HIGHWOODS PROPERTIES, INC., 10-Q filed on 10/30/2012
Quarterly Report
Document and Entity Information Document
9 Months Ended
Sep. 30, 2012
Oct. 22, 2012
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, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
78,529,922 
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, 2012
Dec. 31, 2011
Real estate assets, at cost:
 
 
Land
$ 371,478 
$ 355,694 
Buildings and tenant improvements
3,200,350 
3,009,155 
Development in process
11,566 
Land held for development
102,482 
105,206 
Total real estate assets
3,685,876 
3,470,055 
Less-accumulated depreciation
(926,668)
(869,046)
Net real estate assets
2,759,208 
2,601,009 
For-sale residential condominiums
1,238 
4,751 
Real estate and other assets, net, held for sale
124,273 
Cash and cash equivalents
9,086 
11,188 
Restricted cash
21,578 
26,666 
Accounts receivable, net of allowance of $3,437 and $3,548, respectively
21,144 
30,093 
Mortgages and notes receivable, net of allowance of $211 and $61, respectively
16,943 
18,600 
Accrued straight-line rents receivable, net of allowance of $1,076 and $1,294, respectively
112,660 
99,490 
Investments in and advances to unconsolidated affiliates
78,406 
100,367 
Deferred financing and leasing costs, net of accumulated amortization of $73,579 and $62,319, respectively
149,170 
127,774 
Prepaid expenses and other assets, net of accumulated amortization of $12,585 and $15,089, respectively
40,452 
36,781 
Total Assets
3,209,885 
3,180,992 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Equity: [Abstract]
 
 
Mortgages and notes payable
1,778,555 
1,868,906 
Accounts payable, accrued expenses and other liabilities
152,053 
148,607 
Financing obligations
27,791 
30,150 
Liabilities, net, held for sale
35,815 
Total Liabilities
1,958,399 
2,083,478 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
123,141 
110,655 
Equity: [Abstract]
 
 
8.625% Series A Cumulative Redeemable Preferred Shares, $.01 par value, 50,000,000 authorized 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; 78,529,922 and 72,647,697 shares issued and outstanding, respectively
785 
726 
Additional paid-in capital
1,985,322 
1,803,997 
Distributions in excess of net income available for common stockholders
(877,962)
(845,853)
Accumulated other comprehensive loss
(13,426)
(5,734)
Total Stockholders' Equity
1,123,796 
982,213 
Noncontrolling interests in consolidated affiliates
4,549 
4,646 
Total Equity
1,128,345 
986,859 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Equity
3,209,885 
3,180,992 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
371,478 
355,694 
Buildings and tenant improvements
3,200,350 
3,009,155 
Development in process
11,566 
Land held for development
102,482 
105,206 
Total real estate assets
3,685,876 
3,470,055 
Less-accumulated depreciation
(926,668)
(869,046)
Net real estate assets
2,759,208 
2,601,009 
For-sale residential condominiums
1,238 
4,751 
Real estate and other assets, net, held for sale
124,273 
Cash and cash equivalents
9,174 
11,151 
Restricted cash
21,578 
26,666 
Accounts receivable, net of allowance of $3,437 and $3,548, respectively
21,144 
30,093 
Mortgages and notes receivable, net of allowance of $211 and $61, respectively
16,943 
18,600 
Accrued straight-line rents receivable, net of allowance of $1,076 and $1,294, respectively
112,660 
99,490 
Investments in and advances to unconsolidated affiliates
77,364 
99,296 
Deferred financing and leasing costs, net of accumulated amortization of $73,579 and $62,319, respectively
149,170 
127,774 
Prepaid expenses and other assets, net of accumulated amortization of $12,585 and $15,089, respectively
40,410 
36,781 
Total Assets
3,208,889 
3,179,884 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Equity: [Abstract]
 
 
Mortgages and notes payable
1,778,555 
1,868,906 
Accounts payable, accrued expenses and other liabilities
151,963 
148,607 
Financing obligations
27,791 
30,150 
Liabilities, net, held for sale
35,815 
Total Liabilities
1,958,309 
2,083,478 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units: [Abstract]
 
 
Common Units, 3,775,016 and 3,729,518 outstanding, respectively
123,141 
110,655 
Series A Preferred Units, liquidation preference $1,000 per unit; 29,077 units issued and outstanding
29,077 
29,077 
Total Redeemable Operating Partnership Units
152,218 
139,732 
Equity: [Abstract]
 
 
General partner Common Units, 818,961 and 759,684 outstanding, respectively
11,069 
9,575 
Limited partner Common Units, 77,302,152 and 71,479,204 outstanding, respectively
1,096,170 
948,187 
Accumulated other comprehensive loss
(13,426)
(5,734)
Noncontrolling interests in consolidated affiliates
4,549 
4,646 
Total Equity
1,098,362 
956,674 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Equity
$ 3,208,889 
$ 3,179,884 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Assets: [Abstract]
 
 
Accounts receivable allowance
$ 3,437 
$ 3,548 
Mortgages and notes receivable allowance
211 
61 
Accrued straight-line rents receivable allowance
1,076 
1,294 
Deferred financing and leasing costs, accumulated amortization
73,579 
62,319 
Prepaid expenses and other assets, accumulated amortization
12,585 
15,089 
Equity: [Abstract]
 
 
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)
78,529,922 
72,647,697 
Common Stock, shares outstanding (in shares)
78,529,922 
72,647,697 
Highwoods Realty Limited Partnership [Member]
 
 
Assets: [Abstract]
 
 
Accounts receivable allowance
3,437 
3,548 
Mortgages and notes receivable allowance
211 
61 
Accrued straight-line rents receivable allowance
1,076 
1,294 
Deferred financing and leasing costs, accumulated amortization
73,579 
62,319 
Prepaid expenses and other assets, accumulated amortization
$ 12,585 
$ 15,089 
Equity: [Abstract]
 
 
Common Stock, par value (in dollars per share)
$ 0.01 
 
Redeemable Operating Partnership Units: [Abstract]
 
 
Redeemable Common Units outstanding (in shares)
3,775,016 
3,729,518 
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)
818,961 
759,684 
Limited partners' capital account, units outstanding (in shares)
77,302,152 
71,479,204 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Rental and other revenues
$ 128,214 
$ 117,265 
$ 382,120 
$ 339,497 
Operating expenses:
 
 
 
 
Rental property and other expenses
47,233 
44,031 
138,132 
122,358 
Depreciation and amortization
38,651 
35,051 
115,755 
99,659 
Impairments of real estate assets
2,429 
2,429 
General and administrative
9,725 
12,212 
28,298 
27,983 
Total operating expenses
95,609 
93,723 
282,185 
252,429 
Interest expense:
 
 
 
 
Contractual
22,910 
23,264 
70,309 
68,444 
Amortization of deferred financing costs
907 
806 
2,709 
2,448 
Financing obligations
(205)
201 
(357)
584 
Total interest expense
23,612 
24,271 
72,661 
71,476 
Other income:
 
 
 
 
Interest and other income
1,916 
1,505 
5,883 
5,277 
Losses on debt extinguishment
(973)
(24)
Total other income
1,916 
1,505 
4,910 
5,253 
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates
10,909 
776 
32,184 
20,845 
Gains on disposition of property
262 
462 
Gains/(losses) on for-sale residential condominiums
80 
(476)
255 
(322)
Gains on disposition of investments in unconsolidated affiliates
2,282 
2,282 
Equity in earnings of unconsolidated affiliates
1,324 
1,113 
2,670 
3,933 
Income from continuing operations
12,313 
3,957 
35,109 
27,200 
Discontinued operations:
 
 
 
 
Income from discontinued operations
547 
1,714 
4,062 
5,348 
Net gains on disposition of discontinued operations
22,936 
2,573 
29,455 
2,573 
Total discontinued operations
23,483 
4,287 
33,517 
7,921 
Net income
35,796 
8,244 
68,626 
35,121 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,653)
(366)
(3,166)
(1,496)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(159)
(249)
(566)
(554)
Dividends on Preferred Stock
(627)
(627)
(1,881)
(3,926)
Excess of Preferred Stock redemption/repurchase cost over carrying value
(1,895)
Net income available for common stockholders
33,357 
7,002 
63,013 
27,250 
Earnings per Common Share - basic:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.15 
$ 0.04 
$ 0.42 
$ 0.28 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.29 
$ 0.06 
$ 0.42 
$ 0.10 
Net income available for common stockholders (in dollars per share)
$ 0.44 
$ 0.10 
$ 0.84 
$ 0.38 
Weighted average Common Shares outstanding - basic (in shares)
76,590 1 2
72,492 1 2
74,703 1 2
72,176 1 2
Earnings per Common Share - diluted:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.14 
$ 0.04 
$ 0.42 
$ 0.28 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.29 
$ 0.06 
$ 0.42 
$ 0.10 
Net income available for common stockholders (in dollars per share)
$ 0.43 
$ 0.10 
$ 0.84 
$ 0.38 
Weighted average Common Shares outstanding - diluted (in shares)
80,495 1
76,402 1
78,568 1
76,127 1
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
10,980 
2,928 
31,090 
19,724 
Income from discontinued operations available for common stockholders
22,377 
4,074 
31,923 
7,526 
Net income available for common stockholders
33,357 
7,002 
63,013 
27,250 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Rental and other revenues
128,214 
117,265 
382,120 
339,497 
Operating expenses:
 
 
 
 
Rental property and other expenses
47,159 
43,963 
137,937 
122,376 
Depreciation and amortization
38,651 
35,051 
115,755 
99,659 
Impairments of real estate assets
2,429 
2,429 
General and administrative
9,799 
12,280 
28,493 
27,965 
Total operating expenses
95,609 
93,723 
282,185 
252,429 
Interest expense:
 
 
 
 
Contractual
22,910 
23,264 
70,309 
68,444 
Amortization of deferred financing costs
907 
806 
2,709 
2,448 
Financing obligations
(205)
201 
(357)
584 
Total interest expense
23,612 
24,271 
72,661 
71,476 
Other income:
 
 
 
 
Interest and other income
1,916 
1,505 
5,883 
5,277 
Losses on debt extinguishment
(973)
(24)
Total other income
1,916 
1,505 
4,910 
5,253 
Income from continuing operations before disposition of property, condominiums and investments in unconsolidated affiliates and equity in earnings of unconsolidated affiliates
10,909 
776 
32,184 
20,845 
Gains on disposition of property
262 
462 
Gains/(losses) on for-sale residential condominiums
80 
(476)
255 
(322)
Gains on disposition of investments in unconsolidated affiliates
2,282 
2,282 
Equity in earnings of unconsolidated affiliates
1,328 
1,113 
2,679 
3,945 
Income from continuing operations
12,317 
3,957 
35,118 
27,212 
Discontinued operations:
 
 
 
 
Income from discontinued operations
547 
1,714 
4,062 
5,348 
Net gains on disposition of discontinued operations
22,936 
2,573 
29,455 
2,573 
Total discontinued operations
23,483 
4,287 
33,517 
7,921 
Net income
35,800 
8,244 
68,635 
35,133 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(159)
(249)
(566)
(554)
Distributions on Preferred Units
(627)
(627)
(1,881)
(3,926)
Excess of Preferred Unit redemption/repurchase cost over carrying value
(1,895)
Net income available for common unitholders
35,014 
7,368 
66,188 
28,758 
Earnings per Common Unit - basic:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.15 
$ 0.04 
$ 0.42 
$ 0.28 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.29 
$ 0.06 
$ 0.43 
$ 0.10 
Net income available for common unitholders (in dollars per share)
$ 0.44 
$ 0.10 
$ 0.85 
$ 0.38 
Weighted average Common Units outstanding - basic (in shares)
79,949 1 2
75,855 1 2
78,032 1 2
75,549 1 2
Earnings per Common Unit - diluted:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
0.15 
0.04 
0.42 
0.28 
Income from discontinued operations available for common unitholders (in dollars per share)
0.29 
0.06 
0.43 
0.10 
Net income available for common unitholders (in dollars per share)
0.44 
0.10 
0.85 
0.38 
Weighted average Common Units outstanding - diluted (in shares)
80,086 1
75,993 1
78,159 1
75,718 1
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
11,531 
3,081 
32,671 
20,837 
Income from discontinued operations available for common unitholders
23,483 
4,287 
33,517 
7,921 
Net income available for common unitholders
$ 35,014 
$ 7,368 
$ 66,188 
$ 28,758 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Comprehensive income/(loss):
 
 
 
 
Net income
$ 35,796 
$ 8,244 
$ 68,626 
$ 35,121 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains/(losses) on tax increment financing bond
(101)
600 
482 
129 
Unrealized losses on cash flow hedges
(3,337)
(10,424)
Amortization of cash flow hedges
791 
(30)
2,250 
(87)
Total other comprehensive income/(loss)
(2,647)
570 
(7,692)
42 
Total comprehensive income
33,149 
8,814 
60,934 
35,163 
Less-comprehensive (income) attributable to noncontrolling interests
(1,812)
(615)
(3,732)
(2,050)
Comprehensive income attributable to the Company/Comprehensive income attributable to the Operating Partnership
31,337 
8,199 
57,202 
33,113 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Comprehensive income/(loss):
 
 
 
 
Net income
35,800 
8,244 
68,635 
35,133 
Other comprehensive income/(loss):
 
 
 
 
Unrealized gains/(losses) on tax increment financing bond
(101)
600 
482 
129 
Unrealized losses on cash flow hedges
(3,337)
(10,424)
Amortization of cash flow hedges
791 
(30)
2,250 
(87)
Total other comprehensive income/(loss)
(2,647)
570 
(7,692)
42 
Total comprehensive income
33,153 
8,814 
60,943 
35,175 
Less-comprehensive (income) attributable to noncontrolling interests
(159)
(249)
(566)
(554)
Comprehensive income attributable to the Company/Comprehensive income attributable to the Operating Partnership
$ 32,994 
$ 8,565 
$ 60,377 
$ 34,621 
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]
Series B 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, 2010
$ 1,088,222 
$ 1,005,466 
$ 717 
$ 29,092 
$ 52,500 
$ 10,044 
$ 994,610 
$ 1,766,886 
$ (3,648)
$ (3,648)
$ 4,460 
$ 4,460 
$ (761,785)
Balance (in shares) at Dec. 31, 2010
 
 
71,690,487 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net
 
22,043 
 
 
 
220 
21,823 
 
 
 
 
Distributions paid on Common Units
 
(96,197)
 
 
 
(962)
(95,235)
 
 
 
 
Distributions paid on Preferred Units
 
(3,926)
 
 
 
(39)
(3,887)
 
 
 
 
Issuances of Common Stock - Shares
 
 
711,234 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net
22,043 
 
 
 
22,036 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
43,308 
 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
1,344 
 
 
 
1,344 
 
 
Dividends on Common Stock
(91,900)
 
 
 
 
 
(91,900)
Dividends on Preferred Stock
(3,926)
 
 
 
 
 
(3,926)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
10,177 
 
 
 
10,177 
 
 
Distributions to noncontrolling interests in consolidated affiliates
(391)
(391)
(391)
(391)
Issuances of restricted stock - Shares
 
 
134,352 
 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
Redemptions/repurchases of Preferred Stock
(52,515)
 
(15)
(52,500)
 
 
1,895 
 
 
(1,895)
Share-based compensation expense
4,771 
4,771 
48 
4,723 
4,769 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
14,239 
 
 
 
144 
14,095 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,496)
 
 
 
 
 
(1,496)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(6)
(548)
554 
554 
(554)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
35,121 
35,133 
351 
34,782 
35,121 
Other comprehensive income/(loss)
42 
42 
42 
42 
Total comprehensive income
35,163 
35,175 
 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2011
1,011,492 
981,180 
726 
29,077 
9,800 
970,363 
1,807,107 
(3,606)
(3,606)
4,623 
4,623 
(826,435)
Balance (in shares) at Sep. 30, 2011
 
 
72,579,381 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(366)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
8,244 
8,244 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss)
570 
570 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
8,814 
8,814 
 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2011
1,011,492 
981,180 
 
 
 
 
 
 
 
 
 
 
 
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 
 
72,647,697 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net
 
188,973 
 
 
 
1,890 
187,083 
 
 
 
 
Distributions paid on Common Units
 
(99,334)
 
 
 
(994)
(98,340)
 
 
 
 
Distributions paid on Preferred Units
 
(1,881)
 
 
 
(19)
(1,862)
 
 
 
 
Issuances of Common Stock - Shares
 
 
5,701,974 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net
186,674 
 
57 
 
 
 
186,617 
 
 
Conversions of Common Units to Common Stock - Shares
 
 
21,366 
 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
731 
 
 
 
 
731 
 
 
Dividends on Common Stock
(95,122)
 
 
 
 
 
 
(95,122)
Dividends on Preferred Stock
(1,881)
 
 
 
 
 
 
(1,881)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(12,485)
 
 
 
 
(12,485)
 
 
Distributions to noncontrolling interests in consolidated affiliates
(663)
(663)
 
(663)
(663)
Issuances of restricted stock - Shares
 
 
158,885 
 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
 
 
 
 
 
 
Share-based compensation expense
6,464 
6,464 
 
65 
6,399 
6,462 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(12,814)
 
 
 
(128)
(12,686)
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,166)
 
 
 
 
 
 
(3,166)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
(6)
(560)
566 
566 
(566)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
68,626 
68,635 
 
686 
67,949 
68,626 
Other comprehensive income/(loss)
(7,692)
(7,692)
 
(7,692)
(7,692)
Total comprehensive income
60,934 
60,943 
 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2012
1,128,345 
1,098,362 
785 
29,077 
 
11,069 
1,096,170 
1,985,322 
(13,426)
(13,426)
4,549 
4,549 
(877,962)
Balance (in shares) at Sep. 30, 2012
78,529,922 
 
78,529,922 
 
 
 
 
 
 
 
 
 
 
Balance at Jun. 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,653)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
35,796 
35,800 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss)
(2,647)
(2,647)
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
33,149 
33,153 
 
 
 
 
 
 
 
 
 
 
 
Balance at Sep. 30, 2012
$ 1,128,345 
$ 1,098,362 
 
 
 
 
 
 
 
 
 
 
 
Balance (in shares) at Sep. 30, 2012
78,529,922 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Operating activities:
 
 
Net income
$ 68,626 
$ 35,121 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
117,764 
103,594 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
358 
1,347 
Share-based compensation expense
6,464 
4,771 
Allowance for losses on accounts and accrued straight-line rents receivable
1,235 
1,586 
Amortization of deferred financing costs
2,709 
2,448 
Amortization of cash flow hedges
2,250 
(87)
Impairments of real estate assets
2,429 
Losses on debt extinguishment
973 
24 
Net gains on disposition of property
(29,455)
(3,035)
(Gains)/losses on for-sale residential condominiums
(255)
322 
Gains on disposition of investments in unconsolidated affiliates
(2,282)
Equity in earnings of unconsolidated affiliates
(2,670)
(3,933)
Changes in financing obligations
(1,010)
(339)
Distributions of earnings from unconsolidated affiliates
3,249 
3,400 
Changes in operating assets and liabilities:
 
 
Accounts receivable
5,310 
(3,493)
Prepaid expenses and other assets
(3,258)
(586)
Accrued straight-line rents receivable
(13,609)
(9,280)
Accounts payable, accrued expenses and other liabilities
(20,663)
4,118 
Net cash provided by operating activities
138,018 
136,125 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(158,200)
(75,510)
Investments in development in process
(5,392)
(5,835)
Investments in tenant improvements and deferred leasing costs
(61,821)
(59,692)
Investments in building improvements
(27,229)
(9,521)
Net proceeds from disposition of real estate assets
152,456 
16,530 
Net proceeds from disposition of for-sale residential condominiums
3,768 
2,770 
Proceeds from disposition of investments in unconsolidated affiliates
4,756 
Distributions of capital from unconsolidated affiliates
1,035 
1,304 
Repayments of mortgages and notes receivable
1,657 
338 
Investments in and advances to unconsolidated affiliates
(3,928)
(39,665)
Changes in restricted cash and other investing activities
2,904 
(15,598)
Net cash used in investing activities
(94,750)
(180,123)
Financing activities:
 
 
Dividends on Common Stock
(95,122)
(91,900)
Redemptions/repurchases of Preferred Stock
(52,515)
Dividends on Preferred Stock
(1,881)
(3,926)
Distributions to noncontrolling interests in the Operating Partnership
(4,733)
(4,818)
Distributions to noncontrolling interests in consolidated affiliates
(663)
(391)
Proceeds from the issuance of Common Stock
191,667 
22,043 
Costs paid for the issuance of Common Stock
(2,745)
Repurchase of shares related to tax withholdings
(2,248)
Borrowings on revolving credit facility
219,800 
285,400 
Repayments of revolving credit facility
(492,800)
(150,400)
Borrowings on mortgages and notes payable
225,000 
200,000 
Repayments of mortgages and notes payable
(77,264)
(156,602)
Payments on financing obligations
(1,316)
Additions to deferred financing costs and other financing activities
(3,065)
(6,011)
Net cash provided by/(used in) financing activities
(45,370)
40,880 
Net decrease in cash and cash equivalents
(2,102)
(3,118)
Cash and cash equivalents at beginning of the period
11,188 
14,206 
Cash and cash equivalents at end of the period
9,086 
11,088 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
72,793 
69,321 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized losses on cash flow hedges
(10,424)
Conversions of Common Units to Common Stock
731 
1,344 
Changes in accrued capital expenditures
1,829 
3,707 
Write-off of fully depreciated real estate assets
36,918 
39,039 
Write-off of fully amortized deferred financing and leasing costs
14,189 
13,683 
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan
310 
(354)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
12,485 
(10,177)
Unrealized gains/(losses) on tax increment financing bond
482 
129 
Assumption of mortgages and notes payable related to acquisition activities
192,367 
Reduction of advances to unconsolidated affiliates related to acquisition activities
26,000 
Issuances of Common Units to acquire real estate assets
2,299 
Highwoods Realty Limited Partnership [Member]
 
 
Operating activities:
 
 
Net income
68,635 
35,133 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
117,764 
103,594 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
358 
1,347 
Share-based compensation expense
6,464 
4,771 
Allowance for losses on accounts and accrued straight-line rents receivable
1,235 
1,586 
Amortization of deferred financing costs
2,709 
2,448 
Amortization of cash flow hedges
2,250 
(87)
Impairments of real estate assets
2,429 
Losses on debt extinguishment
973 
24 
Net gains on disposition of property
(29,455)
(3,035)
(Gains)/losses on for-sale residential condominiums
(255)
322 
Gains on disposition of investments in unconsolidated affiliates
(2,282)
Equity in earnings of unconsolidated affiliates
(2,679)
(3,945)
Changes in financing obligations
(1,010)
(339)
Distributions of earnings from unconsolidated affiliates
3,230 
3,382 
Changes in operating assets and liabilities:
 
 
Accounts receivable
5,310 
(3,493)
Prepaid expenses and other assets
(3,216)
(542)
Accrued straight-line rents receivable
(13,609)
(9,280)
Accounts payable, accrued expenses and other liabilities
(20,753)
4,118 
Net cash provided by operating activities
137,951 
136,151 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(158,200)
(75,510)
Investments in development in process
(5,392)
(5,835)
Investments in tenant improvements and deferred leasing costs
(61,821)
(59,692)
Investments in building improvements
(27,229)
(9,521)
Net proceeds from disposition of real estate assets
152,456 
16,530 
Net proceeds from disposition of for-sale residential condominiums
3,768 
2,770 
Proceeds from disposition of investments in unconsolidated affiliates
4,756 
Distributions of capital from unconsolidated affiliates
1,035 
1,304 
Repayments of mortgages and notes receivable
1,657 
338 
Investments in and advances to unconsolidated affiliates
(3,928)
(39,665)
Changes in restricted cash and other investing activities
2,904 
(15,598)
Net cash used in investing activities
(94,750)
(180,123)
Financing activities:
 
 
Distributions on Common Units
(99,334)
(96,197)
Redemptions/repurchases of Preferred Units
(52,515)
Distributions on Preferred Units
(1,881)
(3,926)
Distributions to noncontrolling interests in consolidated affiliates
(663)
(391)
Proceeds from the issuance of Common Units
191,667 
22,043 
Costs paid for the issuance of Common Units
(2,745)
Repurchase of units related to tax withholdings
(2,248)
Borrowings on revolving credit facility
219,800 
285,400 
Repayments of revolving credit facility
(492,800)
(150,400)
Borrowings on mortgages and notes payable
225,000 
200,000 
Repayments of mortgages and notes payable
(77,264)
(156,602)
Payments on financing obligations
(1,316)
Additions to deferred financing costs and other financing activities
(3,394)
(6,615)
Net cash provided by/(used in) financing activities
(45,178)
40,797 
Net decrease in cash and cash equivalents
(1,977)
(3,175)
Cash and cash equivalents at beginning of the period
11,151 
14,198 
Cash and cash equivalents at end of the period
9,174 
11,023 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
72,793 
69,321 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized losses on cash flow hedges
(10,424)
Changes in accrued capital expenditures
1,829 
3,707 
Write-off of fully depreciated real estate assets
36,918 
39,039 
Write-off of fully amortized deferred financing and leasing costs
14,189 
13,683 
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan
310 
(354)
Adjustment of Redeemable Common Units to fair value
10,187 
(14,843)
Unrealized gains/(losses) on tax increment financing bond
482 
129 
Assumption of mortgages and notes payable related to acquisition activities
192,367 
Reduction of advances to unconsolidated affiliates related to acquisition activities
26,000 
Issuances of Common Units to acquire real estate assets
$ 2,299 
$ 0 
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 September 30, 2012, the Company and/or the Operating Partnership wholly owned: 299 in-service office, industrial and retail properties, comprising 29.0 million square feet; five for-sale residential condominiums; 581 acres of undeveloped land suitable for future development, of which 518 acres are considered core assets; and one office property under development.

The Company is the sole general partner of the Operating Partnership. At September 30, 2012, the Company owned all of the Preferred Units and 78.1 million, or 95.4%, of the Common Units in the Operating Partnership. Limited partners, including one officer and two directors of the Company, own the remaining 3.8 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds 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 nine months ended September 30, 2012, the Company redeemed 21,366 Common Units for a like number of shares of Common Stock and issued 66,864 Common Units to acquire real estate assets. As a result of this activity, the percentage of Common Units owned by the Company increased from 95.1% at December 31, 2011 to 95.4% at September 30, 2012.

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 and nine months ended September 30, 2012, the Company issued 2,867,768 and 5,490,244 shares, respectively, of Common Stock under these agreements at an average gross sales price of $33.22 and $33.33 per share, respectively, raising net proceeds, after sales commissions and expenses, of $93.8 million and $180.2 million, respectively.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2011 was recast 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 September 30, 2012. Our Consolidated Statements of Income for the three and nine months ended September 30, 2011 were recast from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations. Prior period amounts related to capital expenditures in our Consolidated Statements of Cash Flows have been disaggregated to conform to the current period presentation.

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 September 30, 2012 and December 31, 2011, we had involvement with no entities that we concluded to be variable interest entities.

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 on Form 10-Q as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2011 Annual Report on Form 10-K.

Use of Estimates

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

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

Description of Business

Highwoods Properties, Inc., together with its consolidated subsidiaries (the “Company”), is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts virtually all of its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At September 30, 2012, the Company and/or the Operating Partnership wholly owned: 299 in-service office, industrial and retail properties, comprising 29.0 million square feet; five for-sale residential condominiums; 581 acres of undeveloped land suitable for future development, of which 518 acres are considered core assets; and one office property under development.

The Company is the sole general partner of the Operating Partnership. At September 30, 2012, the Company owned all of the Preferred Units and 78.1 million, or 95.4%, of the Common Units in the Operating Partnership. Limited partners, including one officer and two directors of the Company, own the remaining 3.8 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds 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 nine months ended September 30, 2012, the Company redeemed 21,366 Common Units for a like number of shares of Common Stock and issued 66,864 Common Units to acquire real estate assets. As a result of this activity, the percentage of Common Units owned by the Company increased from 95.1% at December 31, 2011 to 95.4% at September 30, 2012.

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 and nine months ended September 30, 2012, the Company issued 2,867,768 and 5,490,244 shares, respectively, of Common Stock under these agreements at an average gross sales price of $33.22 and $33.33 per share, respectively, raising net proceeds, after sales commissions and expenses, of $93.8 million and $180.2 million, respectively.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Balance Sheet at December 31, 2011 was 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 September 30, 2012. Our Consolidated Statements of Income for the three and nine months ended September 30, 2011 were revised from previously reported amounts to reflect in discontinued operations the operations for those properties that qualified for discontinued operations. Prior period amounts related to capital expenditures in our Consolidated Statements of Cash Flows have been disaggregated to conform to the current period presentation.

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 September 30, 2012 and December 31, 2011, we had involvement with no entities that we concluded to be variable interest entities.

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 on Form 10-Q as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2011 Annual Report on Form 10-K.

Use of Estimates

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

Recently Issued Accounting Standards
 
As a result of adopting certain new or amended accounting pronouncements in the first quarter of 2012, we have enhanced our disclosure of assets and liabilities measured at fair value and elected to continue use of credit valuation adjustments on a net basis by counterparty as part of the calculation to determine the fair value of our derivatives. Our disclosures now include: (1) significant transfers between Levels 1 and 2 of the fair value hierarchy, if any; (2) additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy; and (3) the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but was disclosed previously in our Notes to Consolidated Financial Statements. Additionally, we have presented comprehensive income in a separate financial statement entitled Consolidated Statements of Comprehensive Income.
Real Estate Assets
Real Estate Assets
 
Acquisitions
 
During the third quarter of 2012, we acquired three properties for a total purchase price of $161.2 million, consisting of (1) a 492,000 square foot office property in Atlanta, GA for $144.9 million and (2) two medical office properties in Greensboro, NC for $16.3 million, which included the issuance of 66,864 Common Units and contingent consideration with fair value at the acquisition date of $0.7 million. We expensed approximately $0.7 million of acquisition costs related to these transactions. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.

The following table sets forth a summary of the assets acquired and liabilities assumed in the acquisition of the office property in Atlanta, GA discussed above:

 
Total
Purchase Price Allocation
Real estate assets
$
135,128

Acquisition-related intangible assets (in deferred financing and leasing costs)
21,637

Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)
(11,875
)
Total allocation
$
144,890



2.    Real Estate Assets - Continued

During the third quarter of 2011, we acquired a six-building, 1,540,000 square foot office complex in Pittsburgh, PA and a 503,000 square foot office building in Atlanta, GA for a purchase price of $188.5 million and $78.3 million, respectively.

The following table sets forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations and acquisition costs assuming: (1) the 492,000 square foot office building in Atlanta, GA was acquired on January 1, 2011, with proforma adjustments being included in the three and nine months ended September 30, 2012 and 2011 and (2) the office complex in Pittsburgh, PA and the 503,000 square foot office building in Atlanta, GA were acquired on January 1, 2010, with proforma adjustments being included in the three and nine months ended September 30, 2011.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Proforma rental and other revenues
$
132,632

 
$
132,269

 
$
395,161

 
$
385,246

Proforma net income
$
35,765

 
$
7,626

 
$
68,526

 
$
33,268

Proforma earnings per share - basic
$
0.43

 
$
0.09

 
$
0.84

 
$
0.35

Proforma earnings per share - diluted
$
0.43

 
$
0.09

 
$
0.84

 
$
0.35



During the second quarter of 2012, we also acquired a 178,300 square foot office property in Cary, NC from our DLF I joint venture for an agreed upon value of $26.0 million by reducing the balance of the advance due to us from the joint venture.

Dispositions

During the third quarter of 2012, we sold:

an office property in Kansas City, MO for $6.5 million and recorded gain on disposition of discontinued operations of $1.9 million.

five office buildings in Nashville, TN for $41.0 million and recorded gain on disposition of discontinued operations of $7.0 million.

three buildings in Jackson, MS and Atlanta, GA for $86.5 million and recorded gain on disposition of discontinued operations of $14.0 million.

During the second quarter of 2012, we sold an office property in Pinellas County, FL for gross proceeds of $9.5 million and recorded gain on disposition of discontinued operations of $1.4 million related to this disposition.

During the first quarter of 2012, we sold 96 vacant rental residential units in Kansas City, MO for gross proceeds of $11.0 million and recorded gain on disposition of discontinued operations of $5.1 million related to this disposition.
Real Estate Assets
 
Acquisitions
 
During the third quarter of 2012, we acquired three properties for a total purchase price of $161.2 million, consisting of (1) a 492,000 square foot office property in Atlanta, GA for $144.9 million and (2) two medical office properties in Greensboro, NC for $16.3 million, which included the issuance of 66,864 Common Units and contingent consideration with fair value at the acquisition date of $0.7 million. We expensed approximately $0.7 million of acquisition costs related to these transactions. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.

The following table sets forth a summary of the assets acquired and liabilities assumed in the acquisition of the office property in Atlanta, GA discussed above:

 
Total
Purchase Price Allocation
Real estate assets
$
135,128

Acquisition-related intangible assets (in deferred financing and leasing costs)
21,637

Acquisition-related below market lease liabilities (in accounts payable, accrued expenses and other liabilities)
(11,875
)
Total allocation
$
144,890




2.    Real Estate Assets - Continued

During the third quarter of 2011, we acquired a six-building, 1,540,000 square foot office complex in Pittsburgh, PA and a 503,000 square foot office building in Atlanta, GA for a purchase price of $188.5 million and $78.3 million, respectively.

The following table sets forth our rental and other revenues and net income, adjusted for interest expense and depreciation and amortization related to purchase price allocations and acquisition costs assuming: (1) the 492,000 square foot office building in Atlanta, GA was acquired on January 1, 2011, with proforma adjustments being included in the three and nine months ended September 30, 2012 and 2011 and (2) the office complex in Pittsburgh, PA and the 503,000 square foot office building in Atlanta, GA were acquired on January 1, 2010, with proforma adjustments being included in the three and nine months ended September 30, 2011.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Proforma rental and other revenues
$
132,632

 
$
132,269

 
$
395,161

 
$
385,246

Proforma net income
$
35,769

 
$
7,626

 
$
68,535

 
$
33,280

Proforma earnings per share - basic
$
0.44

 
$
0.09

 
$
0.85

 
$
0.36

Proforma earnings per share - diluted
$
0.44

 
$
0.09

 
$
0.85

 
$
0.36



During the second quarter of 2012, we also acquired a 178,300 square foot office property in Cary, NC from our DLF I joint venture for an agreed upon value of $26.0 million by reducing the balance of the advance due to us from the joint venture.
 
Dispositions
 
During the third quarter of 2012, we sold:

an office property in Kansas City, MO for $6.5 million and recorded gain on disposition of discontinued operations of $1.9 million.

five office buildings in Nashville, TN for $41.0 million and recorded gain on disposition of discontinued operations of $7.0 million.

three buildings in Jackson, MS and Atlanta, GA for $86.5 million and recorded gain on disposition of discontinued operations of $14.0 million.

During the second quarter of 2012, we sold an office property in Pinellas County, FL for gross proceeds of $9.5 million and recorded gain on disposition of discontinued operations of $1.4 million related to this disposition.
 
During the first quarter of 2012, we sold 96 vacant rental residential units in Kansas City, MO for gross proceeds of $11.0 million and recorded gain on disposition of discontinued operations of $5.1 million related to this disposition.
Mortgages and Notes Receivable
Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
September 30,
2012
 
December 31,
2011
Seller financing (first mortgages)
$
15,853

 
$
17,180

Less allowance

 

 
15,853

 
17,180

Promissory notes
1,301

 
1,481

Less allowance
(211
)
 
(61
)
 
1,090

 
1,420

Mortgages and notes receivable, net
$
16,943

 
$
18,600



Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010. This 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 September 30, 2012, the payments on both mortgages receivable were current and there were no other indications 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.

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,
 
2012
 
2011
 
2012
 
2011
Beginning notes receivable allowance
$
118

 
$
617

 
$
61

 
$
868

Bad debt expense

 

 

 
184

Recoveries/write-offs/other
93

 
(72
)
 
150

 
(507
)
Total notes receivable allowance
$
211

 
$
545

 
$
211

 
$
545

Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
September 30,
2012
 
December 31,
2011
Seller financing (first mortgages)
$
15,853

 
$
17,180

Less allowance

 

 
15,853

 
17,180

Promissory notes
1,301

 
1,481

Less allowance
(211
)
 
(61
)
 
1,090

 
1,420

Mortgages and notes receivable, net
$
16,943

 
$
18,600



Our mortgages and notes receivable consist primarily of seller financing issued in conjunction with two disposition transactions in 2010. This 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 September 30, 2012, the payments on both mortgages receivable were current and there were no other indications 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.

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,
 
2012
 
2011
 
2012
 
2011
Beginning notes receivable allowance
$
118

 
$
617

 
$
61

 
$
868

Bad debt expense

 

 

 
184

Recoveries/write-offs/other
93

 
(72
)
 
150

 
(507
)
Total notes receivable allowance
$
211

 
$
545

 
$
211

 
$
545

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 and a secured debt interest in one of those joint ventures, as described below. The following table sets forth the combined, summarized income statements for our unconsolidated joint ventures on the purchase accounting basis:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Income Statements:
 
 
 
 
 
 
 
Rental and other revenues
$
25,051

 
$
25,623

 
$
75,920

 
$
75,619

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
11,624

 
10,805

 
35,706

 
33,576

Depreciation and amortization
6,355

 
6,759

 
18,839

 
19,670

Impairments of real estate assets

 

 
7,180

 

Interest expense
4,980

 
5,976

 
16,077

 
17,841

Total expenses
22,959

 
23,540

 
77,802

 
71,087

Income/(loss) before disposition of properties
2,092

 
2,083

 
(1,882
)
 
4,532

Gains on disposition of properties

 

 
6,275

 

Net income
$
2,092


$
2,083

 
$
4,393

 
$
4,532

Our share of:
 
 
 
 
 
 
 
Depreciation and amortization of real estate assets
$
2,028

 
$
2,066

 
$
5,801

 
$
6,192

Impairments of real estate assets
$

 
$

 
$
1,002

 
$

Interest expense
$
1,775

 
$
1,965

 
$
5,598

 
$
6,159

Net income
$
914

 
$
442

 
$
1,252

 
$
2,112

 
 
 
 
 
 
 
 
Our share of net income
$
914

 
$
442

 
$
1,252

 
$
2,112

Adjustments for management and other fees
410

 
671

 
1,418

 
1,821

Equity in earnings of unconsolidated affiliates
$
1,324

 
$
1,113

 
$
2,670

 
$
3,933



During the second quarter of 2011, we provided a $38.3 million interest-only secured loan to our DLF I joint venture that originally was scheduled to mature in March 2012. The loan bears interest at LIBOR plus 500 basis points. The maturity date of the loan has been extended to December 31, 2012. In the second quarter of 2012, the outstanding balance of the loan was reduced to $13.0 million as a result of our acquisition of an office property from the joint venture. We recorded interest income from this loan in interest and other income of $0.1 million and $0.5 million during the three months ended September 30, 2012 and 2011, respectively, and $0.8 million and $0.8 million during the nine months ended September 30, 2012 and 2011, respectively.

During the second quarter of 2012, our DLF II joint venture obtained a $50.0 million, three-year secured mortgage loan from a third party lender, bearing a fixed interest rate of 3.5% on $39.1 million of the loan and a floating interest rate of LIBOR plus 250 basis points on $10.9 million of the loan, which was used by the joint venture to repay a secured loan at maturity to a third party lender.

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


4.    Investments in and Advances to Affiliates - Continued

Consolidated Affiliates

During the third quarter of 2012, we provided a three-year, $20.8 million interest-only secured loan to our Harborview Plaza joint venture that is scheduled to mature in September 2015, which the joint venture used to repay a secured loan at maturity to a third party lender. This new loan bears interest at LIBOR plus 500 basis points, subject to a LIBOR floor of 0.5%.
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 and a secured debt interest in one of those joint ventures, as described below. The following table sets forth the combined, summarized income statements for our unconsolidated joint ventures on the purchase accounting basis:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Income Statements:
 
 
 
 
 
 
 
Rental and other revenues
$
24,062

 
$
24,618

 
$
72,916

 
$
72,576

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
11,024

 
10,239

 
33,901

 
31,765

Depreciation and amortization
6,044

 
6,437

 
17,905

 
18,736

Impairments of real estate assets

 

 
7,180

 

Interest expense
4,817

 
5,802

 
15,583

 
17,310

Total expenses
21,885

 
22,478

 
74,569

 
67,811

Income/(loss) before disposition of properties
2,177

 
2,140

 
(1,653
)
 
4,765

Gains on disposition of properties

 

 
6,275