HIGHWOODS PROPERTIES, INC., 10-Q filed on 10/29/2013
Quarterly Report
Document and Entity Information Document
9 Months Ended
Sep. 30, 2013
Oct. 21, 2013
Entity Information [Line Items]
 
 
Entity Registrant Name
HIGHWOODS PROPERTIES INC. 
 
Entity Central Index Key
0000921082 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
89,910,944 
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, 2013 
 
Document Fiscal Year Focus
2013 
 
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, 2013
Dec. 31, 2012
Real estate assets, at cost:
 
 
Land
$ 403,556 
$ 345,614 
Buildings and tenant improvements
3,756,552 
3,172,107 
Development in process
56,495 
21,198 
Land held for development
112,079 
115,416 
Total real estate assets
4,328,682 
3,654,335 
Less-accumulated depreciation
(981,602)
(903,837)
Net real estate assets
3,347,080 
2,750,498 
Real estate and other assets, net, held for sale
16,316 
129,400 
Cash and cash equivalents
31,689 
13,783 
Restricted cash
15,246 
19,702 
Accounts receivable, net of allowance of $1,532 and $2,848, respectively
30,839 
23,073 
Mortgages and notes receivable, net of allowance of $340 and $182, respectively
26,291 
25,472 
Accrued straight-line rents receivable, net of allowance of $1,177 and $813, respectively
123,047 
111,233 
Investments in and advances to unconsolidated affiliates
35,856 
66,800 
Deferred financing and leasing costs, net of accumulated amortization of $90,241 and $75,863, respectively
227,826 
166,009 
Prepaid expenses and other assets, net of accumulated amortization of $12,835 and $12,318, respectively
42,675 
44,458 
Total Assets
3,896,865 
3,350,428 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Equity:
 
 
Mortgages and notes payable
2,050,061 
1,859,162 
Accounts payable, accrued expenses and other liabilities
208,536 
172,146 
Financing obligations
28,192 
29,358 
Total Liabilities
2,286,789 
2,060,666 
Commitments and contingencies
   
   
Noncontrolling interests in the Operating Partnership
103,948 
124,869 
Equity:
 
 
Preferred Stock, $.01 par value, 50,000,000 authorized shares; 8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share; 29,077 shares issued and outstanding)
29,077 
29,077 
Common Stock, $.01 par value, 200,000,000 authorized shares; 89,910,944 and 80,311,437 shares issued and outstanding, respectively
899 
803 
Additional paid-in capital
2,371,925 
2,040,306 
Distributions in excess of net income available for common stockholders
(911,948)
(897,418)
Accumulated other comprehensive loss
(5,003)
(12,628)
Total Stockholders’ Equity
1,484,950 
1,160,140 
Noncontrolling interests in consolidated affiliates
21,178 
4,753 
Total Equity
1,506,128 
1,164,893 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Equity
3,896,865 
3,350,428 
Highwoods Realty Limited Partnership [Member]
 
 
Real estate assets, at cost:
 
 
Land
403,556 
345,614 
Buildings and tenant improvements
3,756,552 
3,172,107 
Development in process
56,495 
21,198 
Land held for development
112,079 
115,416 
Total real estate assets
4,328,682 
3,654,335 
Less-accumulated depreciation
(981,602)
(903,837)
Net real estate assets
3,347,080 
2,750,498 
Real estate and other assets, net, held for sale
16,316 
129,400 
Cash and cash equivalents
31,780 
13,867 
Restricted cash
15,246 
19,702 
Accounts receivable, net of allowance of $1,532 and $2,848, respectively
30,839 
23,073 
Mortgages and notes receivable, net of allowance of $340 and $182, respectively
26,291 
25,472 
Accrued straight-line rents receivable, net of allowance of $1,177 and $813, respectively
123,047 
111,233 
Investments in and advances to unconsolidated affiliates
34,838 
65,813 
Deferred financing and leasing costs, net of accumulated amortization of $90,241 and $75,863, respectively
227,826 
166,009 
Prepaid expenses and other assets, net of accumulated amortization of $12,835 and $12,318, respectively
42,628 
44,458 
Total Assets
3,895,891 
3,349,525 
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Liabilities, Redeemable Operating Partnership Units and Equity:
 
 
Mortgages and notes payable
2,050,061 
1,859,162 
Accounts payable, accrued expenses and other liabilities
208,467 
172,026 
Financing obligations
28,192 
29,358 
Total Liabilities
2,286,720 
2,060,546 
Commitments and contingencies
   
   
Redeemable Operating Partnership Units:
 
 
Common Units, 2,943,872 and 3,733,016 outstanding, respectively
103,948 
124,869 
Series A Preferred Units (liquidation preference $1,000 per unit), 29,077 units issued and outstanding
29,077 
29,077 
Total Redeemable Operating Partnership Units
133,025 
153,946 
Equity:
 
 
General partner Common Units, 924,460 and 836,356 outstanding, respectively
14,598 
11,427 
Limited partner Common Units, 88,577,675 and 79,066,272 outstanding, respectively
1,445,373 
1,131,481 
Accumulated other comprehensive loss
(5,003)
(12,628)
Noncontrolling interests in consolidated affiliates
21,178 
4,753 
Total Equity
1,476,146 
1,135,033 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity/Total Liabilities, Redeemable Operating Partnership Units and Equity
$ 3,895,891 
$ 3,349,525 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2013
Dec. 31, 2012
Assets:
 
 
Accounts receivable allowance
$ 1,532 
$ 2,848 
Mortgages and notes receivable allowance
340 
182 
Accrued straight-line rents receivable allowance
1,177 
813 
Deferred financing and leasing costs, accumulated amortization
90,241 
75,863 
Prepaid expenses and other assets, accumulated amortization
12,835 
12,318 
Equity:
 
 
Series A Preferred Stock, dividend rate percentage (in hundredths)
8.625% 
8.625% 
Series A Preferred Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Series A Preferred Stock, authorized shares (in shares)
50,000,000 
50,000,000 
Series A Preferred Stock, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Stock, shares issued (in shares)
29,077 
29,077 
Series A Preferred Stock, shares outstanding (in shares)
29,077 
29,077 
Common Stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common Stock, authorized shares (in shares)
200,000,000 
200,000,000 
Common Stock, shares issued (in shares)
89,910,944 
80,311,437 
Common Stock, shares outstanding (in shares)
89,910,944 
80,311,437 
Highwoods Realty Limited Partnership [Member]
 
 
Assets:
 
 
Accounts receivable allowance
1,532 
2,848 
Mortgages and notes receivable allowance
340 
182 
Accrued straight-line rents receivable allowance
1,177 
813 
Deferred financing and leasing costs, accumulated amortization
90,241 
75,863 
Prepaid expenses and other assets, accumulated amortization
$ 12,835 
$ 12,318 
Redeemable Operating Partnership Units: [Abstract]
 
 
Redeemable Common Units outstanding (in shares)
2,943,872 
3,733,016 
Series A Preferred Units, liquidation preference (in dollars per share)
$ 1,000 
$ 1,000 
Series A Preferred Units, issued (in shares)
29,077 
29,077 
Series A Preferred Units, outstanding (in shares)
29,077 
29,077 
Common Units: [Abstract]
 
 
General partners' capital account, units outstanding (in shares)
924,460 
836,356 
Limited partners' capital account, units outstanding (in shares)
88,577,675 
79,066,272 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Rental and other revenues
$ 147,294 
$ 123,418 
$ 415,961 
$ 368,029 
Operating expenses:
 
 
 
 
Rental property and other expenses
55,365 
45,904 
151,802 
134,102 
Depreciation and amortization
48,124 
37,041 
130,390 
110,656 
General and administrative
8,969 
9,725 
27,948 
28,298 
Total operating expenses
112,458 
92,670 
310,140 
273,056 
Interest expense:
 
 
 
 
Contractual
22,683 
22,910 
67,879 
70,309 
Amortization of deferred financing costs
963 
907 
2,860 
2,709 
Financing obligations
26 
(205)
87 
(357)
Total interest expense
23,672 
23,612 
70,826 
72,661 
Other income:
 
 
 
 
Interest and other income
1,582 
1,916 
4,982 
5,883 
Losses on debt extinguishment
(32)
0 
(196)
(973)
Total other income
1,550 
1,916 
4,786 
4,910 
Income from continuing operations before disposition of property and condominiums and acquisition of controlling interest in and equity in earnings/(losses) of unconsolidated affiliates
12,714 
9,052 
39,781 
27,222 
Gains/(losses) on disposition of property
34 
0 
(3)
0 
Gains on for-sale residential condominiums
0 
80 
0 
255 
Gain on acquisition of controlling interest in unconsolidated affiliate
7,451 
0 
7,451 
0 
Equity in earnings/(losses) of unconsolidated affiliates
(3,173)
1,324 
(1,824)
2,670 
Income from continuing operations
17,026 
10,456 
45,405 
30,147 
Discontinued operations:
 
 
 
 
Income from discontinued operations
1,096 
2,404 
3,843 
9,024 
Impairments of real estate assets
0 
0 
(2,194)
0 
Net gains on disposition of discontinued operations
37,946 
22,936 
52,353 
29,455 
Total discontinued operations
39,042 
25,340 
54,002 
38,479 
Net income
56,068 
35,796 
99,407 
68,626 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(1,889)
(1,653)
(3,713)
(3,166)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(203)
(159)
(593)
(566)
Dividends on Preferred Stock
(627)
(627)
(1,881)
(1,881)
Net income available for common stockholders
53,349 
33,357 
93,220 
63,013 
Earnings per Common Share – basic:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.18 
$ 0.12 
$ 0.49 
$ 0.35 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.43 
$ 0.32 
$ 0.62 
$ 0.49 
Net income available for common stockholders (in dollars per share)
$ 0.61 
$ 0.44 
$ 1.11 
$ 0.84 
Weighted average Common Shares outstanding - basic (in shares)
87,467 1 2
76,590 1 2
83,793 1 2
74,703 1 2
Earnings per Common Share - diluted:
 
 
 
 
Income from continuing operations available for common stockholders (in dollars per share)
$ 0.18 
$ 0.12 
$ 0.49 
$ 0.35 
Income from discontinued operations available for common stockholders (in dollars per share)
$ 0.43 
$ 0.31 
$ 0.62 
$ 0.49 
Net income available for common stockholders (in dollars per share)
$ 0.61 
$ 0.43 
$ 1.11 
$ 0.84 
Weighted average Common Shares outstanding - diluted (in shares)
90,769 1
80,495 1
87,443 1
78,568 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
15,693 
9,211 
41,247 
26,365 
Income from discontinued operations available for common stockholders
37,656 
24,146 
51,973 
36,648 
Net income available for common stockholders
53,349 
33,357 
93,220 
63,013 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Rental and other revenues
147,294 
123,418 
415,961 
368,029 
Operating expenses:
 
 
 
 
Rental property and other expenses
55,343 
45,830 
151,784 
133,907 
Depreciation and amortization
48,124 
37,041 
130,390 
110,656 
General and administrative
8,991 
9,799 
27,966 
28,493 
Total operating expenses
112,458 
92,670 
310,140 
273,056 
Interest expense:
 
 
 
 
Contractual
22,683 
22,910 
67,879 
70,309 
Amortization of deferred financing costs
963 
907 
2,860 
2,709 
Financing obligations
26 
(205)
87 
(357)
Total interest expense
23,672 
23,612 
70,826 
72,661 
Other income:
 
 
 
 
Interest and other income
1,582 
1,916 
4,982 
5,883 
Losses on debt extinguishment
(32)
0 
(196)
(973)
Total other income
1,550 
1,916 
4,786 
4,910 
Income from continuing operations before disposition of property and condominiums and acquisition of controlling interest in and equity in earnings/(losses) of unconsolidated affiliates
12,714 
9,052 
39,781 
27,222 
Gains/(losses) on disposition of property
34 
0 
(3)
0 
Gains on for-sale residential condominiums
0 
80 
0 
255 
Gain on acquisition of controlling interest in unconsolidated affiliate
7,451 
0 
7,451 
0 
Equity in earnings/(losses) of unconsolidated affiliates
(3,174)
1,328 
(1,875)
2,679 
Income from continuing operations
17,025 
10,460 
45,354 
30,156 
Discontinued operations:
 
 
 
 
Income from discontinued operations
1,096 
2,404 
3,843 
9,024 
Impairments of real estate assets
0 
0 
(2,194)
0 
Net gains on disposition of discontinued operations
37,946 
22,936 
52,353 
29,455 
Total discontinued operations
39,042 
25,340 
54,002 
38,479 
Net income
56,067 
35,800 
99,356 
68,635 
Net (income) attributable to noncontrolling interests in consolidated affiliates
(203)
(159)
(593)
(566)
Distributions on Preferred Units
(627)
(627)
(1,881)
(1,881)
Net income available for common unitholders
55,237 
35,014 
96,882 
66,188 
Earnings per Common Unit - basic:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.18 
$ 0.12 
$ 0.49 
$ 0.36 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.43 
$ 0.32 
$ 0.62 
$ 0.49 
Net income available for common unitholders (in dollars per share)
$ 0.61 
$ 0.44 
$ 1.11 
$ 0.85 
Weighted average Common Units outstanding - basic (in shares)
90,259 2 3
79,949 2 3
86,920 2 3
78,032 2 3
Earnings per Common Unit - diluted:
 
 
 
 
Income from continuing operations available for common unitholders (in dollars per share)
$ 0.18 
$ 0.12 
$ 0.49 
$ 0.36 
Income from discontinued operations available for common unitholders (in dollars per share)
$ 0.43 
$ 0.32 
$ 0.62 
$ 0.49 
Net income available for common unitholders (in dollars per share)
$ 0.61 
$ 0.44 
$ 1.11 
$ 0.85 
Weighted average Common Units outstanding - diluted (in shares)
90,360 3
80,086 3
87,034 3
78,159 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
16,195 
9,674 
42,880 
27,709 
Income from discontinued operations available for common unitholders
39,042 
25,340 
54,002 
38,479 
Net income available for common unitholders
$ 55,237 
$ 35,014 
$ 96,882 
$ 66,188 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Comprehensive income:
 
 
 
 
Net income
$ 56,068 
$ 35,796 
$ 99,407 
$ 68,626 
Other comprehensive income:
 
 
 
 
Unrealized gains/(losses) on tax increment financing bond
97 
(101)
396 
482 
Unrealized gains/(losses) on cash flow hedges
(1,798)
(3,337)
4,801 
(10,424)
Amortization of cash flow hedges
840 
791 
2,428 
2,250 
Total other comprehensive income/(loss)
(861)
(2,647)
7,625 
(7,692)
Total comprehensive income
55,207 
33,149 
107,032 
60,934 
Less-comprehensive (income) attributable to noncontrolling interests
(2,092)
(1,812)
(4,306)
(3,732)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
53,115 
31,337 
102,726 
57,202 
Highwoods Realty Limited Partnership [Member]
 
 
 
 
Comprehensive income:
 
 
 
 
Net income
56,067 
35,800 
99,356 
68,635 
Other comprehensive income:
 
 
 
 
Unrealized gains/(losses) on tax increment financing bond
97 
(101)
396 
482 
Unrealized gains/(losses) on cash flow hedges
(1,798)
(3,337)
4,801 
(10,424)
Amortization of cash flow hedges
840 
791 
2,428 
2,250 
Total other comprehensive income/(loss)
(861)
(2,647)
7,625 
(7,692)
Total comprehensive income
55,206 
33,153 
106,981 
60,943 
Less-comprehensive (income) attributable to noncontrolling interests
(203)
(159)
(593)
(566)
Comprehensive income attributable to common stockholders/Comprehensive income attributable to common unitholders
$ 55,003 
$ 32,994 
$ 106,388 
$ 60,377 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Highwoods Realty Limited Partnership [Member]
Common Stock [Member]
Series A Cumulative Redeemable Preferred Shares [Member]
General Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Limited Partner Common Units [Member]
Highwoods Realty Limited Partnership [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Highwoods Realty Limited Partnership [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Noncontrolling Interests in Consolidated Affiliates [Member]
Highwoods Realty Limited Partnership [Member]
Distributions in Excess of Net Income Available for Common Stockholders [Member]
Balance at Dec. 31, 2011
$ 986,859 
$ 956,674 
$ 726 
$ 29,077 
$ 9,575 
$ 948,187 
$ 1,803,997 
$ (5,734)
$ (5,734)
$ 4,646 
$ 4,646 
$ (845,853)
Balance (in shares) at Dec. 31, 2011
 
 
72,647,697 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of tax withholdings
 
188,973 
 
 
1,890 
187,083 
 
 
0 
 
0 
 
Distributions paid on Common Units
 
(99,334)
 
 
(994)
(98,340)
 
 
0 
 
0 
 
Distributions paid on Preferred Units
 
(1,881)
 
 
(19)
(1,862)
 
 
0 
 
0 
 
Issuances of Common Stock - Shares
 
 
5,701,974 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of tax withholdings
186,674 
 
57 
0 
 
 
186,617 
0 
 
0 
 
0 
Conversions of Common Units to Common Stock - Shares
 
 
21,366 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
731 
 
0 
0 
 
 
731 
0 
 
0 
 
0 
Dividends on Common Stock
(95,122)
 
0 
0 
 
 
0 
0 
 
0 
 
(95,122)
Dividends on Preferred Stock
(1,881)
 
0 
0 
 
 
0 
0 
 
0 
 
(1,881)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(12,485)
 
0 
0 
 
 
(12,485)
0 
 
0 
 
0 
Distributions to noncontrolling interests in consolidated affiliates
(663)
(663)
0 
0 
0 
0 
0 
0 
0 
(663)
(663)
0 
Issuances of restricted stock -shares
 
 
158,885 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
0 
 
0 
0 
 
 
0 
0 
 
0 
 
0 
Share-based compensation expense, net of forfeitures
6,464 
6,464 
2 
0 
65 
6,399 
6,462 
0 
0 
0 
0 
0 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
(12,814)
 
 
(128)
(12,686)
 
 
0 
 
0 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,166)
 
0 
0 
 
 
0 
0 
 
0 
 
(3,166)
Net (income) attributable to noncontrolling interests in consolidated affiliates
0 
0 
0 
0 
(6)
(560)
0 
0 
0 
566 
566 
(566)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
68,626 
68,635 
0 
0 
686 
67,949 
0 
0 
0 
0 
0 
68,626 
Other comprehensive income/(loss)
(7,692)
(7,692)
0 
0 
0 
0 
0 
(7,692)
(7,692)
0 
0 
0 
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 
 
 
 
 
 
 
 
 
 
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 at Dec. 31, 2012
1,164,893 
1,135,033 
803 
29,077 
11,427 
1,131,481 
2,040,306 
(12,628)
(12,628)
4,753 
4,753 
(897,418)
Balance (in shares) at Dec. 31, 2012
80,311,437 
 
80,311,437 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of Common Units, net of tax withholdings
 
305,601 
 
 
3,056 
302,545 
 
 
0 
 
0 
 
Distributions paid on Common Units
 
(111,645)
 
 
(1,117)
(110,528)
 
 
0 
 
0 
 
Distributions paid on Preferred Units
 
(1,881)
 
 
(19)
(1,862)
 
 
0 
 
0 
 
Issuances of Common Stock - Shares
 
 
8,660,546 
 
 
 
 
 
 
 
 
 
Issuances of Common Stock, net of tax withholdings
305,601 
 
87 
0 
 
 
305,514 
0 
 
0 
 
0 
Conversions of Common Units to Common Stock - Shares
 
 
789,144 
 
 
 
 
 
 
 
 
 
Conversions of Common Units to Common Stock
28,788 
 
0 
0 
 
 
28,788 
0 
 
0 
 
0 
Dividends on Common Stock
(107,750)
 
0 
0 
 
 
0 
0 
 
0 
 
(107,750)
Dividends on Preferred Stock
(1,881)
 
0 
0 
 
 
0 
0 
 
0 
 
(1,881)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
(8,570)
 
0 
0 
 
 
(8,570)
0 
 
0 
 
0 
Distributions to noncontrolling interests in consolidated affiliates
(408)
(408)
0 
0 
0 
0 
0 
0 
0 
(408)
(408)
0 
Contributions from noncontrolling interests in consolidated affiliates
16,240 
16,240 
0 
0 
0 
0 
0 
0 
0 
16,240 
16,240 
0 
Issuances of restricted stock -shares
 
 
151,630 
 
 
 
 
 
 
 
 
 
Issuances of restricted stock
0 
 
0 
0 
 
 
0 
0 
 
0 
 
0 
Share-based compensation expense, net of forfeitures - Shares
 
 
(1,813)
 
 
 
 
 
 
 
 
 
Share-based compensation expense, net of forfeitures
5,896 
5,896 
9 
0 
59 
5,837 
5,887 
0 
0 
0 
0 
0 
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
 
20,329 
 
 
204 
20,125 
 
 
0 
 
0 
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
(3,713)
 
0 
0 
 
 
0 
0 
 
0 
 
(3,713)
Net (income) attributable to noncontrolling interests in consolidated affiliates
0 
0 
0 
0 
(6)
(587)
0 
0 
0 
593 
593 
(593)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
99,407 
99,356 
0 
0 
994 
98,362 
0 
0 
0 
0 
0 
99,407 
Other comprehensive income/(loss)
7,625 
7,625 
0 
0 
0 
0 
0 
7,625 
7,625 
0 
0 
0 
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 
 
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 (in shares) at Sep. 30, 2013
89,910,944 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Operating activities:
 
 
Net income
$ 99,407 
$ 68,626 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
133,556 
117,764 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
258 
358 
Share-based compensation expense
5,896 
6,464 
Allowance for losses on accounts and accrued straight-line rents receivable
1,029 
1,235 
Amortization of deferred financing costs
2,860 
2,709 
Amortization of cash flow hedges
2,428 
2,250 
Amortization of mortgages and notes payable fair value adjustments
(1,015)
0 
Impairments of real estate assets
2,194 
0 
Losses on debt extinguishment
196 
973 
Net gains on disposition of property
(52,350)
(29,455)
Gains on for-sale residential condominiums
0 
(255)
Gain on acquisition of controlling interest in unconsolidated affiliate
(7,451)
0 
Equity in (earnings)/losses of unconsolidated affiliates
1,824 
(2,670)
Changes in financing obligations
(591)
(1,010)
Distributions of earnings from unconsolidated affiliates
3,129 
3,249 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(508)
5,310 
Prepaid expenses and other assets
(2,188)
(3,258)
Accrued straight-line rents receivable
(12,368)
(13,609)
Accounts payable, accrued expenses and other liabilities
10,206 
(20,663)
Net cash provided by operating activities
186,512 
138,018 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(418,796)
(158,200)
Investment in acquired controlling interest in unconsolidated affiliate
(32,818)
0 
Investments in development in process
(16,634)
(5,392)
Investments in tenant improvements and deferred leasing costs
(77,456)
(61,821)
Investments in building improvements
(38,702)
(27,229)
Net proceeds from disposition of real estate assets
161,970 
152,456 
Net proceeds from disposition of for-sale residential condominiums
0 
3,768 
Distributions of capital from unconsolidated affiliates
16,671 
1,035 
Investments in and repayments of mortgages and notes receivable
(864)
1,657 
Investments in and advances/repayments to/from unconsolidated affiliates
(429)
(3,928)
Changes in restricted cash and other investing activities
5,484 
2,904 
Net cash (used in) investing activities
(401,574)
(94,750)
Financing activities:
 
 
Dividends on Common Stock
(107,750)
(95,122)
Dividends on Preferred Stock
(1,881)
(1,881)
Distributions to noncontrolling interests in the Operating Partnership
(4,416)
(4,733)
Distributions to noncontrolling interests in consolidated affiliates
(408)
(663)
Proceeds from the issuance of Common Stock
315,818 
191,667 
Costs paid for the issuance of Common Stock
(7,678)
(2,745)
Repurchase of shares related to tax withholdings
(2,539)
(2,248)
Borrowings on revolving credit facility
695,300 
219,800 
Repayments of revolving credit facility
(511,900)
(492,800)
Borrowings on mortgages and notes payable
0 
225,000 
Repayments of mortgages and notes payable
(157,001)
(77,264)
Payments on financing obligations
(575)
(1,316)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
0 
Additions to deferred financing costs and other financing activities
(242)
(3,065)
Net cash provided by/(used in) financing activities
232,968 
(45,370)
Net increase/(decrease) in cash and cash equivalents
17,906 
(2,102)
Cash and cash equivalents at beginning of the period
13,783 
11,188 
Cash and cash equivalents at end of the period
31,689 
9,086 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
67,786 
72,793 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains/(losses) on cash flow hedges
4,801 
(10,424)
Conversions of Common Units to Common Stock
28,788 
731 
Changes in accrued capital expenditures
12,778 
1,829 
Write-off of fully depreciated real estate assets
24,498 
36,918 
Write-off of fully amortized deferred financing and leasing costs
17,500 
14,189 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
558 
310 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
8,570 
12,485 
Unrealized gains on tax increment financing bond
396 
482 
Assumption of mortgages and notes payable related to acquisition activities
165,515 
0 
Reduction of advances to unconsolidated affiliates related to acquisition activities
0 
26,000 
Issuances of Common Units to acquire real estate assets
0 
2,299 
Reclass of aggregate differences between historical cost basis and the basis reflected at the joint venture level for assets acquired
8,206 
0 
Highwoods Realty Limited Partnership [Member]
 
 
Operating activities:
 
 
Net income
99,356 
68,635 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
133,556 
117,764 
Amortization of lease incentives and acquisition-related intangible assets and liabilities
258 
358 
Share-based compensation expense
5,896 
6,464 
Allowance for losses on accounts and accrued straight-line rents receivable
1,029 
1,235 
Amortization of deferred financing costs
2,860 
2,709 
Amortization of cash flow hedges
2,428 
2,250 
Amortization of mortgages and notes payable fair value adjustments
(1,015)
0 
Impairments of real estate assets
2,194 
0 
Losses on debt extinguishment
196 
973 
Net gains on disposition of property
(52,350)
(29,455)
Gains on for-sale residential condominiums
0 
(255)
Gain on acquisition of controlling interest in unconsolidated affiliate
(7,451)
0 
Equity in (earnings)/losses of unconsolidated affiliates
1,875 
(2,679)
Changes in financing obligations
(591)
(1,010)
Distributions of earnings from unconsolidated affiliates
3,109 
3,230 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(508)
5,310 
Prepaid expenses and other assets
(2,141)
(3,216)
Accrued straight-line rents receivable
(12,368)
(13,609)
Accounts payable, accrued expenses and other liabilities
10,257 
(20,753)
Net cash provided by operating activities
186,590 
137,951 
Investing activities:
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(418,796)
(158,200)
Investment in acquired controlling interest in unconsolidated affiliate
(32,818)
0 
Investments in development in process
(16,634)
(5,392)
Investments in tenant improvements and deferred leasing costs
(77,456)
(61,821)
Investments in building improvements
(38,702)
(27,229)
Net proceeds from disposition of real estate assets
161,970 
152,456 
Net proceeds from disposition of for-sale residential condominiums
0 
3,768 
Distributions of capital from unconsolidated affiliates
16,671 
1,035 
Investments in and repayments of mortgages and notes receivable
(864)
1,657 
Investments in and advances/repayments to/from unconsolidated affiliates
(429)
(3,928)
Changes in restricted cash and other investing activities
5,484 
2,904 
Net cash (used in) investing activities
(401,574)
(94,750)
Financing activities:
 
 
Distributions on Common Units
(111,645)
(99,334)
Distributions on Preferred Units
(1,881)
(1,881)
Distributions to noncontrolling interests in consolidated affiliates
(408)
(663)
Proceeds from the issuance of Common Units
315,818 
191,667 
Costs paid for the issuance of Common Units
(7,678)
(2,745)
Repurchase of units related to tax withholdings
(2,539)
(2,248)
Borrowings on revolving credit facility
695,300 
219,800 
Repayments of revolving credit facility
(511,900)
(492,800)
Borrowings on mortgages and notes payable
0 
225,000 
Repayments of mortgages and notes payable
(157,001)
(77,264)
Payments on financing obligations
(575)
(1,316)
Contributions from noncontrolling interests in consolidated affiliates
16,240 
0 
Additions to deferred financing costs and other financing activities
(834)
(3,394)
Net cash provided by/(used in) financing activities
232,897 
(45,178)
Net increase/(decrease) in cash and cash equivalents
17,913 
(1,977)
Cash and cash equivalents at beginning of the period
13,867 
11,151 
Cash and cash equivalents at end of the period
31,780 
9,174 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest, net of amounts capitalized
67,786 
72,793 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gains/(losses) on cash flow hedges
4,801 
(10,424)
Changes in accrued capital expenditures
12,778 
1,829 
Write-off of fully depreciated real estate assets
24,498 
36,918 
Write-off of fully amortized deferred financing and leasing costs
17,500 
14,189 
Unrealized gains on marketable securities of non-qualified deferred compensation plan
558 
310 
Adjustment of Redeemable Common Units to fair value
(20,921)
10,187 
Unrealized gains on tax increment financing bond
396 
482 
Assumption of mortgages and notes payable related to acquisition activities
165,515 
0 
Reduction of advances to unconsolidated affiliates related to acquisition activities
0 
26,000 
Issuances of Common Units to acquire real estate assets
0 
2,299 
Reclass of aggregate differences between historical cost basis and the basis reflected at the joint venture level for assets acquired
$ 8,206 
$ 0 
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc. (the “Company”) is a fully-integrated 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, 2013, the Company and/or the Operating Partnership wholly owned: 282 in-service office, industrial and retail properties, comprising 30.1 million square feet; 592 acres of undeveloped land suitable for future development, of which 496 acres are considered core assets; and four office development properties. In addition, we owned interests (50.0% or less) in 23 in-service office properties, a rental residential development property and 11 acres of undeveloped land suitable for future development, which includes a 12.5% interest in a 261,000 square foot office property directly owned by the Company (not included in the Operating Partnership’s Consolidated Financial Statements).

The Company is the sole general partner of the Operating Partnership. At September 30, 2013, the Company owned all of the Preferred Units and 89.5 million, or 96.8%, 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, 2013, the Company redeemed 789,144 Common Units for a like number of shares of Common Stock.

Common Stock Offerings
 
During the three and nine months ended September 30, 2013, the Company issued 904,809 and 3,961,190 shares of Common Stock, respectively, under its equity sales agreements at an average gross sales price of $35.81 and $36.97 per share, respectively, and received net proceeds, after sales commissions, of $31.9 million and $144.2 million, respectively. During the third quarter of 2013, the Company issued 4,312,500 shares of Common Stock in a public offering and received net proceeds of $150.9 million. As a result of these Common Stock offerings and the redemptions discussed above, the percentage of Common Units owned by the Company increased from 95.6% at December 31, 2012 to 96.8% at September 30, 2013.

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 Sheets at December 31, 2012 were retrospectively revised from previously reported amounts to reflect in real estate and other assets, net, held for sale those properties classified as held for sale during the three months ended September 30, 2013. Our Consolidated Statements of Income for the three and nine months ended September 30, 2012 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, 2013 and December 31, 2012, we had involvement with, but are not the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3).


1.    Description of Business and Significant Accounting Policies – Continued
 
The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have omitted certain notes and other information from the interim Consolidated Financial Statements presented in this Quarterly Report as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2012 Annual Report on Form 10-K.

Use of Estimates
 
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.
Real Estate Assets
Real Estate Assets
Real Estate Assets
 
Acquisitions
 
During the third quarter of 2013, we acquired our joint venture partner's 60.0% interest in the HIW-KC Orlando, LLC joint venture, which owns five office properties in Orlando, FL encompassing 1.3 million 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 matures in July 2014. 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 cost basis in 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 square feet for a net purchase price of $150.1 million; and

•
our DLF II joint venture partner's 57.0% interest in two office properties in Atlanta, GA encompassing 505,000 square feet for a net purchase price of $44.5 million, including the assumption of secured debt recorded at fair value of $37.6 million, with an effective interest rate of 3.34%. This debt matures in April 2015.
 
During the second quarter of 2013, we acquired an office property in Atlanta, GA encompassing 553,000 square feet for a purchase price of $140.1 million.

During the first quarter of 2013, we acquired:

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

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

•
five acres of development land in Memphis, TN for a purchase price of $4.8 million.
 
During the three and nine months ended September 30, 2013, we expensed $0.8 million and $1.7 million, respectively, of acquisition costs (included in general and administrative expenses) related to these acquisitions. The assets acquired and liabilities assumed were recorded at fair value as determined by management based on information available at the acquisition date and on current assumptions as to future operations.
 

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 third quarter 2013 acquisitions in Orlando, FL and Nashville, TN and the second quarter 2013 acquisition in Atlanta, GA 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 rental and other 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 Orlando, FL, Nashville, TN and Atlanta, GA acquisitions discussed in the preceding paragraph had been completed as of January 1, 2012:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Pro forma rental and other revenues
$
152,221

 
$
162,422

 
$
451,317

 
$
410,027

Pro forma net income
$
49,818

 
$
23,952

 
$
90,064

 
$
56,782

Pro forma earnings per share - basic
$
0.54

 
$
0.28

 
$
1.00

 
$
0.68

Pro forma earnings per share - diluted
$
0.54

 
$
0.29

 
$
1.00

 
$
0.69


 
The third quarter 2013 acquisitions in Orlando, FL and Nashville, TN and the second quarter 2013 acquisition in Atlanta, GA 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.
 
During the third quarter of 2012, we acquired a 492,000 square foot office property in Atlanta, GA for $144.9 million. The following table sets forth a summary of the fair value of the major assets acquired and liabilities assumed in this acquisition:
 
 
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


 
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 the 492,000 square foot office building in Atlanta, GA was acquired on January 1, 2011:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2012
Pro forma rental and other revenues
$
127,836

 
$
381,070

Pro forma net income
$
35,765

 
$
68,526

Pro forma earnings per share - basic
$
0.43

 
$
0.84

Pro forma earnings per share - diluted
$
0.43

 
$
0.84



2.    Real Estate Assets - Continued

Dispositions

During the third quarter of 2013, we sold:

•
an office property in Tampa, FL for a sale price of $11.6 million and recorded a gain on disposition of discontinued operations of $1.2 million; and

•
sixteen industrial properties and a land parcel in a single transaction in Atlanta, GA for a sale price of $91.6 million (before $0.3 million in closing credits to buyer for unfunded tenant improvements and after $0.3 million in closing credits to buyer for free rent). We recorded gains on disposition of discontinued operations of $36.7 million related to the industrial properties and a gain on disposition of property of less than $0.1 million related to the land parcel.

During the second quarter of 2013, we sold:

•
five industrial properties in Atlanta, GA for a sale price of $4.5 million (after $0.1 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of less than $0.1 million;

•
six industrial properties and a land parcel in a single transaction in Atlanta, GA for a sale price of $38.7 million (before $1.8 million in closing credits to buyer for unfunded tenant improvements and after $1.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of $13.2 million; and

•
two industrial properties in Atlanta, GA for a sale price of $4.8 million and recorded a loss on disposition of discontinued operations of less than $0.1 million.

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

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

Impairments

During the second quarter of 2013, we recorded impairments of real estate assets of $1.1 million on four properties in a single office park in Winston-Salem, NC. This office park was subsequently classified as discontinued operations in the third quarter of 2013.

During the first quarter of 2013, we recorded impairments of real estate assets of $0.4 million on two industrial properties in Atlanta, GA and recorded impairments of real estate assets held for sale of $0.7 million on five industrial properties in Atlanta, GA. These properties were subsequently sold in the second quarter of 2013 and are classified as discontinued operations.

These impairments were due to a change in the assumed timing of future dispositions and leasing assumptions, which reduced the future expected cash flows from the impaired properties.
Mortgages and Notes Receivable
Mortgages and Notes Receivable
Mortgages and Notes Receivable

The following table sets forth our mortgages and notes receivable:

 
September 30,
2013
 
December 31,
2012
Seller financing (first mortgages)
$
16,454

 
$
15,853

Less allowance
—

 
—

 
16,454

 
15,853

Mortgage receivable
9,207

 
8,648

Less allowance
—

 
—

 
9,207

 
8,648

Promissory notes
970

 
1,153

Less allowance
(340
)
 
(182
)
 
630

 
971

Mortgages and notes receivable, net
$
26,291

 
$
25,472



During 2010, we provided seller financing in conjunction with two disposition transactions. The seller financing is evidenced by first mortgages secured by the assignment of rents and the underlying real estate assets.

During 2012, we provided secured acquisition financing to a third party. We also agreed to loan such third party $8.4 million on a secured basis to fund future infrastructure development. As of September 30, 2013, $0.2 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, 2013, our mortgages and notes receivable were not in default and there were no other indicators of impairment.

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Beginning notes receivable allowance
$
376

 
$
118

 
$
182

 
$
61

Recoveries/write-offs/other
(36
)
 
93

 
158

 
150

Total notes receivable allowance
$
340

 
$
211

 
$
340

 
$
211

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

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financial policies.

The following table sets forth combined summarized financial information for the Company's unconsolidated affiliates:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Income Statements: (1)
 
 
 
 
 
 
 
Rental and other revenues
$
16,911

 
$
25,051

 
$
64,362

 
$
75,920

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
8,733

 
11,624

 
31,681

 
35,706

Depreciation and amortization
5,010

 
6,355

 
17,383

 
18,839

Impairments of real estate assets
15,287

 
—

 
20,077

 
7,180

Interest expense
3,141

 
4,980

 
12,569

 
16,077

Total expenses
32,171

 
22,959

 
81,710

 
77,802

Income/(loss) before disposition of properties
(15,260
)
 
2,092

 
(17,348
)
 
(1,882
)
Gains on disposition of properties
8,256

 
—

 
8,323

 
6,275

Net income/(loss)
$
(7,004
)
 
$
2,092

 
$
(9,025
)
 
$
4,393

The Company's share of:
 
 
 
 
 
 
 
Depreciation and amortization
$
1,628

 
$
2,028

 
$
5,735

 
$
5,801

Impairments of real estate assets
$
3,487

 
$
—

 
$
4,507

 
$
1,002

Interest expense
$
1,099

 
$
1,775

 
$
4,583

 
$
5,598

Gains on disposition of properties
$
—

 
$
—

 
$
431

 
$
—

Net income/(loss)
$
(3,410
)
 
$
914

 
$
(2,835
)
 
$
1,252

 
 
 
 
 
 
 
 
The Company's share of net income/(loss)
$
(3,410
)
 
$
914

 
$
(2,835
)
 
$
1,252

Adjustments for management and other fees
237

 
410

 
1,011

 
1,418

Equity in earnings/(losses) of unconsolidated affiliates
$
(3,173
)
 
$
1,324

 
$
(1,824
)
 
$
2,670


__________
(1)
For the three and nine months ended September 30, 2013, as a result of acquiring our joint venture partner's 60.0% interest in the third quarter of 2013, we consolidated a joint venture previously accounted for under the equity method of accounting.


4.    Investments in and Advances to Affiliates - Continued

The following table sets forth combined summarized financial information for the Operating Partnership's unconsolidated affiliates:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Income Statements: (1)
 
 
 
 
 
 
 
Rental and other revenues
$
15,872

 
$
24,062

 
$
61,243

 
$
72,916

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
8,126

 
11,024

 
29,821

 
33,901

Depreciation and amortization
4,699

 
6,044

 
16,449

 
17,905

Impairments of real estate assets
15,287

 
—

 
20,077

 
7,180

Interest expense
2,976

 
4,817

 
12,086

 
15,583

Total expenses
31,088

 
21,885

 
78,433

 
74,569

Income/(loss) before disposition of properties
(15,216
)
 
2,177

 
(17,190
)
 
(1,653
)
Gains on disposition of properties
8,256

 
—

 
8,323

 
6,275

Net income/(loss)
$
(6,960
)
 
$
2,177

 
$
(8,867
)
 
$
4,622

The Operating Partnership's share of:
 
 
 
 
 
 
 
Depreciation and amortization
$
1,589

 
$
1,989

 
$
5,618

 
$
5,684

Impairments of real estate assets
$
3,487

 
$
—

 
$
4,507

 
$
1,002

Interest expense
$
1,079

 
$
1,754

 
$
4,523

 
$
5,536

Gains on disposition of properties
$
—

 
$
—

 
$
431

 
$
—

Net income/(loss)
$
(3,405
)
 
$
925

 
$
(2,815
)
 
$
1,281

 
 
 
 
 
 
 
 
The Operating Partnership's share of net income/(loss)
$
(3,405
)
 
$
925

 
$
(2,815
)
 
$
1,281

Adjustments for management and other fees
231

 
403

 
940

 
1,398

Equity in earnings/(losses) of unconsolidated affiliates
$
(3,174
)
 
$
1,328

 
$
(1,875
)
 
$
2,679


__________
(1)
For the three and nine months ended September 30, 2013, as a result of acquiring our joint venture partner's 60.0% interest in the third quarter of 2013, we consolidated a joint venture previously accounted for under the equity method of accounting.



4.    Investments in and Advances to Affiliates - Continued

Highwoods DLF 98/29, LLC ("DLF I")

During the second quarter of 2013, DLF I sold an office property to an unrelated third party for a sale price of $5.9 million (after $0.1 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of less than $0.1 million. We recorded less than $0.1 million as our share of this gain through equity in earnings of unconsolidated affiliates.

During the third quarter of 2013, DLF I recorded impairment of real estate assets of $15.3 million on an office property in Orlando, FL. We recorded $3.5 million as our share of this impairment charge through equity in earnings of unconsolidated affiliates.
 
During the first quarter of 2013, DLF I recorded impairments of real estate assets of $4.8 million on an office property in Atlanta, GA and an office property in Charlotte, NC.  We recorded $1.0 million as our share of this impairment charge through equity in earnings of unconsolidated affiliates. 
 
These impairments were due to a change in the assumed timing of future dispositions and/or leasing assumptions, which reduced the future expected cash flows from the impaired properties.
 
Highwoods DLF 97/26 DLF 99/32, LP ("DLF II")
 
See Note 2 for a description of our acquisition of two office properties in Atlanta, GA from DLF II during the third quarter of 2013.
 
During the first quarter of 2013, DLF II sold an office property to unrelated third parties for a sale price of $10.1 million (after $0.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of property of less than $0.1 million. As our cost basis is different from the basis reflected at the joint venture level, we recorded $0.4 million of gain through equity in earnings of unconsolidated affiliates.
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,
2013
 
December 31,
2012
Assets:
 
 
 
Deferred financing costs
$
19,506

 
$
21,759

Less accumulated amortization
(8,632
)
 
(7,862
)
 
10,874

 
13,897

Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)
298,561

 
220,113

Less accumulated amortization
(81,609
)
 
(68,001
)
 
216,952

 
152,112

Deferred financing and leasing costs, net
$
227,826

 
$
166,009