HIGHWOODS PROPERTIES, INC., 10-Q filed on 4/30/2013
Quarterly Report
Document and Entity Information Document
3 Months Ended
Mar. 31, 2013
Apr. 19, 2013
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
Mar. 31, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
82,142,340 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Real estate assets, at cost:
 
 
Land
$ 380,932 
$ 371,730 
Buildings and tenant improvements
3,365,154 
3,281,362 
Development in process
29,209 
21,198 
Land held for development
122,825 
117,784 
Total real estate assets
3,898,120 
3,792,074 
Less-accumulated depreciation
(966,448)
(939,550)
Net real estate assets
2,931,672 
2,852,524 
Real estate and other assets, net, held for sale
4,394 
18,938 
Cash and cash equivalents
12,170 
13,783 
Restricted cash
14,790 
19,702 
Accounts receivable, net of allowance of $1,923 and $2,848, respectively
25,067 
23,073 
Mortgages and notes receivable, net of allowance of $437 and $182, respectively
25,472 
25,472 
Accrued straight-line rents receivable, net of allowance of $1,034 and $880, respectively
122,098 
116,584 
Investments in and advances to unconsolidated affiliates
66,142 
66,800 
Deferred financing and leasing costs, net of accumulated amortization of $82,472 and $77,219, respectively
176,816 
169,094 
Prepaid expenses and other assets, net of accumulated amortization of $12,587 and $12,318, respectively
41,972 
44,458 
Total Assets
3,420,593 
3,350,428 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
 
 
Mortgages and notes payable
1,896,300 
1,859,162 
Accounts payable, accrued expenses and other liabilities
167,553 
172,146 
Financing obligations
29,251 
29,358 
Total Liabilities
2,093,104 
2,060,666 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
147,317 
124,869 
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; 82,130,593 and 80,311,437 shares issued and outstanding, respectively
821 
803 
Additional paid-in capital
2,076,081 
2,040,306 
Distributions in excess of net income available for common stockholders
(919,328)
(897,418)
Accumulated other comprehensive loss
(11,170)
(12,628)
Total Stockholders’ Equity
1,175,481 
1,160,140 
Noncontrolling interests in consolidated affiliates
4,691 
4,753 
Total Equity
1,180,172 
1,164,893 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
3,420,593 
3,350,428 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
380,932 
371,730 
Buildings and tenant improvements
3,365,154 
3,281,362 
Development in process
29,209 
21,198 
Land held for development
122,825 
117,784 
Total real estate assets
3,898,120 
3,792,074 
Less-accumulated depreciation
(966,448)
(939,550)
Net real estate assets
2,931,672 
2,852,524 
Real estate and other assets, net, held for sale
4,394 
18,938 
Cash and cash equivalents
12,254 
13,867 
Restricted cash
14,790 
19,702 
Accounts receivable, net of allowance of $1,923 and $2,848, respectively
25,067 
23,073 
Mortgages and notes receivable, net of allowance of $437 and $182, respectively
25,472 
25,472 
Accrued straight-line rents receivable, net of allowance of $1,034 and $880, respectively
122,098 
116,584 
Investments in and advances to unconsolidated affiliates
65,109 
65,813 
Deferred financing and leasing costs, net of accumulated amortization of $82,472 and $77,219, respectively
176,816 
169,094 
Prepaid expenses and other assets, net of accumulated amortization of $12,587 and $12,318, respectively
41,830 
44,458 
Total Assets
3,419,502 
3,349,525 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
 
 
Mortgages and notes payable
1,896,300 
1,859,162 
Accounts payable, accrued expenses and other liabilities
167,530 
172,026 
Financing obligations
29,251 
29,358 
Total Liabilities
2,093,081 
2,060,546 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units:
 
 
Common Units, 3,722,945 and 3,733,016 outstanding, respectively
147,317 
124,869 
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
176,394 
153,946 
Equity:
 
 
General partner Common Units, 854,447 and 836,356 outstanding, respectively
11,563 
11,427 
Limited partner Common Units, 80,867,336 and 79,066,272 outstanding, respectively
1,144,943 
1,131,481 
Accumulated other comprehensive loss
(11,170)
(12,628)
Noncontrolling interests in consolidated affiliates
4,691 
4,753 
Total Equity
1,150,027 
1,135,033 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
$ 3,419,502 
$ 3,349,525 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Assets:
 
 
Accounts receivable allowance
$ 1,923 
$ 2,848 
Mortgages and notes receivable allowance
437 
182 
Accrued straight-line rents receivable allowance
1,034 
880 
Deferred financing and leasing costs, accumulated amortization
82,472 
77,219 
Prepaid expenses and other assets, accumulated amortization
12,587 
12,318 
Equity:
 
 
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)
82,130,593 
80,311,437 
Common Stock, shares outstanding (in shares)
82,130,593 
80,311,437 
Highwoods Realty Limited Partnership [Member]
 
 
Assets:
 
 
Accounts receivable allowance
1,923 
2,848 
Mortgages and notes receivable allowance
437 
182 
Accrued straight-line rents receivable allowance
1,034 
880 
Deferred financing and leasing costs, accumulated amortization
82,472 
77,219 
Prepaid expenses and other assets, accumulated amortization
$ 12,587 
$ 12,318 
Equity:
 
 
Common Stock, par value (in dollars per share)
$ 0.01 
 
Redeemable Operating Partnership Units: [Abstract]
 
 
Redeemable Common Units outstanding (in shares)
3,722,945 
3,733,016 
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)
854,447 
836,356 
Limited partners' capital account, units outstanding (in shares)
80,867,336 
79,066,272 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Rental and other revenues
$ 137,030 
$ 124,894 
Operating expenses:
 
 
Rental property and other expenses
48,941 
44,378 
Depreciation and amortization
42,144 
36,983 
Impairments of real estate assets
415 
General and administrative
10,582 
9,673 
Total operating expenses
102,082 
91,034 
Interest expense:
 
 
Contractual
22,798 
23,851 
Amortization of deferred financing costs
949 
902 
Financing obligations
121 
(76)
Total interest expense
23,868 
24,677 
Other income:
 
 
Interest and other income
1,783 
2,230 
Losses on debt extinguishment
(164)
Total other income
1,619 
2,230 
Income from continuing operations before disposition of condominiums and equity in earnings/(losses) of unconsolidated affiliates
12,699 
11,413 
Gains on for-sale residential condominiums
65 
Equity in earnings/(losses) of unconsolidated affiliates
436 
(162)
Income from continuing operations
13,135 
11,316 
Discontinued operations:
 
 
Income from discontinued operations
94 
1,882 
Impairments of real estate assets held for sale
(713)
Net gains on disposition of discontinued operations
1,244 
5,134 
Total discontinued operations
625 
7,016 
Net income
13,760 
18,332 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(581)
(827)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(203)
(184)
Dividends on Preferred Stock
(627)
(627)
Net income available for common stockholders
12,349 
16,694 
Earnings per Common Share – basic:
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.14 
$ 0.14 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.01 
$ 0.09 
Net income available for common stockholders (in dollars per share)
$ 0.15 
$ 0.23 
Weighted average Common Shares outstanding - basic (in shares)
81,029 1 2
72,836 1 2
Earnings per Common Share - diluted:
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.14 
$ 0.14 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.01 
$ 0.09 
Net income available for common stockholders (in dollars per share)
$ 0.15 
$ 0.23 
Weighted average Common Shares outstanding - diluted (in shares)
84,862 2
76,696 2
Dividends declared per Common Share (in dollars per share)
$ 0.425 
$ 0.425 
Net income available for common stockholders:
 
 
Income from continuing operations available for common stockholders
11,752 
10,022 
Income from discontinued operations available for common stockholders
597 
6,672 
Net income available for common stockholders
12,349 
16,694 
Highwoods Realty Limited Partnership [Member]
 
 
Rental and other revenues
137,030 
124,894 
Operating expenses:
 
 
Rental property and other expenses
48,967 
44,316 
Depreciation and amortization
42,144 
36,983 
Impairments of real estate assets
415 
General and administrative
10,556 
9,735 
Total operating expenses
102,082 
91,034 
Interest expense:
 
 
Contractual
22,798 
23,851 
Amortization of deferred financing costs
949 
902 
Financing obligations
121 
(76)
Total interest expense
23,868 
24,677 
Other income:
 
 
Interest and other income
1,783 
2,230 
Losses on debt extinguishment
(164)
Total other income
1,619 
2,230 
Income from continuing operations before disposition of condominiums and equity in earnings/(losses) of unconsolidated affiliates
12,699 
11,413 
Gains on for-sale residential condominiums
65 
Equity in earnings/(losses) of unconsolidated affiliates
383 
(160)
Income from continuing operations
13,082 
11,318 
Discontinued operations:
 
 
Income from discontinued operations
94 
1,882 
Impairments of real estate assets held for sale
(713)
Net gains on disposition of discontinued operations
1,244 
5,134 
Total discontinued operations
625 
7,016 
Net income
13,707 
18,334 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(203)
(184)
Distributions on Preferred Units
(627)
(627)
Net income available for common unitholders
12,877 
17,523 
Earnings per Common Unit - basic:
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.14 
$ 0.14 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.01 
$ 0.09 
Net income available for common unitholders (in dollars per share)
$ 0.15 
$ 0.23 
Weighted average Common Units outstanding - basic (in shares)
84,345 1 2
76,155 1 2
Earnings per Common Unit - diluted:
 
 
Income from continuing operations available for common unitholders (in dollars per share)
0.14 
0.14 
Income from discontinued operations available for common unitholders (in dollars per share)
0.01 
0.09 
Net income available for common unitholders (in dollars per share)
0.15 
0.23 
Weighted average Common Units outstanding - diluted (in shares)
84,453 2
76,287 2
Distributions declared per Common Unit (in dollars per unit)
$ 0.425 
$ 0.425 
Net income available for common unitholders:
 
 
Income from continuing operations available for common unitholders
12,252 
10,507 
Total discontinued operations
625 
7,016 
Net income available for common unitholders
$ 12,877 
$ 17,523 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Comprehensive income:
 
 
Net income
$ 13,760 
$ 18,332 
Other comprehensive income:
 
 
Unrealized gains on tax increment financing bond
390 
287 
Unrealized gains on cash flow hedges
280 
1,104 
Amortization of cash flow hedges
788 1
(33)1
Total other comprehensive income
1,458 
1,358 
Total comprehensive income
15,218 
19,690 
Less-comprehensive (income) attributable to noncontrolling interests
(784)
(1,011)
Comprehensive income attributable to common stockholders
14,434 
18,679 
Highwoods Realty Limited Partnership [Member]
 
 
Comprehensive income:
 
 
Net income
13,707 
18,334 
Other comprehensive income:
 
 
Unrealized gains on tax increment financing bond
390 
287 
Unrealized gains on cash flow hedges
280 
1,104 
Amortization of cash flow hedges
788 1
(33)1
Total other comprehensive income
1,458 
1,358 
Total comprehensive income
15,165 
19,692 
Less-comprehensive (income) attributable to noncontrolling interests
(203)
(184)
Comprehensive income attributable to common stockholders
$ 14,962 
$ 19,508 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Highwoods Realty Limited Partnership [Member]
Common Stock [Member]
Series A Cumulative Redeemable Preferred Shares [Member]
General Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Limited Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Highwoods Realty Limited Partnership [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Highwoods Realty Limited Partnership [Member]
Distributions in Excess of Net Income Available for Common Stockholders [Member]
Balance at Dec. 31, 2011
$ 986,859 
$ 956,674 
$ 726 
$ 29,077 
$ 9,575 
$ 948,187 
$ 1,803,997 
$ (5,734)
$ (5,734)
$ 4,646 
$ 4,646 
$ (845,853)
Balance (in shares) at Dec. 31, 2011
 
 
72,647,697 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net
 
26,644 
 
 
266 
26,378 
 
 
 
 
Distributions paid on Common Units
 
(32,371)
 
 
(323)
(32,048)
 
 
 
 
Distributions paid on Preferred Units
 
(627)
 
 
(6)
(621)
 
 
 
 
Issuances of Common Stock - Shares
 
 
807,483 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net
26,644 
 
 
 
26,636 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
2,000 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
63 
 
 
 
63 
 
 
Dividends on Common Stock
(30,961)
 
 
 
 
 
(30,961)
Dividends on Preferred Stock
(627)
 
 
 
 
 
(627)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(14,366)
 
 
 
(14,366)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(291)
(291)
(291)
(291)
Issuances of restricted stock - Shares
 
 
151,391 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense
2,422 
2,422 
24 
2,398 
2,420 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(13,636)
 
 
(137)
(13,499)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(827)
 
 
 
 
 
(827)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(2)
(182)
184 
184 
(184)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
18,332 
18,334 
183 
18,151 
18,332 
Other comprehensive income
1,358 
1,358 
1,358 
1,358 
Total comprehensive income
19,690 
19,692 
 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2012
988,606 
958,507 
736 
29,077 
9,580 
948,764 
1,818,750 
(4,376)
(4,376)
4,539 
4,539 
(860,120)
Balance (in shares) at Mar. 31, 2012
 
 
73,608,571 
 
 
 
 
 
 
 
 
 
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 
 
80,311,437 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net
 
55,804 
 
 
558 
55,246 
 
 
 
 
Distributions paid on Common Units
 
(35,669)
 
 
(356)
(35,313)
 
 
 
 
Distributions paid on Preferred Units
 
(627)
 
 
(6)
(621)
 
 
 
 
Issuances of Common Stock - Shares
 
 
1,664,519 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net
55,804 
 
17 
 
 
55,787 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
10,071 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
351 
 
 
 
351 
 
 
Dividends on Common Stock
(34,259)
 
 
 
 
 
(34,259)
Dividends on Preferred Stock
(627)
 
 
 
 
 
(627)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(23,802)
 
 
 
(23,802)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(265)
(265)
(265)
(265)
Issuances of restricted stock - Shares
 
 
144,566 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense
3,440 
3,440 
34 
3,406 
3,439 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(22,854)
 
 
(229)
(22,625)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(581)
 
 
 
 
 
(581)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(2)
(201)
203 
203 
(203)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
13,760 
13,707 
137 
13,570 
13,760 
Other comprehensive income
1,458 
1,458 
1,458 
1,458 
Total comprehensive income
15,218 
15,165 
 
 
 
 
 
 
 
 
 
 
Balance at Mar. 31, 2013
$ 1,180,172 
$ 1,150,027 
$ 821 
$ 29,077 
$ 11,563 
$ 1,144,943 
$ 2,076,081 
$ (11,170)
$ (11,170)
$ 4,691 
$ 4,691 
$ (919,328)
Balance (in shares) at Mar. 31, 2013
82,130,593 
 
82,130,593 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Operating activities:
 
 
Net income
$ 13,760 
$ 18,332 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
42,292 
38,515 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
(136)
69 
Share-based compensation expense
3,440 
2,422 
Allowance for losses on accounts and accrued straight-line rents receivable
426 
579 
Amortization of deferred financing costs
949 
902 
Amortization of cash flow hedges
788 
(33)
Impairments of real estate assets
415 
Impairments of real estate assets held for sale
713 
Losses on debt extinguishment
164 
Net gains on disposition of property
(1,244)
(5,134)
Gains on for-sale residential condominiums
(65)
Equity in (earnings)/losses of unconsolidated affiliates
(436)
162 
Changes in financing obligations
(105)
(334)
Distributions of earnings from unconsolidated affiliates
1,145 
1,388 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(1,479)
2,470 
Prepaid expenses and other assets
(2,533)
(4,497)
Accrued straight-line rents receivable
(5,788)
(5,382)
Accounts payable, accrued expenses and other liabilities
(10,252)
(27,344)
Net cash provided by operating activities
42,119 
22,050 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(88,332)
Investments in development in process
(4,978)
Investments in tenant improvements and deferred leasing costs
(18,004)
(22,671)
Investments in building improvements
(13,107)
(8,483)
Net proceeds from disposition of real estate assets
14,971 
10,941 
Net proceeds from disposition of for-sale residential condominiums
1,008 
Distributions of capital from unconsolidated affiliates
363 
901 
Repayments of mortgages and notes receivable
1,481 
Investments in and advances/repayments to/from unconsolidated affiliates
(429)
(1,197)
Changes in restricted cash and other investing activities
10,262 
5,124 
Net cash used in investing activities
(99,254)
(12,896)
Financing activities:
 
 
Dividends on Common Stock
(34,259)
(30,961)
Dividends on Preferred Stock
(627)
(627)
Distributions to noncontrolling interests in the Operating Partnership
(1,584)
(1,584)
Distributions to noncontrolling interests in consolidated affiliates
(265)
(291)
Proceeds from the issuance of Common Stock
59,019 
28,392 
Costs paid for the issuance of Common Stock
(701)
Repurchase of shares related to tax withholdings
(2,514)
(1,748)
Borrowings on revolving credit facility
135,900 
61,000 
Repayments of revolving credit facility
(61,400)
(282,000)
Borrowings on mortgages and notes payable
225,000 
Repayments of mortgages and notes payable
(37,214)
(3,067)
Additions to deferred financing costs and other financing activities
(833)
(2,241)
Net cash provided by/(used in) financing activities
55,522 
(8,127)
Net increase/(decrease) in cash and cash equivalents
(1,613)
1,027 
Cash and cash equivalents at beginning of the period
13,783 
11,188 
Cash and cash equivalents at end of the period
12,170 
12,215 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
21,887 
25,970 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains on cash flow hedges
280 
1,104 
Conversions of Common Units to Common Stock
351 
63 
Changes in accrued capital expenditures
5,158 
975 
Write-off of fully depreciated real estate assets
6,467 
15,841 
Write-off of fully amortized deferred financing and leasing costs
4,872 
3,320 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
283 
334 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
23,802 
14,366 
Unrealized gains on tax increment financing bond
390 
287 
Highwoods Realty Limited Partnership [Member]
 
 
Operating activities:
 
 
Net income
13,707 
18,334 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
42,292 
38,515 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
(136)
69 
Share-based compensation expense
3,440 
2,422 
Allowance for losses on accounts and accrued straight-line rents receivable
426 
579 
Amortization of deferred financing costs
949 
902 
Amortization of cash flow hedges
788 
(33)
Impairments of real estate assets
415 
Impairments of real estate assets held for sale
713 
Losses on debt extinguishment
164 
Net gains on disposition of property
(1,244)
(5,134)
Gains on for-sale residential condominiums
(65)
Equity in (earnings)/losses of unconsolidated affiliates
(383)
160 
Changes in financing obligations
(105)
(334)
Distributions of earnings from unconsolidated affiliates
1,139 
1,381 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(1,479)
2,470 
Prepaid expenses and other assets
(2,391)
(4,449)
Accrued straight-line rents receivable
(5,788)
(5,382)
Accounts payable, accrued expenses and other liabilities
(10,155)
(27,344)
Net cash provided by operating activities
42,352 
22,091 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(88,332)
Investments in development in process
(4,978)
Investments in tenant improvements and deferred leasing costs
(18,004)
(22,671)
Investments in building improvements
(13,107)
(8,483)
Net proceeds from disposition of real estate assets
14,971 
10,941 
Net proceeds from disposition of for-sale residential condominiums
1,008 
Distributions of capital from unconsolidated affiliates
363 
901 
Repayments of mortgages and notes receivable
1,481 
Investments in and advances/repayments to/from unconsolidated affiliates
(429)
(1,197)
Changes in restricted cash and other investing activities
10,262 
5,124 
Net cash used in investing activities
(99,254)
(12,896)
Financing activities:
 
 
Distributions on Common Units
(35,669)
(32,371)
Distributions on Preferred Units
(627)
(627)
Distributions to noncontrolling interests in consolidated affiliates
(265)
(291)
Proceeds from the issuance of Common Units
59,019 
25,141 
Costs paid for the issuance of Common Units
(701)
Repurchase of units related to tax withholdings
(2,514)
(1,748)
Borrowings on revolving credit facility
135,900 
61,000 
Repayments of revolving credit facility
(61,400)
(282,000)
Borrowings on mortgages and notes payable
225,000 
Repayments of mortgages and notes payable
(37,214)
(3,067)
Additions to deferred financing costs and other financing activities
(1,240)
(2,331)
Net cash provided by/(used in) financing activities
55,289 
(11,294)
Net increase/(decrease) in cash and cash equivalents
(1,613)
(2,099)
Cash and cash equivalents at beginning of the period
13,867 
11,151 
Cash and cash equivalents at end of the period
12,254 
9,052 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
21,887 
25,970 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains on cash flow hedges
280 
1,104 
Changes in accrued capital expenditures
5,158 
975 
Write-off of fully depreciated real estate assets
6,467 
15,841 
Write-off of fully amortized deferred financing and leasing costs
4,872 
3,320 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
283 
334 
Adjustment of Redeemable Common Units to fair value
22,448 
13,546 
Unrealized gains on tax increment financing bond
$ 390 
$ 287 
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At March 31, 2013, the Company and/or the Operating Partnership wholly owned: 303 in-service office, industrial and retail properties, comprising 30.1 million square feet; 649 acres of undeveloped land suitable for future development, of which 566 acres are considered core assets; and two office development properties. In addition, we owned interests (50.0% or less) in 31 in-service office properties, a rental residential development property and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At March 31, 2013, the Company owned all of the Preferred Units and 81.7 million, or 95.7%, of the Common Units in the Operating Partnership. Limited partners, including two directors of the Company, own the remaining 3.7 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds of the issuance are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $0.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During the three months ended March 31, 2013, the Company redeemed 10,071 Common Units for a like number of shares of Common Stock. As a result of this activity, the percentage of Common Units owned by the Company increased from 95.6% at December 31, 2012 to 95.7% at March 31, 2013.

Common Stock Offerings
 
The Company has entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of its Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During the three months ended March 31, 2013, the Company issued 1,299,791 shares of Common Stock under these agreements at an average gross sales price of $35.95 per share and received net proceeds, after sales commissions, of $46.0 million.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2012 was retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale those properties which qualified as held for sale during the three months ended March 31, 2013. Our Consolidated Statements of Income for the three months ended March 31, 2012 were retrospectively revised from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations.

Our Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which we have the controlling financial interest. All intercompany transactions and accounts have been eliminated. At March 31, 2013 and December 31, 2012, we had involvement with, but are not the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3).

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 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 2012 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.
Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At March 31, 2013, the Company and/or the Operating Partnership wholly owned: 303 in-service office, industrial and retail properties, comprising 30.1 million square feet; 649 acres of undeveloped land suitable for future development, of which 566 acres are considered core assets; and two office development properties. In addition, we owned interests (50.0% or less) in 31 in-service office properties, a rental residential development property and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At March 31, 2013, the Company owned all of the Preferred Units and 81.7 million, or 95.7%, of the Common Units in the Operating Partnership. Limited partners, including two directors of the Company, own the remaining 3.7 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds of the issuance are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is required to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of the Company’s Common Stock, $0.01 par value, based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company at its option may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During the three months ended March 31, 2013, the Company redeemed 10,071 Common Units for a like number of shares of Common Stock. As a result of this activity, the percentage of Common Units owned by the Company increased from 95.6% at December 31, 2012 to 95.7% at March 31, 2013.

Common Stock Offerings
 
The Company has entered into equity sales agreements with various financial institutions to offer and sell, from time to time, shares of its Common Stock by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of the institutions. During the three months ended March 31, 2013, the Company issued 1,299,791 shares of Common Stock under these agreements at an average gross sales price of $35.95 per share and received net proceeds, after sales commissions, of $46.0 million.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2012 was retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale those properties which qualified as held for sale during the three months ended March 31, 2013. Our Consolidated Statements of Income for the three months ended March 31, 2012 were retrospectively revised from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations.

Our Consolidated Financial Statements include wholly owned subsidiaries and those entities in which we have the controlling financial interest. All intercompany transactions and accounts have been eliminated. At March 31, 2013 and December 31, 2012, we had involvement with, but are not the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3).

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 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 2012 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.
Real Estate Assets
Real Estate Assets
 
Acquisitions
 
During the first quarter of 2013, we acquired:

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

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

five acres of development land in Memphis, TN for a purchase price of $4.8 million.

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

Dispositions

During the first quarter of 2013, we sold two office properties in Orlando, FL for a sale price of $14.6 million (before $0.8 million in closing credits to buyer for unfunded tenant improvements) and recorded a loss on disposition of discontinued operations of $0.3 million.

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

Impairments

During the first quarter of 2013, we recorded impairments of real estate assets of $0.4 million on two industrial properties located in Atlanta, GA and recorded impairments of real estate assets held for sale of $0.7 million on five industrial properties in Atlanta, GA. These impairments were due to a change in the assumed timing of future dispositions and leasing assumptions, which reduced the future expected cash flows from the properties.
Real Estate Assets
 
Acquisitions
 
During the first quarter of 2013, we acquired:

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

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

five acres of development land in Memphis, TN for a purchase price of $4.8 million.

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

Dispositions

During the first quarter of 2013, we sold two office properties in Orlando, FL for a sale price of $14.6 million (before $0.8 million in closing credits to buyer for unfunded tenant improvements) and recorded a loss on disposition of discontinued operations of $0.3 million.

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

Impairments

During the first quarter of 2013, we recorded impairments of real estate assets of $0.4 million on two industrial properties located in Atlanta, GA and recorded impairments of real estate assets held for sale of $0.7 million on five industrial properties in Atlanta, GA. These impairments were due to a change in the assumed timing of future dispositions and leasing assumptions, which reduced the future expected cash flows from the properties.
Mortgages and Notes Receivable
Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
March 31,
2013
 
December 31,
2012
Seller financing (first mortgages)
$
15,853

 
$
15,853

Less allowance

 

 
15,853

 
15,853

Mortgage receivable
8,648

 
8,648

Less allowance

 

 
8,648

 
8,648

Promissory notes
1,408

 
1,153

Less allowance
(437
)
 
(182
)
 
971

 
971

Mortgages and notes receivable, net
$
25,472

 
$
25,472



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

The seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We evaluate the collectability of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of March 31, 2013, the payments on both mortgages receivable were current and there were no other indicators of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

During 2012, we provided an $8.6 million loan to a third party, which was used by such third party to fund a portion of the purchase price to acquire 77 acres of mixed-use development land adjacent to our 68-acre office development parcel in Nashville, TN. Initially, the loan is scheduled to mature in December 2015 and bears interest at 5.0% per year. The loan can be extended by the third party for up to three additional years, subject to applicable increases in the interest rate. We also agreed to loan such third party approximately $8.4 million to fund future infrastructure development on its 77-acre development parcel. Both loans are or will be secured by the 77-acre development parcel. As of March 31, 2013, less than $0.1 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 and the arrangement is accounted for in mortgages and notes receivable in our Consolidated Balance Sheet at March 31, 2013. 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.

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

 
Three Months Ended March 31,
 
2013
 
2012
Beginning notes receivable allowance
$
182

 
$
61

Recoveries/write-offs/other
255

 
61

Total notes receivable allowance
$
437

 
$
122

Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
March 31,
2013
 
December 31,
2012
Seller financing (first mortgages)
$
15,853

 
$
15,853

Less allowance

 

 
15,853

 
15,853

Mortgage receivable
8,648

 
8,648

Less allowance

 

 
8,648

 
8,648

Promissory notes
1,408

 
1,153

Less allowance
(437
)
 
(182
)
 
971

 
971

Mortgages and notes receivable, net
$
25,472

 
$
25,472



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

The seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets. We evaluate the collectability of the receivables by monitoring the leasing statistics and market fundamentals of these assets. As of March 31, 2013, the payments on both mortgages receivable were current and there were no other indicators of impairment on the receivables. We may be required to take impairment charges in the future if and to the extent the underlying collateral diminishes in value.

During 2012, we provided an $8.6 million loan to a third party, which was used by such third party to fund a portion of the purchase price to acquire 77 acres of mixed-use development land adjacent to our 68-acre office development parcel in Nashville, TN. Initially, the loan is scheduled to mature in December 2015 and bears interest at 5.0% per year. The loan can be extended by the third party for up to three additional years, subject to applicable increases in the interest rate. We also agreed to loan such third party approximately $8.4 million to fund future infrastructure development on its 77-acre development parcel. Both loans are or will be secured by the 77-acre development parcel. As of March 31, 2013, less than $0.1 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 and the arrangement is accounted for in mortgages and notes receivable in our Consolidated Balance Sheet at March 31, 2013. 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.

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

 
Three Months Ended March 31,
 
2013
 
2012
Beginning notes receivable allowance
$
182

 
$
61

Recoveries/write-offs/other
255

 
61

Total notes receivable allowance
$
437

 
$
122

Investments In and Advances To Affiliates
Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financing policies. The following table sets forth combined summarized financial information for our unconsolidated affiliates:

 
Three Months Ended March 31,
 
2013
 
2012
Income Statements:
 
 
 
Rental and other revenues
$
23,516

 
$
24,820

Expenses:
 
 
 
Rental property and other expenses
11,209

 
11,416

Depreciation and amortization
6,146

 
6,565

Impairments of real estate assets
4,790

 
7,180

Interest expense
4,739

 
5,830

Total expenses
26,884

 
30,991

Loss before disposition of properties
(3,368
)
 
(6,171
)
Gains on disposition of properties
24

 

Net loss
$
(3,344
)
 
$
(6,171
)
Our share of:
 
 
 
Depreciation and amortization
$
2,015

 
$
2,098

Impairments of real estate assets
$
1,020

 
$
1,002

Interest expense
$
1,752

 
$
1,980

Gains on disposition of depreciable properties
$
421

 
$

Net income/(loss)
$
4

 
$
(795
)
 
 
 
 
Our share of net income/(loss)
$
4

 
$
(795
)
Adjustments for management and other fees
432

 
633

Equity in earnings/(losses) of unconsolidated affiliates
$
436

 
$
(162
)


During the first quarter of 2013, our DLF II joint venture sold an office property to unrelated third parties for a sale price of $10.1 million (after $0.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of property of less than $0.1 million. As our cost basis is different from the basis reflected at the joint venture level, we recorded $0.4 million of gain through equity in earnings of unconsolidated affiliates.

During the first quarter of 2013, our DLF I joint venture recorded impairments of real estate assets of $4.8 million on an office property located in Atlanta, GA and an office property located in Charlotte, NC. We recorded $1.0 million as our share of this impairment charge through equity in earnings of unconsolidated affiliates.  These impairments were due to a change in the assumed timing of future dispositions and leasing assumptions, which reduced the future expected cash flows from the properties.
Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financing policies. The following table sets forth combined summarized financial information for our unconsolidated affiliates:

 
Three Months Ended March 31,
 
2013
 
2012
Income Statements:
 
 
 
Rental and other revenues
$
22,479

 
$
23,797

Expenses:
 
 
 
Rental property and other expenses
10,608

 
10,801

Depreciation and amortization
5,835

 
6,254

Impairments of real estate assets
4,790

 
7,180

Interest expense
4,578

 
5,663

Total expenses
25,811

 
29,898

Loss before disposition of properties
(3,332
)
 
(6,101
)
Gains on disposition of properties
24

 

Net loss
$
(3,308
)
 
$
(6,101
)
Our share of:
 
 
 
Depreciation and amortization
$
1,976

 
$
2,059

Impairments of real estate assets
$
1,020

 
$
1,002

Interest expense
$
1,732

 
$
1,959

Gains on disposition of depreciable properties
$
421

 
$

Net income/(loss)
$
8

 
$
(786
)
 
 
 
 
Our share of net income/(loss)
$
8

 
$
(786
)
Adjustments for management and other fees
375

 
626

Equity in earnings/(losses) of unconsolidated affiliates
$
383

 
$
(160
)


During the first quarter of 2013, our DLF II joint venture sold an office property to unrelated third parties for a sale price of $10.1 million (after $0.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of property of less than $0.1 million. As our cost basis is different from the basis reflected at the joint venture level, we recorded $0.4 million of gain through equity in earnings of unconsolidated affiliates.

During the first quarter of 2013, our DLF I joint venture recorded impairments of real estate assets of $4.8 million on an office property located in Atlanta, GA and an office property located in Charlotte, NC.  We recorded $1.0 million as our share of this impairment charge through equity in earnings of unconsolidated affiliates.  These impairments were due to a change in the assumed timing of future dispositions and leasing assumptions, which reduced the future expected cash flows from the properties.
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:
 
 
March 31,
2013
 
December 31,
2012
Assets:
 
 
 
Deferred financing costs
$
21,426

 
$
21,759

Less accumulated amortization
(8,648
)
 
(7,862
)
 
12,778

 
13,897

Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
237,862

 
224,554

Less accumulated amortization
(73,824
)
 
(69,357
)
 
164,038

 
155,197

Deferred financing and leasing costs, net
$
176,816

 
$
169,094

 
 
 
 
Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
37,538

 
$
37,019

Less accumulated amortization
(4,319
)
 
(3,383
)
 
$
33,219

 
$
33,636

The following table sets forth amortization of intangible assets and acquisition-related below market lease liabilities:
 
 
Three Months Ended March 31,
 
2013
 
2012
Amortization of deferred financing costs
$
949

 
$
902

Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
8,359

 
$
6,440

Amortization of lease incentives (in rental and other revenues)
$
383

 
$
343

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
466

 
$
270

Amortization of acquisition-related intangible assets (in rental property and other expenses)
$
137

 
$

Amortization of acquisition-related below market lease liabilities (in rental and other revenues)
$
(1,122
)
 
$
(544
)


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)
April 1 through December 31, 2013
 
$
2,768

 
$
24,305

 
$
965

 
$
1,372

 
$
416

 
$
(3,087
)
2014
 
3,249

 
28,125

 
1,154

 
1,537

 
553

 
(4,009
)
2015
 
2,614

 
22,845

 
926

 
1,252

 
553

 
(3,746
)
2016
 
1,515

 
18,485

 
734

 
1,023

 
553

 
(3,443
)
2017
 
1,226

 
15,591

 
660

 
908

 
553

 
(3,208
)
Thereafter
 
1,406

 
36,617

 
2,105

 
1,164

 
1,642

 
(15,726
)
 
 
$
12,778

 
$
145,968

 
$
6,544

 
$
7,256

 
$
4,270

 
$
(33,219
)
Weighted average remaining amortization periods as of March 31, 2013 (in years)
 
5.0

 
6.6

 
7.6

 
5.4

 
7.7

 
9.8



The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of 2013 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
 
$
2,777

 
$
11,561

 
$
(1,329
)
Weighted average remaining amortization periods (in years)
 
4.9

 
4.8

 
9.3



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:
 
 
March 31,
2013
 
December 31,
2012
Assets:
 
 
 
Deferred financing costs
$
21,426

 
$
21,759

Less accumulated amortization
(8,648
)
 
(7,862
)
 
12,778

 
13,897

Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
237,862

 
224,554

Less accumulated amortization
(73,824
)
 
(69,357
)
 
164,038

 
155,197

Deferred financing and leasing costs, net
$
176,816

 
$
169,094

 
 
 
 
Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
37,538

 
$
37,019

Less accumulated amortization
(4,319
)
 
(3,383
)
 
$
33,219

 
$
33,636


 
The following table sets forth amortization of intangible assets and acquisition-related below market lease liabilities:
 
 
Three Months Ended March 31,
 
2013
 
2012
Amortization of deferred financing costs
$
949

 
$
902

Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
8,359

 
$
6,440

Amortization of lease incentives (in rental and other revenues)
$
383

 
$
343

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
466

 
$
270

Amortization of acquisition-related intangible assets (in rental property and other expenses)
$
137

 
$

Amortization of acquisition-related below market lease liabilities (in rental and other revenues)
$
(1,122
)
 
$
(544
)

 

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)
April 1 through December 31, 2013
 
$
2,768

 
$
24,305

 
$
965

 
$
1,372

 
$
416

 
$
(3,087
)
2014
 
3,249

 
28,125

 
1,154

 
1,537

 
553

 
(4,009
)
2015
 
2,614

 
22,845

 
926

 
1,252

 
553

 
(3,746
)
2016
 
1,515

 
18,485

 
734

 
1,023

 
553

 
(3,443
)
2017
 
1,226

 
15,591

 
660

 
908

 
553

 
(3,208
)
Thereafter
 
1,406

 
36,617

 
2,105

 
1,164

 
1,642

 
(15,726
)
 
 
$
12,778

 
$
145,968

 
$
6,544

 
$
7,256

 
$
4,270

 
$
(33,219
)
Weighted average remaining amortization periods as of March 31, 2013 (in years)
 
5.0

 
6.6

 
7.6

 
5.4

 
7.7

 
9.8



The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of 2013 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
 
$
2,777

 
$
11,561

 
$
(1,329
)
Weighted average remaining amortization periods (in years)
 
4.9

 
4.8

 
9.3

Mortgages and Notes Payable
Mortgages and Notes Payable

The following table sets forth our mortgages and notes payable:

 
March 31,
2013
 
December 31,
2012
Secured indebtedness
$
547,150

 
$
549,607

Unsecured indebtedness
1,349,150

 
1,309,555

Total mortgages and notes payable
$
1,896,300

 
$
1,859,162



At March 31, 2013, our secured mortgage loans were collateralized by real estate assets with an aggregate undepreciated book value of $967.3 million.


6.    Mortgages and Notes Payable - Continued

Our $475.0 million unsecured revolving credit facility is scheduled to mature in July 2015 and includes an accordion feature that allows for an additional $75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $97.5 million and $94.5 million outstanding under our revolving credit facility at March 31, 2013 and April 19, 2013, respectively. At both March 31, 2013 and April 19, 2013, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at March 31, 2013 and April 19, 2013 was $377.4 million and $380.4 million, respectively.

During the first quarter of 2013, we prepaid the remaining $35.0 million balance on a $200.0 million bank term loan that was originally scheduled to mature in February 2016. We recorded $0.2 million of loss on debt extinguishment related to this repayment.

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

The following table sets forth our mortgages and notes payable:

 
March 31,
2013
 
December 31,
2012
Secured indebtedness
$
547,150

 
$
549,607

Unsecured indebtedness
1,349,150

 
1,309,555

Total mortgages and notes payable
$
1,896,300

 
$
1,859,162



At March 31, 2013, our secured mortgage loans were collateralized by real estate assets with an aggregate undepreciated book value of $967.3 million.


6.    Mortgages and Notes Payable - Continued

Our $475.0 million unsecured revolving credit facility is scheduled to mature in July 2015 and includes an accordion feature that allows for an additional $75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for an additional year. The interest rate at our current credit ratings is LIBOR plus 150 basis points and the annual facility fee is 35 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody's Investors Service or Standard & Poor's Ratings Services. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. The continued ability to borrow under the revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates. There was $97.5 million and $94.5 million outstanding under our revolving credit facility at March 31, 2013 and April 19, 2013, respectively. At both March 31, 2013 and April 19, 2013, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at March 31, 2013 and April 19, 2013 was $377.4 million and $380.4 million, respectively.

During the first quarter of 2013, we prepaid the remaining $35.0 million balance on a $200.0 million bank term loan that was originally scheduled to mature in February 2016. We recorded $0.2 million of loss on debt extinguishment related to this repayment.

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

We have six floating-to-fixed interest rate swaps through January 2019 with respect to an aggregate of $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678%. The counterparties under the swaps are major financial institutions. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the three months ended March 31, 2013. 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 April 1, 2013 through March 31, 2014, we estimate that $3.3 million will be reclassified to interest expense.

For the periods ending March 31, 2013 and December 31, 2012, all of our derivatives were in a liability position. The following table sets forth the fair value of our liability derivatives:

 
March 31,
2013
 
December 31,
2012
Liability Derivatives:
 
 
 
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:
 
 
 
Interest rate swaps
$
8,261

 
$
9,369




7.
Derivative Financial Instruments - Continued
The following table sets forth the effect of our cash flow hedges on AOCL and interest expense:
 
 
Three Months Ended March 31,
 
2013
 
2012
Derivatives Designated as Cash Flow Hedges:
 
 
 
Amount of unrealized gains recognized in AOCL on derivatives (effective portion):
 
 
 
Interest rate swaps
$
280

 
$
1,104

Amount of (gains)/losses reclassified out of AOCL into contractual interest expense (effective portion):
 
 
 
Interest rate swaps
$
788

 
$
(33
)
Derivative Financial Instruments
 
We have six floating-to-fixed interest rate swaps through January 2019 with respect to an aggregate of $225.0 million LIBOR-based borrowings. These swaps effectively fix the underlying LIBOR rate at a weighted average of 1.678%. The counterparties under the swaps are major financial institutions. These swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income each reporting period. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedges during the three months ended March 31, 2013. 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 April 1, 2013 through March 31, 2014, we estimate that $3.3 million will be reclassified to interest expense.
 
For the periods ending March 31, 2013 and December 31, 2012, all of our derivatives were in a liability position. The following table sets forth the fair value of our liability derivatives:

 
March 31,
2013
 
December 31,
2012
Liability Derivatives:
 
 
 
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:
 
 
 
Interest rate swaps
$
8,261

 
$
9,369




7.
Derivative Financial Instruments - Continued

The following table sets forth the effect of our cash flow hedges on AOCL and interest expense:
 
 
Three Months Ended March 31,