,339 
43,289 
433 
42,856 
43,339 
Other comprehensive income/(loss)
8,486 
8,486 
8,486 
8,486 
Total comprehensive income
51,825 
51,775 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2013
1,264,098 
1,234,032 
840 
29,077 
12,332 
1,221,107 
2,160,698 
(4,142)
(4,142)
4,735 
4,735 
(927,110)
Balance (in shares) at Jun. 30, 2013
 
 
83,968,412 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,243)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
29,579 
29,582 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss)
7,028 
7,028 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
36,607 
36,610 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2013
1,264,098 
1,234,032 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2013
1,498,696 
1,469,791 
899 
29,077 
14,508 
1,436,498 
2,370,368 
(2,611)
(2,611)
21,396 
21,396 
(920,433)
Balance (in shares) at Dec. 31, 2013
89,920,915 
 
89,920,915 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of units redeemed for 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 shares redeemed for 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 income/(loss)
(2,108)
(2,108)
(2,108)
(2,108)
Total comprehensive income
35,980 
35,980 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2014
1,450,655 
1,421,648 
904 
29,077 
14,048 
1,391,002 
2,366,281 
(4,719)
(4,719)
21,317 
21,317 
(962,205)
Balance (in shares) at Jun. 30, 2014
90,361,707 
 
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 income/(loss)
(1,797)
(1,797)
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
22,715 
22,715 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2014
$ 1,450,655 
$ 1,421,648 
 
 
 
 
 
 
 
 
 
 
Balance (in shares) at Jun. 30, 2014
90,361,707 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Operating activities:
 
 
Net income
$ 38,088 
$ 43,339 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
98,608 
84,767 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
234 
(198)
Share-based compensation expense
5,381 
4,737 
Allowance for losses on accounts and accrued straight-line rents receivable
1,278 
380 
Accrued interest on mortgages and notes receivable
(232)
Amortization of deferred financing costs
1,451 
1,897 
Amortization of cash flow hedges
1,872 
1,588 
Amortization of mortgages and notes payable fair value adjustments
(902)
Impairments of real estate assets
588 
2,194 
(Gains)/losses on debt extinguishment
(18)
164 
Net gains on disposition of property
(6,331)
(14,370)
Equity in earnings of unconsolidated affiliates
(638)
(1,349)
Changes in financing obligations
(628)
(391)
Distributions of earnings from unconsolidated affiliates
1,216 
2,827 
Changes in operating assets and liabilities:
 
 
Accounts receivable
1,491 
2,295 
Prepaid expenses and other assets
(4,962)
(2,284)
Accrued straight-line rents receivable
(10,365)
(8,009)
Accounts payable, accrued expenses and other liabilities
(11,597)
(661)
Net cash provided by operating activities
114,534 
116,926 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(228,461)
Investments in development in process
(69,928)
(11,499)
Investments in tenant improvements and deferred leasing costs
(54,794)
(42,343)
Investments in building improvements
(28,877)
(26,466)
Net proceeds from disposition of real estate assets
8,975 
60,381 
Distributions of capital from unconsolidated affiliates
468 
435 
Investments in mortgages and notes receivable
(234)
(432)
Repayments of mortgages and notes receivable
16,817 
276 
Investments in unconsolidated affiliates
(6,225)
(429)
Changes in restricted cash and other investing activities
686 
7,853 
Net cash (used in) investing activities
(133,112)
(240,685)
Financing activities:
 
 
Dividends on Common Stock
(76,605)
(69,563)
Redemptions of Common Units
(93)
Dividends on Preferred Stock
(1,254)
(1,254)
Distributions to noncontrolling interests in the Operating Partnership
(2,497)
(3,140)
Distributions to noncontrolling interests in consolidated affiliates
(940)
(408)
Proceeds from the issuance of Common Stock
11,404 
126,738 
Costs paid for the issuance of Common Stock
(42)
(1,711)
Repurchase of shares related to tax withholdings
(2,650)
(2,537)
Borrowings on revolving credit facility
302,100 
346,300 
Repayments of revolving credit facility
(360,800)
(233,900)
Borrowings on mortgages and notes payable
296,949 
Repayments of mortgages and notes payable
(134,648)
(39,610)
Payments on financing obligations
(1,364)
(575)
Additions to deferred financing costs and other financing activities
(2,467)
(242)
Net cash provided by financing activities
27,093 
120,098 
Net increase/(decrease) in cash and cash equivalents
8,515 
(3,661)
Cash and cash equivalents at beginning of the period
10,184 
13,783 
Cash and cash equivalents at end of the period
18,699 
10,122 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
41,468 
40,480 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains/(losses) on cash flow hedges
(4,250)
6,599 
Conversions of Common Units to Common Stock
162 
2,851 
Changes in accrued capital expenditures
10,726 
12,618 
Write-off of fully depreciated real estate assets
16,994 
17,732 
Write-off of fully amortized deferred financing and leasing costs
13,273 
11,363 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
210 
312 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
18,337 
9,649 
Unrealized gains on tax increment financing bond
270 
299 
Receivable related to redemption of investment in unconsolidated affiliate
4,660 
Highwoods Realty Limited Partnership [Member]
 
 
Operating activities:
 
 
Net income
38,088 
43,289 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
98,608 
84,767 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
234 
(198)
Share-based compensation expense
5,381 
4,737 
Allowance for losses on accounts and accrued straight-line rents receivable
1,278 
380 
Accrued interest on mortgages and notes receivable
(232)
Amortization of deferred financing costs
1,451 
1,897 
Amortization of cash flow hedges
1,872 
1,588 
Amortization of mortgages and notes payable fair value adjustments
(902)
Impairments of real estate assets
588 
2,194 
(Gains)/losses on debt extinguishment
(18)
164 
Net gains on disposition of property
(6,331)
(14,370)
Equity in earnings of unconsolidated affiliates
(638)
(1,299)
Changes in financing obligations
(628)
(391)
Distributions of earnings from unconsolidated affiliates
1,216 
2,814 
Changes in operating assets and liabilities:
 
 
Accounts receivable
1,491 
2,295 
Prepaid expenses and other assets
(4,892)
(2,189)
Accrued straight-line rents receivable
(10,365)
(8,009)
Accounts payable, accrued expenses and other liabilities
(11,568)
(587)
Net cash provided by operating activities
114,633 
117,082 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(228,461)
Investments in development in process
(69,928)
(11,499)
Investments in tenant improvements and deferred leasing costs
(54,794)
(42,343)
Investments in building improvements
(28,877)
(26,466)
Net proceeds from disposition of real estate assets
8,975 
60,381 
Distributions of capital from unconsolidated affiliates
468 
435 
Investments in mortgages and notes receivable
(234)
(432)
Repayments of mortgages and notes receivable
16,817 
276 
Investments in unconsolidated affiliates
(6,225)
(429)
Changes in restricted cash and other investing activities
686 
7,853 
Net cash (used in) investing activities
(133,112)
(240,685)
Financing activities:
 
 
Distributions on Common Units
(78,754)
(72,355)
Redemptions of Common Units
(93)
Distributions on Preferred Units
(1,254)
(1,254)
Distributions to noncontrolling interests in consolidated affiliates
(940)
(408)
Proceeds from the issuance of Common Units
11,404 
126,738 
Costs paid for the issuance of Common Units
(42)
(1,711)
Repurchase of units related to tax withholdings
(2,650)
(2,537)
Borrowings on revolving credit facility
302,100 
346,300 
Repayments of revolving credit facility
(360,800)
(233,900)
Borrowings on mortgages and notes payable
296,949 
Repayments of mortgages and notes payable
(134,648)
(39,610)
Payments on financing obligations
(1,364)
(575)
Additions to deferred financing costs and other financing activities
(2,917)
(747)
Net cash provided by financing activities
26,991 
119,941 
Net increase/(decrease) in cash and cash equivalents
8,512 
(3,662)
Cash and cash equivalents at beginning of the period
10,281 
13,867 
Cash and cash equivalents at end of the period
18,793 
10,205 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
41,468 
40,480 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains/(losses) on cash flow hedges
(4,250)
6,599 
Changes in accrued capital expenditures
10,726 
12,618 
Write-off of fully depreciated real estate assets
16,994 
17,732 
Write-off of fully amortized deferred financing and leasing costs
13,273 
11,363 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
210 
312 
Adjustment of Redeemable Common Units to fair value
16,725 
5,482 
Unrealized gains on tax increment financing bond
270 
299 
Receivable related to redemption of investment in unconsolidated affiliate
$ 4,660 
$ 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, 2014, we owned or had an interest in 32.1 million rentable square feet of in-service office, industrial and retail properties, 0.9 million rentable square feet of office properties under development and approximately 600 acres of development land.
 
The Company is the sole general partner of the Operating Partnership. At June 30, 2014, the Company owned all of the Preferred Units and 90.0 million, or 96.9%, 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, 2014, the Company redeemed 2,500 Common Units for less than $0.1 million in cash and redeemed 4,417 Common Units for a like number of shares of Common Stock.

Common Stock Offerings
 
During the three and six months ended June 30, 2014, the Company issued 50,293 and 73,877 shares of Common Stock, respectively, under its equity sales agreements at an average gross sales price of $38.38 and $38.35 per share, respectively, and received net proceeds, after sales commissions, of $1.9 million and $2.8 million, respectively. As a result of this activity and the redemptions discussed above, the percentage of Common Units owned by the Company increased from 96.8% at December 31, 2013 to 96.9% at June 30, 2014.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Statements of Income for the three and six months ended June 30, 2013 were retrospectively revised from previously reported amounts to reflect in discontinued operations the operations for those properties classified as discontinued operations.

The Company's Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership's Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. All intercompany transactions and accounts have been eliminated. At June 30, 2014 and December 31, 2013, we had involvement with, but are not the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3).

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 2013 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.


1.    Description of Business and Significant Accounting Policies – Continued
Recently Issued Accounting Standards

The Financial Accounting Standards Board ("FASB") recently issued an accounting standard update that requires only those real estate asset sales representing a strategic shift in operations (e.g., a disposal of a major geographic area or a major line of business) to be reflected in discontinued operations. This accounting standard update is required to be adopted in 2015. Early adoption is permitted, but only for real estate asset sales that have not been previously reflected as discontinued operations. We elected to early adopt the accounting standard update as of April 1, 2014, resulting in the operations of current period dispositions and property classified as held for sale at June 30, 2014 being included in continuing operations on our Consolidated Statements of Income.  Prior to adoption, we were generally required to reflect all real estate asset sales as discontinued operations, which required reclassification of the earnings of the sold assets from continuing operations for all periods presented.

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

Dispositions

During the second quarter of 2014, we sold two land parcels in Atlanta, GA in separate transactions for an aggregate sale price of $9.5 million and recorded aggregate gains on disposition of property of $5.9 million.

Impairments

During the second quarter of 2014, we recorded impairments of real estate assets of $0.6 million on an office property in Greensboro, NC. This impairment was due to a change in the assumed timing of future disposition and leasing assumptions, which reduced the future expected cash flows from the impaired property.
Mortgages and Notes Receivable
Mortgages and Notes Receivable
Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
June 30,
2014
 
December 31,
2013
Seller financing (first mortgages)
$

 
$
16,454

Less allowance

 

 

 
16,454

Mortgage receivable
9,901

 
9,435

Less allowance

 

 
9,901

 
9,435

Promissory notes
514

 
822

Less allowance
(275
)
 
(302
)
 
239

 
520

Mortgages and notes receivable, net
$
10,140

 
$
26,409



During 2010, we provided seller financing in conjunction with two disposition transactions. We accounted for these dispositions using the installment method, whereby a gain on disposition of property was deferred until the seller financing was repaid. During the first quarter of 2014, the $16.5 million of seller financing was fully repaid and we recorded the $0.4 million gain on disposition of property.

During 2012, we provided secured acquisition financing to a third party. We also agreed to loan such third party $8.4 million on a secured basis to fund future infrastructure development. As of June 30, 2014, $0.5 million has been funded to the third party for infrastructure development. 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. Our risk of loss with respect to this arrangement is limited to the carrying value of the mortgage receivable and the future infrastructure development funding commitment.

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, 2014, our mortgages and notes receivable were not in default and there were no other indicators of impairment.

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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Beginning notes receivable allowance
$
300

 
$
437

 
$
302

 
$
182

Recoveries/write-offs/other
(25
)
 
(61
)
 
(27
)
 
194

Total notes receivable allowance
$
275

 
$
376

 
$
275

 
$
376

Investments In Affiliates
Investments In Affiliates
Investments in 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 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,
 
2014
 
2013
 
2014
 
2013
Income Statements:
 
 
 
 
 
 
 
Rental and other revenues
$
12,845

 
$
23,935

 
$
25,278

 
$
47,451

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
6,236

 
11,739

 
12,439

 
22,948

Depreciation and amortization
3,328

 
6,227

 
6,817

 
12,373

Impairments of real estate assets

 

 

 
4,790

Interest expense
2,301

 
4,689

 
4,512

 
9,428

Total expenses
11,865

 
22,655

 
23,768

 
49,539

Income/(loss) before disposition of properties
980

 
1,280

 
1,510

 
(2,088
)
Gains on disposition of properties

 
43

 
1,949

 
67

Net income/(loss)
$
980

 
$
1,323

 
$
3,459

 
$
(2,021
)
Our share of:
 
 
 
 
 
 
 
Depreciation and amortization
$
923

 
$
2,092

 
$
1,954

 
$
4,107

Impairments of real estate assets
$

 
$

 
$

 
$
1,020

Interest expense
$
764

 
$
1,732

 
$
1,540

 
$
3,484

Gains on disposition of properties
$

 
$
10

 
$
955

 
$
431

Net income
$
491

 
$
571

 
$
1,646

 
$
575

 
 
 
 
 
 
 
 
Our share of net income
$
491

 
$
571

 
$
1,646

 
$
575

Adjustments for management and other fees
176

 
342

 
345

 
774

Impairment of investment in unconsolidated affiliate

 

 
(1,353
)
 

Equity in earnings of unconsolidated affiliates
$
667

 
$
913

 
$
638

 
$
1,349



Board of Trade Investment Company ("Board of Trade")

During the first quarter of 2014, Board of Trade sold an office property to an unrelated third party for gross proceeds of $8.3 million and recorded a gain of $1.9 million. As our cost basis was different from the basis reflected at the entity level, we recorded a net impairment charge on our investment of $0.4 million. This charge represented the other-than-temporary decline in the fair value below the carrying value of our investment. During the second quarter of 2014, our 49.0% interest in Board of Trade was redeemed in exchange for $4.7 million.

Highwoods KC Glenridge Office, LLC (“KC Glenridge”)

During the second quarter of 2014, KC Glenridge paid at maturity the remaining $14.9 million balance on a secured mortgage loan with an effective interest rate of 4.84%.
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,
2014
 
December 31,
2013
Assets:
 
 
 
Deferred financing costs
$
19,567

 
$
17,363

Less accumulated amortization
(6,434
)
 
(5,204
)
 
13,133

 
12,159

Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
300,885

 
297,068

Less accumulated amortization
(95,996
)
 
(87,016
)
 
204,889

 
210,052

Deferred financing and leasing costs, net
$
218,022

 
$
222,211

 
 
 
 
Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
54,903

 
$
55,323

Less accumulated amortization
(11,080
)
 
(8,478
)
 
$
43,823

 
$
46,845


The following table sets forth amortization of intangible assets and below market lease liabilities:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Amortization of deferred financing costs
$
799

 
$
948

 
$
1,451

 
$
1,897

Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
10,050

 
$
7,888

 
$
19,978

 
$
15,963

Amortization of lease incentives (in rental and other revenues)
$
399

 
$
340

 
$
750

 
$
716

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
1,114

 
$
484

 
$
2,230

 
$
950

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)
$
(1,500
)
 
$
(1,031
)
 
$
(3,022
)
 
$
(2,153
)


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, 2014
 
$
1,558

 
$
18,266

 
$
689

 
$
2,107

 
$
277

 
$
(2,979
)
2015
 
3,087

 
34,839

 
1,135

 
3,619

 
553

 
(5,718
)
2016
 
2,823

 
29,299

 
934

 
2,810

 
553

 
(5,427
)
2017
 
2,529

 
25,379

 
843

 
2,269

 
553

 
(5,164
)
2018
 
1,404

 
21,095

 
748

 
1,426

 
553

 
(5,016
)
Thereafter
 
1,732

 
49,508

 
2,580

 
3,768

 
1,086

 
(19,519
)
 
 
$
13,133

 
$
178,386

 
$
6,929

 
$
15,999

 
$
3,575

 
$
(43,823
)
Weighted average remaining amortization periods as of June 30, 2014 (in years)
 
4.8

 
6.5

 
8.2

 
6.6

 
6.5

 
8.7



Mortgages and Notes Payable
Mortgages and Notes Payable
Mortgages and Notes Payable
 
The following table sets forth our mortgages and notes payable:
 
 
June 30,
2014
 
December 31,
2013
Secured indebtedness
$
352,857

 
$
488,664

Unsecured indebtedness
1,706,115

 
1,467,635

Total mortgages and notes payable
$
2,058,972

 
$
1,956,299


 
At June 30, 2014, our secured mortgage loans were collateralized by real estate assets with an aggregate undepreciated book value of $652.4 million.
 
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 $157.0 million and $181.0 million outstanding under our revolving credit facility at June 30, 2014 and July 21, 2014, respectively. At both June 30, 2014 and July 21, 2014, 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 June 30, 2014 and July 21, 2014 was $317.9 million and $293.9 million, respectively.
 
During the second quarter of 2014, the Operating Partnership issued $300 million aggregate principal amount of 3.20% Notes due June 15, 2021, less original issue discount of $3.1 million. These notes were priced at 98.983% for an effective yield of 3.363%. Underwriting fees and other expenses were incurred that aggregated $2.4 million; these costs were deferred and will be amortized over the term of the notes.

6.    Mortgages and Notes Payable - Continued

During the second quarter of 2014, we prepaid without penalty the remaining $123.7 million balance on a secured mortgage loan with an effective interest rate of 3.11% that was originally scheduled to mature in July 2014.
 
During the second quarter of 2014, we prepaid the remaining $7.2 million balance on a secured mortgage loan with an effective interest rate of 3.32% that was originally scheduled to mature in August 2014. We recorded less than $0.1 million of gain on debt extinguishment related to this prepayment.

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 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, 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, 2014 through June 30, 2015, we estimate that $3.4 million will be reclassified to interest expense.
 
The following table sets forth the gross fair value of our derivatives:
 
 
June 30,
2014
 
December 31,
2013
Derivatives:
 
 
 
Derivatives designated as cash flow hedges in prepaid expenses and other assets:
 
 
 
Interest rate swaps
$

 
$
301

Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:
 
 
 
Interest rate swaps
$
2,744

 
$
510



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,
 
2014
 
2013
 
2014
 
2013
Derivatives Designated as Cash Flow Hedges:
 
 
 
 
 
 
 
Amount of unrealized gains/(losses) recognized in AOCL on derivatives (effective portion):
 
 
 
 
 
 
 
Interest rate swaps
$
(2,846
)
 
$
6,319

 
$
(4,250
)
 
$
6,599

Amount of losses reclassified out of AOCL into contractual interest expense (effective portion):
 
 
 
 
 
 
 
Interest rate swaps
$
944

 
$
800

 
$
1,872

 
$
1,588

Noncontrolling Interests
Noncontrolling Interests
Noncontrolling Interests

Noncontrolling Interests in Consolidated Affiliates
 
At June 30, 2014, our noncontrolling interests in consolidated affiliates relates 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,
 
2014
 
2013
Beginning noncontrolling interests in the Operating Partnership
$
106,480

 
$
124,869

Adjustment of noncontrolling interests in the Operating Partnership to fair value
18,337

 
9,649

Conversions of Common Units to Common Stock
(162
)
 
(2,851
)
Redemptions of Common Units
(93
)
 

Net income attributable to noncontrolling interests in the Operating Partnership
1,140

 
1,824

Distributions to noncontrolling interests in the Operating Partnership
(2,497
)
 
(3,140
)
Total noncontrolling interests in the Operating Partnership
$
123,205

 
$
130,351


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,
 
2014
 
2013
 
2014
 
2013
Net income available for common stockholders
$
22,705

 
$
27,522

 
$
34,833

 
$
39,871

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

 
2,500

 
162

 
2,851

Change from net income available for common stockholders and transfers from noncontrolling interests
$
22,705

 
$