HIGHWOODS PROPERTIES, INC., 10-Q filed on 10/28/2014
Quarterly Report
Document and Entity Information Document
9 Months Ended
Sep. 30, 2014
Oct. 20, 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
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
91,270,024 
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
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
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
Sep. 30, 2014
Dec. 31, 2013
Real estate assets, at cost:
 
 
Land
$ 386,333 
$ 393,602 
Buildings and tenant improvements
3,756,655 
3,748,869 
Development in process
184,238 
44,621 
Land held for development
89,010 
110,374 
Total real estate assets
4,416,236 
4,297,466 
Less-accumulated depreciation
(1,013,071)
(985,244)
Net real estate assets
3,403,165 
3,312,222 
Real estate and other assets, net, held for sale
1,032 
Cash and cash equivalents
11,600 
10,184 
Restricted cash
10,633 
14,169 
Accounts receivable, net of allowance of $1,408 and $1,648, respectively
29,970 
26,430 
Mortgages and notes receivable, net of allowance of $255 and $302, respectively
10,501 
26,409 
Accrued straight-line rents receivable, net of allowance of $601 and $1,063, respectively
136,578 
126,014 
Investments in unconsolidated affiliates
30,248 
29,901 
Deferred financing and leasing costs, net of accumulated amortization of $108,878 and $92,220, respectively
218,725 
222,211 
Prepaid expenses and other assets, net of accumulated amortization of $13,913 and $12,905, respectively
42,635 
39,561 
Total Assets
3,895,087 
3,807,101 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
Mortgages and notes payable
2,013,824 
1,956,299 
Accounts payable, accrued expenses and other liabilities
229,996 
218,962 
Financing obligations
23,519 
26,664 
Total Liabilities
2,267,339 
2,201,925 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
114,248 
106,480 
Equity/Capital:
 
 
Preferred Stock, $.01 par value, 50,000,000 authorized shares; 8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share; 29,077 shares issued and outstanding)
29,077 
29,077 
Common Stock, $.01 par value, 200,000,000 authorized shares; 91,270,024 and 89,920,915 shares issued and outstanding, respectively
913 
899 
Additional paid-in capital
2,413,662 
2,370,368 
Distributions in excess of net income available for common stockholders
(948,929)
(920,433)
Accumulated other comprehensive loss
(2,831)
(2,611)
Total Stockholders’ Equity
1,491,892 
1,477,300 
Noncontrolling interests in consolidated affiliates
21,608 
21,396 
Total Equity/Captal
1,513,500 
1,498,696 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital
3,895,087 
3,807,101 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
386,333 
393,602 
Buildings and tenant improvements
3,756,655 
3,748,869 
Development in process
184,238 
44,621 
Land held for development
89,010 
110,374 
Total real estate assets
4,416,236 
4,297,466 
Less-accumulated depreciation
(1,013,071)
(985,244)
Net real estate assets
3,403,165 
3,312,222 
Real estate and other assets, net, held for sale
1,032 
Cash and cash equivalents
11,706 
10,281 
Restricted cash
10,633 
14,169 
Accounts receivable, net of allowance of $1,408 and $1,648, respectively
29,970 
26,430 
Mortgages and notes receivable, net of allowance of $255 and $302, respectively
10,501 
26,409 
Accrued straight-line rents receivable, net of allowance of $601 and $1,063, respectively
136,578 
126,014 
Investments in unconsolidated affiliates
30,248 
29,901 
Deferred financing and leasing costs, net of accumulated amortization of $108,878 and $92,220, respectively
218,725 
222,211 
Prepaid expenses and other assets, net of accumulated amortization of $13,913 and $12,905, respectively
42,593 
39,561 
Total Assets
3,895,151 
3,807,198 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
Mortgages and notes payable
2,013,824 
1,956,299 
Accounts payable, accrued expenses and other liabilities
229,932 
218,887 
Financing obligations
23,519 
26,664 
Total Liabilities
2,267,275 
2,201,850 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units:
 
 
Common Units, 2,936,955 and 2,943,872 outstanding, respectively
114,248 
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
143,325 
135,557 
Equity/Capital:
 
 
General partner Common Units, 937,982 and 924,560 outstanding, respectively
14,655 
14,508 
Limited partner Common Units, 89,923,233 and 88,587,546 outstanding, respectively
1,451,119 
1,436,498 
Accumulated other comprehensive loss
(2,831)
(2,611)
Noncontrolling interests in consolidated affiliates
21,608 
21,396 
Total Equity/Captal
1,484,551 
1,469,791 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Capital
$ 3,895,151 
$ 3,807,198 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Assets:
 
 
Accounts receivable allowance
$ 1,408 
$ 1,648 
Mortgages and notes receivable allowance
255 
302 
Accrued straight-line rents receivable allowance
601 
1,063 
Deferred financing and leasing costs, accumulated amortization
108,878 
92,220 
Prepaid expenses and other assets, accumulated amortization
13,913 
12,905 
Equity/Capital:
 
 
Series A Preferred Stock, dividend rate percentage (in hundredths)
8.625% 
8.625% 
Series A Preferred Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Series A Preferred Stock, authorized shares (in shares)
50,000,000 
50,000,000 
Series A Preferred Stock, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Stock, shares issued (in shares)
29,077 
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)
91,270,024 
89,920,915 
Common Stock, shares outstanding (in shares)
91,270,024 
89,920,915 
Highwoods Realty Limited Partnership [Member]
 
 
Assets:
 
 
Accounts receivable allowance
1,408 
1,648 
Mortgages and notes receivable allowance
255 
302 
Accrued straight-line rents receivable allowance
601 
1,063 
Deferred financing and leasing costs, accumulated amortization
108,878 
92,220 
Prepaid expenses and other assets, accumulated amortization
$ 13,913 
$ 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)
937,982 
924,560 
Limited partners' capital account, units outstanding (in shares)
89,923,233 
88,587,546 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Rental and other revenues
$ 152,629 
$ 144,827 
$ 453,804 
$ 407,822 
Operating expenses:
 
 
 
 
Rental property and other expenses
57,383 
54,102 
169,048 
148,013 
Depreciation and amortization
48,287 
47,338 
146,895 
128,050 
Impairments of real estate assets
588 
General and administrative
7,526 
8,969 
26,973 
27,948 
Total operating expenses
113,196 
110,409 
343,504 
304,011 
Interest expense:
 
 
 
 
Contractual
20,962 
22,683 
62,352 
67,879 
Amortization of deferred financing costs
819 
963 
2,270 
2,860 
Financing obligations
567 
26 
301 
87 
Total interest expense
22,348 
23,672 
64,923 
70,826 
Other income:
 
 
 
 
Interest and other income
1,054 
1,582 
3,863 
4,982 
Losses on debt extinguishment
(326)
(32)
(308)
(196)
Total other income
728 
1,550 
3,555 
4,786 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
17,813 
12,296 
48,932 
37,771 
Gains/(losses) on disposition of property
36,238 
34 
42,185 
(3)
Gain on acquisition of controlling interest in unconsolidated affiliate
7,451 
7,451 
Equity in earnings/(losses) of unconsolidated affiliates
248 
(3,173)
886 
(1,824)
Income from continuing operations
54,299 
16,608 
92,003 
43,395 
Discontinued operations:
 
 
 
 
Income from discontinued operations
1,514 
5,853 
Impairments of real estate assets
(2,194)
Net gains on disposition of discontinued operations
37,946 
384 
52,353 
Total discontinued operations
39,460 
384 
56,012 
Net income
54,299 
56,068 
92,387 
99,407 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,673)
(1,889)
(2,813)
(3,713)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(291)
(203)
(1,152)
(593)
Dividends on Preferred Stock
(627)
(627)
(1,881)
(1,881)
Net income available for common stockholders
51,708 
53,349 
86,541 
93,220 
Earnings per Common Share – basic:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.57 
$ 0.17 
$ 0.96 
$ 0.47 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.44 
$ 0.00 
$ 0.64 
Net income available for common stockholders (in dollars per share)
$ 0.57 
$ 0.61 
$ 0.96 
$ 1.11 
Weighted average Common Shares outstanding - basic (in shares)
90,668 
87,467 
90,299 
83,793 
Earnings per Common Share - diluted:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.57 
$ 0.17 
$ 0.96 
$ 0.47 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.00 
$ 0.44 
$ 0.00 
$ 0.64 
Net income available for common stockholders (in dollars per share)
$ 0.57 
$ 0.61 
$ 0.96 
$ 1.11 
Weighted average Common Shares outstanding - diluted (in shares)
93,723 1 2
90,769 1 2
93,358 1 2
87,443 1 2
Dividends declared per Common Share (in dollars per share)
$ 0.425 
$ 0.425 
$ 1.275 
$ 1.275 
Net income available for common stockholders:
 
 
 
 
Income from continuing operations available for common stockholders
51,708 
15,290 
86,169 
39,321 
Income from discontinued operations available for common stockholders
38,059 
372 
53,899 
Net income available for common stockholders
51,708 
53,349 
86,541 
93,220 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Rental and other revenues
152,629 
144,827 
453,804 
407,822 
Operating expenses:
 
 
 
 
Rental property and other expenses
57,383 
54,080 
169,015 
147,995 
Depreciation and amortization
48,287 
47,338 
146,895 
128,050 
Impairments of real estate assets
588 
General and administrative
7,526 
8,991 
27,006 
27,966 
Total operating expenses
113,196 
110,409 
343,504 
304,011 
Interest expense:
 
 
 
 
Contractual
20,962 
22,683 
62,352 
67,879 
Amortization of deferred financing costs
819 
963 
2,270 
2,860 
Financing obligations
567 
26 
301 
87 
Total interest expense
22,348 
23,672 
64,923 
70,826 
Other income:
 
 
 
 
Interest and other income
1,054 
1,582 
3,863 
4,982 
Losses on debt extinguishment
(326)
(32)
(308)
(196)
Total other income
728 
1,550 
3,555 
4,786 
Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
17,813 
12,296 
48,932 
37,771 
Gains/(losses) on disposition of property
36,238 
34 
42,185 
(3)
Gain on acquisition of controlling interest in unconsolidated affiliate
7,451 
7,451 
Equity in earnings/(losses) of unconsolidated affiliates
248 
(3,174)
886 
(1,875)
Income from continuing operations
54,299 
16,607 
92,003 
43,344 
Discontinued operations:
 
 
 
 
Income from discontinued operations
1,514 
5,853 
Impairments of real estate assets
(2,194)
Net gains on disposition of discontinued operations
37,946 
384 
52,353 
Total discontinued operations
39,460 
384 
56,012 
Net income
54,299 
56,067 
92,387 
99,356 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(291)
(203)
(1,152)
(593)
Distributions on Preferred Units
(627)
(627)
(1,881)
(1,881)
Net income available for common unitholders
53,381 
55,237 
89,354 
96,882 
Earnings per Common Unit - basic:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.57 
$ 0.17 
$ 0.96 
$ 0.47 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.44 
$ 0.00 
$ 0.64 
Net income available for common unitholders (in dollars per share)
$ 0.57 
$ 0.61 
$ 0.96 
$ 1.11 
Weighted average Common Units outstanding - basic (in shares)
93,196 
90,259 
92,828 
86,920 
Earnings per Common Unit - diluted:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.57 
$ 0.17 
$ 0.96 
$ 0.47 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.00 
$ 0.44 
$ 0.00 
$ 0.64 
Net income available for common unitholders (in dollars per share)
$ 0.57 
$ 0.61 
$ 0.96 
$ 1.11 
Weighted average Common Units outstanding - diluted (in shares)
93,314 2 3
90,360 2 3
92,949 2 3
87,034 2 3
Distributions declared per Common Unit (in dollars per unit)
$ 0.425 
$ 0.425 
$ 1.275 
$ 1.275 
Net income available for common unitholders:
 
 
 
 
Income from continuing operations available for common unitholders
53,381 
15,777 
88,970 
40,870 
Income from discontinued operations available for common unitholders
39,460 
384 
56,012 
Net income available for common unitholders
$ 53,381 
$ 55,237 
$ 89,354 
$ 96,882 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Comprehensive income:
 
 
 
 
Net income
$ 54,299 
$ 56,068 
$ 92,387 
$ 99,407 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains on tax increment financing bond
23 
97 
293 
396 
Unrealized gains/(losses) on cash flow hedges
913 
(1,798)
(3,337)
4,801 
Amortization of cash flow hedges
952 
840 
2,824 
2,428 
Total other comprehensive income/(loss)
1,888 
(861)
(220)
7,625 
Total comprehensive income
56,187 
55,207 
92,167 
107,032 
Less-comprehensive (income) attributable to noncontrolling interests
(1,964)
(2,092)
(3,965)
(4,306)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
54,223 
53,115 
88,202 
102,726 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Comprehensive income:
 
 
 
 
Net income
54,299 
56,067 
92,387 
99,356 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains on tax increment financing bond
23 
97 
293 
396 
Unrealized gains/(losses) on cash flow hedges
913 
(1,798)
(3,337)
4,801 
Amortization of cash flow hedges
952 
840 
2,824 
2,428 
Total other comprehensive income/(loss)
1,888 
(861)
(220)
7,625 
Total comprehensive income
56,187 
55,206 
92,167 
106,981 
Less-comprehensive (income) attributable to noncontrolling interests
(291)
(203)
(1,152)
(593)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
$ 55,896 
$ 55,003 
$ 91,015 
$ 106,388 
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
 
305,601 
 
 
3,056 
302,545 
 
 
 
 
Distributions paid on Common Units
 
(111,645)
 
 
(1,117)
(110,528)
 
 
 
 
Distributions paid on Preferred Units
 
(1,881)
 
 
(19)
(1,862)
 
 
 
 
Issuances of Common Stock - Shares
 
 
8,660,546 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of shares redeemed for tax withholdings
305,601 
 
87 
 
 
305,514 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
789,144 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
28,788 
 
 
 
28,788 
 
 
Dividends on Common Stock
(107,750)
 
 
 
 
 
(107,750)
Dividends on Preferred Stock
(1,881)
 
 
 
 
 
(1,881)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(8,570)
 
 
 
(8,570)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(408)
(408)
(408)
(408)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
16,240 
16,240 
16,240 
Issuances of restricted stock - shares
 
 
151,630 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense, net of forfeitures - Shares
 
 
(1,813)
 
 
 
 
 
 
 
 
 
Share-based compensation expense, net of forfeitures
5,896 
5,896 
59 
5,837 
5,887 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
20,329 
 
 
204 
20,125 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,713)
 
 
 
 
 
(3,713)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(6)
(587)
593 
593 
(593)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
99,407 
99,356 
994 
98,362 
99,407 
Other comprehensive income/(loss)
7,625 
7,625 
7,625 
7,625 
Total comprehensive income
107,032 
106,981 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2013
1,506,128 
1,476,146 
899 
29,077 
14,598 
1,445,373 
2,371,925 
(5,003)
(5,003)
21,178 
21,178 
(911,948)
Balance (in shares) at Sep. 30, 2013
 
 
89,910,944 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,889)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
56,068 
56,067 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss)
(861)
(861)
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
55,207 
55,206 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2013
1,506,128 
1,476,146 
 
 
 
 
 
 
 
 
 
 
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
 
45,922 
 
 
459 
45,463 
 
 
 
 
Redemptions of Common Units
 
(93)
 
 
(1)
(92)
 
 
 
 
Distributions paid on Common Units
 
(118,261)
 
 
(1,183)
(117,078)
 
 
 
 
Distributions paid on Preferred Units
 
(1,881)
 
 
(19)
(1,862)
 
 
 
 
Issuances of Common Stock - Shares
 
 
1,175,191 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of shares redeemed for tax withholdings
45,922 
 
12 
 
 
45,910 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
4,417 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
162 
 
 
 
162 
 
 
Dividends on Common Stock
(115,037)
 
 
 
 
 
(115,037)
Dividends on Preferred Stock
(1,881)
 
 
 
 
 
(1,881)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(8,955)
 
 
 
(8,955)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(940)
(940)
(940)
(940)
Issuances of restricted stock - shares
 
 
169,501 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Share-based compensation expense, net of forfeitures
6,179 
6,179 
62 
6,117 
6,177 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(8,333)
 
 
(83)
(8,250)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(2,813)
 
 
 
 
 
(2,813)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(12)
(1,140)
1,152 
1,152 
(1,152)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
92,387 
92,387 
924 
91,463 
92,387 
Other comprehensive income/(loss)
(220)
(220)
(220)
(220)
Total comprehensive income
92,167 
92,167 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2014
1,513,500 
1,484,551 
913 
29,077 
14,655 
1,451,119 
2,413,662 
(2,831)
(2,831)
21,608 
21,608 
(948,929)
Balance (in shares) at Sep. 30, 2014
91,270,024 
 
91,270,024 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,673)
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
54,299 
54,299 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss)
1,888 
1,888 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
56,187 
56,187 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2014
$ 1,513,500 
$ 1,484,551 
 
 
 
 
 
 
 
 
 
 
Balance (in shares) at Sep. 30, 2014
91,270,024 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Operating activities:
 
 
Net income
$ 92,387 
$ 99,407 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
146,895 
133,556 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
249 
258 
Share-based compensation expense
6,179 
5,896 
Allowance for losses on accounts and accrued straight-line rents receivable
1,942 
1,029 
Accrued interest on mortgages and notes receivable
(354)
Amortization of deferred financing costs
2,270 
2,860 
Amortization of cash flow hedges
2,824 
2,428 
Amortization of mortgages and notes payable fair value adjustments
(845)
(1,015)
Impairments of real estate assets
588 
2,194 
Losses on debt extinguishment
308 
196 
Net gains on disposition of property
(42,569)
(52,350)
Gain on acquisition of controlling interest in unconsolidated affiliate
(7,451)
Equity in (earnings)/losses of unconsolidated affiliates
(886)
1,824 
Changes in financing obligations
(241)
(591)
Distributions of earnings from unconsolidated affiliates
1,634 
3,129 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(1,762)
(508)
Prepaid expenses and other assets
(2,927)
(2,188)
Accrued straight-line rents receivable
(16,202)
(12,368)
Accounts payable, accrued expenses and other liabilities
(5,815)
10,206 
Net cash provided by operating activities
183,675 
186,512 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(83,751)
(418,796)
Investment in acquired controlling interest in unconsolidated affiliate
(32,818)
Investments in development in process
(122,106)
(16,634)
Investments in tenant improvements and deferred leasing costs
(80,132)
(77,456)
Investments in building improvements
(39,401)
(38,702)
Net proceeds from disposition of real estate assets
151,987 
161,970 
Distributions of capital from unconsolidated affiliates
725 
16,671 
Investments in mortgages and notes receivable
(419)
(1,301)
Repayments of mortgages and notes receivable
16,974 
437 
Investments in unconsolidated affiliates
(6,425)
(429)
Redemption of investment in unconsolidated affiliate
4,660 
Changes in restricted cash and other investing activities
(1,296)
5,484 
Net cash (used in) investing activities
(159,184)
(401,574)
Financing activities:
 
 
Dividends on Common Stock
(115,037)
(107,750)
Redemptions of Common Units
(93)
Dividends on Preferred Stock
(1,881)
(1,881)
Distributions to noncontrolling interests in the Operating Partnership
(3,745)
(4,416)
Distributions to noncontrolling interests in consolidated affiliates
(940)
(408)
Proceeds from the issuance of Common Stock
49,216 
315,818 
Costs paid for the issuance of Common Stock
(600)
(7,678)
Repurchase of shares related to tax withholdings
(2,694)
(2,539)
Borrowings on revolving credit facility
377,700 
695,300 
Repayments of revolving credit facility
(443,400)
(511,900)
Borrowings on mortgages and notes payable
296,949 
Repayments of mortgages and notes payable
(172,810)
(157,001)
Payments on financing obligations
(2,904)
(575)
Payments of debt extinguishment costs
(369)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
Additions to deferred financing costs and other financing activities
(2,467)
(242)
Net cash (used in)/provided by financing activities
(23,075)
232,968 
Net increase in cash and cash equivalents
1,416 
17,906 
Cash and cash equivalents at beginning of the period
10,184 
13,783 
Cash and cash equivalents at end of the period
11,600 
31,689 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
63,340 
67,786 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains/(losses) on cash flow hedges
(3,337)
4,801 
Conversions of Common Units to Common Stock
162 
28,788 
Changes in accrued capital expenditures
17,255 
12,778 
Write-off of fully depreciated real estate assets
29,953 
24,498 
Write-off of fully amortized deferred financing and leasing costs
17,138 
17,500 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
149 
558 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
8,955 
8,570 
Unrealized gains on tax increment financing bond
293 
396 
Assumption of mortgages and notes payable related to acquisition activities
165,515 
Reclass of aggregate differences between historical cost basis and the basis reflected at the joint venture level for assets acquired
8,206 
Highwoods Realty Limited Partnership [Member]
 
 
Operating activities:
 
 
Net income
92,387 
99,356 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
146,895 
133,556 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
249 
258 
Share-based compensation expense
6,179 
5,896 
Allowance for losses on accounts and accrued straight-line rents receivable
1,942 
1,029 
Accrued interest on mortgages and notes receivable
(354)
Amortization of deferred financing costs
2,270 
2,860 
Amortization of cash flow hedges
2,824 
2,428 
Amortization of mortgages and notes payable fair value adjustments
(845)
(1,015)
Impairments of real estate assets
588 
2,194 
Losses on debt extinguishment
308 
196 
Net gains on disposition of property
(42,569)
(52,350)
Gain on acquisition of controlling interest in unconsolidated affiliate
(7,451)
Equity in (earnings)/losses of unconsolidated affiliates
(886)
1,875 
Changes in financing obligations
(241)
(591)
Distributions of earnings from unconsolidated affiliates
1,634 
3,109 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(1,762)
(508)
Prepaid expenses and other assets
(2,885)
(2,141)
Accrued straight-line rents receivable
(16,202)
(12,368)
Accounts payable, accrued expenses and other liabilities
(5,804)
10,257 
Net cash provided by operating activities
183,728 
186,590 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(83,751)
(418,796)
Investment in acquired controlling interest in unconsolidated affiliate
(32,818)
Investments in development in process
(122,106)
(16,634)
Investments in tenant improvements and deferred leasing costs
(80,132)
(77,456)
Investments in building improvements
(39,401)
(38,702)
Net proceeds from disposition of real estate assets
151,987 
161,970 
Distributions of capital from unconsolidated affiliates
725 
16,671 
Investments in mortgages and notes receivable
(419)
(1,301)
Repayments of mortgages and notes receivable
16,974 
437 
Investments in unconsolidated affiliates
(6,425)
(429)
Redemption of investment in unconsolidated affiliate
4,660 
Changes in restricted cash and other investing activities
(1,296)
5,484 
Net cash (used in) investing activities
(159,184)
(401,574)
Financing activities:
 
 
Distributions on Common Units
(118,261)
(111,645)
Redemptions of Common Units
(93)
Distributions on Preferred Units
(1,881)
(1,881)
Distributions to noncontrolling interests in consolidated affiliates
(940)
(408)
Proceeds from the issuance of Common Units
49,216 
315,818 
Costs paid for the issuance of Common Units
(600)
(7,678)
Repurchase of units related to tax withholdings
(2,694)
(2,539)
Borrowings on revolving credit facility
377,700 
695,300 
Repayments of revolving credit facility
(443,400)
(511,900)
Borrowings on mortgages and notes payable
296,949 
Repayments of mortgages and notes payable
(172,810)
(157,001)
Payments on financing obligations
(2,904)
(575)
Payments of debt extinguishment costs
(369)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
Additions to deferred financing costs and other financing activities
(3,032)
(834)
Net cash (used in)/provided by financing activities
(23,119)
232,897 
Net increase in cash and cash equivalents
1,425 
17,913 
Cash and cash equivalents at beginning of the period
10,281 
13,867 
Cash and cash equivalents at end of the period
11,706 
31,780 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
63,340 
67,786 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains/(losses) on cash flow hedges
(3,337)
4,801 
Changes in accrued capital expenditures
17,255 
12,778 
Write-off of fully depreciated real estate assets
29,953 
24,498 
Write-off of fully amortized deferred financing and leasing costs
17,138 
17,500 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
149 
558 
Adjustment of Redeemable Common Units to fair value
7,768 
(20,921)
Unrealized gains on tax increment financing bond
293 
396 
Assumption of mortgages and notes payable related to acquisition activities
165,515 
Reclass of aggregate differences between historical cost basis and the basis reflected at the joint venture level for assets acquired
$ 0 
$ 8,206 
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 September 30, 2014, we owned or had an interest in 31.1 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 500 acres of development land.
 
The Company is the sole general partner of the Operating Partnership. At September 30, 2014, the Company owned all of the Preferred Units and 90.9 million, or 96.9%, of the Common Units in the Operating Partnership. Limited partners own the remaining 2.9 million Common Units. During the nine months ended September 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 nine months ended September 30, 2014, the Company issued 875,701 and 949,578 shares of Common Stock, respectively, under its equity sales agreements at an average gross sales price of $42.44 and $42.12 per share, respectively, and received net proceeds, after sales commissions, of $36.6 million and $39.4 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 September 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 nine months ended September 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 September 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 in the second quarter of 2014, resulting in the operations of current period dispositions and property classified as held for sale being included in continuing operations on our Consolidated Statements of Income.  Prior to adoption, we were generally required to reflect all real estate asset sales as discontinued operations, which required reclassification of the earnings of the sold assets from continuing operations for all periods presented.

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

Acquisitions

During the third quarter of 2014, we acquired an office property in Raleigh, NC encompassing 374,000 rentable square feet for a purchase price of $83.8 million. We expensed $0.2 million of acquisition costs (included in general and administrative expenses) related to this acquisition. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.

Pro Forma Disclosure

During the third quarter of 2013, we acquired our joint venture partner's 60.0% interest in our HIW-KC Orlando, LLC joint venture, which owned five office properties in Orlando, FL encompassing 1.3 million rentable square feet, for a net purchase price of $112.8 million. We previously accounted for our 40.0% interest in this joint venture using the equity method of accounting. The assets and liabilities of the joint venture are now wholly owned and are recorded in our Consolidated Financial Statements, including assets recorded at fair value of $188.0 million and secured debt recorded at fair value of $127.9 million, with an effective interest rate of 3.11%. This debt has since been repaid. As a result of acquiring a controlling interest in this joint venture, our previously held equity interest was remeasured at a fair value of $75.2 million resulting in a gain of $7.5 million, which represents the difference between the fair market value of our previously held equity interest and the carrying value of our investment on the date of acquisition. The fair market value of our previously held equity interest was determined by management based on information available at the acquisition date and on current assumptions as to future operations.

During the third quarter of 2013, we also acquired an office property in Nashville, TN encompassing 520,000 rentable square feet for a net purchase price of $150.1 million.

During the second quarter of 2013, we acquired an office property in Atlanta, GA encompassing 553,000 rentable square feet for a purchase price of $140.1 million.


2.    Real Estate Assets – Continued

The following table sets forth a summary of the fair value of the major assets acquired and liabilities assumed relating to the 2013 acquisitions discussed in the preceding paragraphs:
 
 
Total
Purchase Price Allocation
Real estate assets
$
445,396

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

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


 
The following table sets forth our revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations, acquisition costs and equity in earnings of unconsolidated affiliates previously recognized as income assuming the 2013 acquisitions discussed in the preceding paragraphs had been completed as of January 1, 2012:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2013
Pro forma revenues
$
149,754

 
$
443,178

Pro forma net income
$
49,818

 
$
90,064

Pro forma earnings per share - basic
$
0.54

 
$
1.00

Pro forma earnings per share - diluted
$
0.54

 
$
1.00


 
The 2013 acquisitions discussed in the preceding paragraphs resulted in revenues of $10.0 million and $10.3 million and net losses of $0.1 million and $0.4 million recorded in the Consolidated Statements of Income for the three and nine months ended September 30, 2013, respectively.
 
Dispositions
 
During the third quarter of 2014, we sold:

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

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

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

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

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.


2.    Real Estate Assets – Continued

Impairments

During the second quarter of 2014, we recorded an impairment 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:

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

 
$
16,454

Less allowance

 

 

 
16,454

Mortgage receivable (including accrued interest)
10,300

 
9,435

Less allowance

 

 
10,300

 
9,435

Promissory notes
456

 
822

Less allowance
(255
)
 
(302
)
 
201

 
520

Mortgages and notes receivable, net
$
10,501

 
$
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 $8.6 million of 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 September 30, 2014, $0.7 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 September 30, 2014, our mortgages and notes receivable were not in default and there were no other indicators of impairment.


3.    Mortgages and Notes Receivable - Continued

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

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Beginning notes receivable allowance
$
275

 
$
376

 
$
302

 
$
182

Recoveries/write-offs/other
(20
)
 
(36
)
 
(47
)
 
158

Total notes receivable allowance
$
255

 
$
340

 
$
255

 
$
340

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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Income Statements:
 
 
 
 
 
 
 
Rental and other revenues
$
12,425

 
$
16,911

 
$
37,703

 
$
64,362

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
6,441

 
8,733

 
18,880

 
31,681

Depreciation and amortization
3,281

 
5,010

 
10,098

 
17,383

Impairments of real estate assets

 
15,287

 

 
20,077

Interest expense
2,201

 
3,141

 
6,713

 
12,569

Total expenses
11,923

 
32,171

 
35,691

 
81,710

Income/(loss) before disposition of property
502

 
(15,260
)
 
2,012

 
(17,348
)
Gains on disposition of property

 
8,256

 
1,949

 
8,323

Net income/(loss)
$
502

 
$
(7,004
)
 
$
3,961

 
$
(9,025
)


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 in cash, which was received in the third quarter of 2014.

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:
 
 
September 30,
2014
 
December 31,
2013
Assets:
 
 
 
Deferred financing costs
$
19,512

 
$
17,363

Less accumulated amortization
(7,193
)
 
(5,204
)
 
12,319

 
12,159

Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
308,091

 
297,068

Less accumulated amortization
(101,685
)
 
(87,016
)
 
206,406

 
210,052

Deferred financing and leasing costs, net
$
218,725

 
$
222,211

 
 
 
 
Liabilities (in accounts payable, accrued expenses and other liabilities):
 
 
 
Acquisition-related below market lease liabilities
$
55,639

 
$
55,323

Less accumulated amortization
(11,994
)
 
(8,478
)
 
$
43,645

 
$
46,845


The following table sets forth amortization of intangible assets and below market lease liabilities:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Amortization of deferred financing costs
$
819

 
$
963

 
$
2,270

 
$
2,860

Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)
$
9,465

 
$
10,639

 
$
29,443

 
$
26,603

Amortization of lease incentives (in rental and other revenues)
$
327

 
$
347

 
$
1,077

 
$
1,061

Amortization of acquisition-related intangible assets (in rental and other revenues)
$
1,080

 
$
1,548

 
$
3,310

 
$
2,499

Amortization of acquisition-related intangible assets (in rental property and other expenses)
$
140

 
$
140

 
$
416

 
$
416

Amortization of acquisition-related below market lease liabilities (in rental and other revenues)
$
(1,532
)
 
$
(1,584
)
 
$
(4,554
)
 
$
(3,737
)


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)
October 1 through December 31, 2014
 
$
776

 
$
10,411

 
$
339

 
$
1,034

 
$
136

 
$
(1,560
)
2015
 
3,074

 
36,795

 
1,148

 
3,612

 
553

 
(5,978
)
2016
 
2,811

 
30,965

 
986

 
2,819

 
553

 
(5,696
)
2017
 
2,518

 
26,845

 
908

 
2,276

 
553

 
(5,424
)
2018
 
1,394

 
22,423

 
805

 
1,434

 
553

 
(5,285
)
Thereafter
 
1,746

 
53,619

 
2,782

 
3,771

 
1,086

 
(19,702
)
 
 
$
12,319

 
$
181,058

 
$
6,968

 
$
14,946

 
$
3,434

 
$
(43,645
)
Weighted average remaining amortization periods as of September 30, 2014 (in years)
 
4.6

 
6.8

 
8.2

 
6.5

 
6.2

 
8.4



The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of 2014 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
 
$
27

 
$
6,293

 
$
(1,353
)
Weighted average remaining amortization periods as of September 30, 2014 (in years)
 
3.5

 
5.5

 
4.9




Mortgages and Notes Payable
Mortgages and Notes Payable
Mortgages and Notes Payable
 
The following table sets forth our mortgages and notes payable:
 
 
September 30,
2014
 
December 31,
2013
Secured indebtedness
$
314,506

 
$
488,664

Unsecured indebtedness
1,699,318

 
1,467,635

Total mortgages and notes payable
$
2,013,824

 
$
1,956,299


 
At September 30, 2014, our secured mortgage loans were collateralized by real estate assets with an aggregate undepreciated book value of $582.2 million.
 

6.    Mortgages and Notes Payable - Continued

Our $475.0 million unsecured revolving credit facility is scheduled to mature in January 2018 and includes an accordion feature that allows for an additional $75.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. The interest rate at our current credit ratings is LIBOR plus 110 basis points and the annual facility fee is 20 basis points. There was $150.0 million and $148.0 million outstanding under our revolving credit facility at September 30, 2014 and October 20, 2014, respectively. At both September 30, 2014 and October 20, 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 September 30, 2014 and October 20, 2014 was $324.9 million and $326.9 million, respectively.

During the third quarter of 2014, we prepaid the remaining $36.9 million balance on a secured mortgage loan with an effective interest rate of 3.34% that was originally scheduled to mature in April 2015. We recorded $0.3 million of loss on debt extinguishment related to this prepayment.

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.

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 nine months ended September 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 October 1, 2014 through September 30, 2015, we estimate that $3.2 million will be reclassified to interest expense.
 
The following table sets forth the gross fair value of our derivatives:
 
 
September 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
$
959

 
$
510




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
September 30,
 
Nine Months Ended
September 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
$
913

 
$
(1,798
)
 
$
(3,337
)
 
$
4,801

Amount of losses reclassified out of AOCL into contractual interest expense (effective portion):
 
 
 
 
 
 
 
Interest rate swaps
$
952

 
$
840

 
$
2,824

 
$
2,428

Noncontrolling Interests
Noncontrolling Interests
Noncontrolling Interests

Noncontrolling Interests in Consolidated Affiliates
 
At September 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:
 
 
Nine Months Ended
September 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
8,955

 
8,570

Conversions of Common Units to Common Stock
(162
)
 
(28,788