hiw3q10.htm





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010
______________


HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

 
Maryland
001-13100
56-1871668
 
 
(State or other jurisdiction
of incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification Number)
 

HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

 
North Carolina
000-21731
56-1869557
 
 
(State or other jurisdiction
of incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification Number)
 

3100 Smoketree Court, Suite 600
Raleigh, NC 27604
(Address of principal executive offices) (Zip Code)
 
919-872-4924
(Registrants’ telephone number, including area code)
______________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Highwoods Properties, Inc.  Yes  S    No £            Highwoods Realty Limited Partnership  Yes  S    No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Highwoods Properties, Inc.  Yes  S    No £            Highwoods Realty Limited Partnership  Yes  £    No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of ‘large accelerated filer,’ ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Securities Exchange Act.
 
Highwoods Properties, Inc.
Large accelerated filer S    Accelerated filer £      Non-accelerated filer £      Smaller reporting company £
 
Highwoods Realty Limited Partnership
Large accelerated filer £    Accelerated filer £      Non-accelerated filer S      Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
 
Highwoods Properties, Inc.  Yes  £    No S            Highwoods Realty Limited Partnership  Yes  £    No S

The Company had 71,658,232 shares of Common Stock outstanding as of October 21, 2010.



 
 

 


HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2010

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
 
   
   
HIGHWOODS PROPERTIES, INC.:
 
   
   
   
   
   
   
HIGHWOODS REALTY LIMITED PARTNERSHIP:
 
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
PART II – OTHER INFORMATION
 
   


 
1




PART I - FINANCIAL INFORMATION

 
ITEM 1.  FINANCIAL STATEMENTS

We refer to Highwoods Properties, Inc. as the “Company,” Highwoods Realty Limited Partnership as the “Operating Partnership,” the Company’s common stock as “Common Stock” or “Common Shares,” the Company’s preferred stock as “Preferred Stock” or “Preferred Shares,” the Operating Partnership’s common partnership interests as “Common Units,” the Operating Partnership’s preferred partnership interests as “Preferred Units” and in-service properties (excluding rental residential units) to which the Company and/or the Operating Partnership have title and 100.0% ownership rights as the “Wholly Owned Properties.” References to “we” and “our” mean the Company and the Operating Partnership, collectively, unless the context indicates otherwise.

The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

Certain information contained herein is presented as of October 21, 2010, the latest practicable date prior to the filing of this Quarterly Report.

 
2



HIGHWOODS PROPERTIES, INC.
 
Consolidated Balance Sheets
 
(Unaudited and in thousands, except share and per share amounts)
 
   
September 30,
2010
 
December 31,
2009
 
Assets:
           
Real estate assets, at cost:
             
Land
 
$
345,531
 
$
350,537
 
Buildings and tenant improvements
   
2,900,749
   
2,880,632
 
Land held for development
   
104,010
   
104,148
 
     
3,350,290
   
3,335,317
 
Less-accumulated depreciation
   
(818,347
)
 
(781,073
)
Net real estate assets
   
2,531,943
   
2,554,244
 
For-sale residential condominiums
   
9,576
   
12,933
 
Real estate and other assets, net, held for sale
   
1,249
   
5,031
 
Cash and cash equivalents
   
20,969
   
23,699
 
Restricted cash
   
4,757
   
6,841
 
Accounts receivable, net of allowance of $3,157 and $2,810, respectively
   
22,426
   
21,069
 
Mortgages and notes receivable, net of allowance of $950 and $698, respectively
   
19,942
   
3,143
 
Accrued straight-line rents receivable, net of allowance of $2,457 and $2,443, respectively
   
90,001
   
82,600
 
Investment in unconsolidated affiliates
   
62,456
   
66,077
 
Deferred financing and leasing costs, net of accumulated amortization of $55,143 and $52,129, respectively
   
75,069
   
73,517
 
Prepaid expenses and other assets
   
39,796
   
37,947
 
Total Assets
 
$
2,878,184
 
$
2,887,101
 
               
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
             
Mortgages and notes payable
 
$
1,501,624
 
$
1,469,155
 
Accounts payable, accrued expenses and other liabilities
   
112,738
   
117,328
 
Financing obligations
   
33,625
   
37,706
 
Total Liabilities
   
1,647,987
   
1,624,189
 
Commitments and contingencies
             
Noncontrolling interests in the Operating Partnership
   
123,293
   
129,769
 
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), 29,092 shares issued and outstanding
   
29,092
   
29,092
 
8.000% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share), 2,100,000 shares issued and outstanding
   
52,500
   
52,500
 
Common Stock, $.01 par value, 200,000,000 authorized shares;
             
71,656,232 and 71,285,303 shares issued and outstanding, respectively
   
717
   
713
 
Additional paid-in capital
   
1,762,968
   
1,751,398
 
Distributions in excess of net income available for common stockholders
   
(740,356
)
 
(701,932
)
Accumulated other comprehensive loss
   
(2,975
)
 
(3,811
)
Total Stockholders’ Equity
   
1,101,946
   
1,127,960
 
Noncontrolling interests in consolidated affiliates
   
4,958
   
5,183
 
Total Equity
   
1,106,904
   
1,133,143
 
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
 
$
2,878,184
 
$
2,887,101
 

See accompanying notes to consolidated financial statements.

 
3



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Income
 
(Unaudited and in thousands, except per share amounts)

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Rental and other revenues                                                                               
 
$
116,063
 
$
113,170
 
$
345,456
 
$
337,445
 
Operating expenses:
                         
Rental property and other expenses
   
43,505
   
42,564
   
123,544
   
121,743
 
Depreciation and amortization
   
34,281
   
32,367
   
100,363
   
97,590
 
General and administrative
   
8,882
   
9,485
   
24,369
   
27,286
 
Total operating expenses
   
86,668
   
84,416
   
248,276
   
246,619
 
Interest expense:
                         
Contractual
   
22,020
   
20,001
   
65,527
   
60,525
 
Amortization of deferred financing costs
   
858
   
627
   
2,528
   
1,978
 
Financing obligations
   
460
   
706
   
1,330
   
2,151
 
     
23,338
   
21,334
   
69,385
   
64,654
 
Other income:
                         
Interest and other income
   
1,710
   
3,324
   
4,376
   
6,615
 
Gain/(loss) on debt extinguishment
   
(85
)
 
657
   
(85
)
 
1,287
 
     
1,625
   
3,981
   
4,291
   
7,902
 
Income from continuing operations before disposition of property, condominiums and investment in unconsolidated affiliates and equity in earnings of unconsolidated affiliates
   
7,682
   
11,401
   
32,086
   
34,074
 
Gains on disposition of property
   
19
   
34
   
55
   
247
 
Gains on disposition of for-sale residential condominiums
   
54
   
187
   
407
   
823
 
Gains on disposition of investment in unconsolidated affiliates
   
   
   
25,330
   
 
Equity in earnings of unconsolidated affiliates
   
1,018
   
682
   
2,701
   
3,844
 
Income from continuing operations                                                                               
   
8,773
   
12,304
   
60,579
   
38,988
 
Discontinued operations:
                         
Income from discontinued operations
   
   
646
   
411
   
3,220
 
Net gains/(losses) on disposition of discontinued operations
   
   
(377
)
 
(86
)
 
20,639
 
     
   
269
   
325
   
23,859
 
Net income                                                                               
   
8,773
   
12,573
   
60,904
   
62,847
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
   
(366
)
 
(591
)
 
(2,819
)
 
(3,339
)
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates
   
148
   
(24
)
 
(281
)
 
(158
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
 
(5,031
)
 
(5,031
)
Net income available for common stockholders
 
$
6,878
 
$
10,281
 
$
52,773
 
$
54,319
 
Earnings per Common Share - basic:
                         
Income from continuing operations available for common stockholders
 
$
0.10
 
$
0.15
 
$
0.74
 
$
0.47
 
Income from discontinued operations available for common stockholders
   
   
   
   
0.34
 
Net income available for common stockholders
 
$
0.10
 
$
0.15
 
$
0.74
 
$
0.81
 
Weighted average Common Shares outstanding - basic
   
71,631
   
70,902
   
71,549
   
66,912
 
Earnings per Common Share - diluted:
                         
Income from continuing operations available for common stockholders
 
$
0.10
 
$
0.14
 
$
0.74
 
$
0.47
 
Income from discontinued operations available for common stockholders
   
   
   
   
0.34
 
Net income available for common stockholders
 
$
0.10
 
$
0.14
 
$
0.74
 
$
0.81
 
Weighted average Common Shares outstanding - diluted
   
75,638
   
75,072
   
75,537
   
71,024
 
Dividends declared per Common Share
 
$
0.425
 
$
0.425
 
$
1.275
 
$
1.275
 
Net income available for common stockholders:
                         
Income from continuing operations available for common stockholders
 
$
6,878
 
$
10,027
 
$
52,465
 
$
31,851
 
Income from discontinued operations available for common stockholders
   
   
254
   
308
   
22,468
 
Net income available for common stockholders
 
$
6,878
 
$
10,281
 
$
52,773
 
$
54,319
 

See accompanying notes to consolidated financial statements.

 
4



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Equity
 
Nine Months Ended September 30, 2010 and 2009
 
(Unaudited and in thousands, except share amounts)


   
Number of Common
 Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Series B Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive
Loss
 
Non-Controlling Interests in
Consolidated Affiliates
 
Distributions in Excess of Net Income Available for Common Stockholders
 
Total
 
Balance at December 31, 2009
 
71,285,303
 
$
713
 
$
29,092
 
$
52,500
 
$
1,751,398
 
$
(3,811
)
$
5,183
 
$
(701,932
)
$
1,133,143
 
Issuances of Common Stock, net
 
112,815
   
1
   
   
   
2,075
   
   
   
   
2,076
 
Conversion of Common Units to Common Stock
 
93,971
   
1
   
   
   
2,957
   
   
   
   
2,958
 
Dividends on Common Stock
 
   
   
   
   
   
   
   
(91,197
)
 
(91,197
)
Dividends on Preferred Stock
 
   
   
   
   
   
   
   
(5,031
)
 
(5,031
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
   
   
   
   
1,480
   
   
   
   
1,480
 
Distributions to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
(506
)
 
   
(506
)
Issuances of restricted stock, net
 
164,143
   
   
   
   
   
   
   
   
 
Share-based compensation expense
 
   
2
   
   
   
5,058
   
   
   
   
5,060
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
 
   
   
   
   
   
   
   
(2,819
)
 
(2,819
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
281
   
(281
)
 
 
Comprehensive income:
                                                     
Net income
 
   
   
   
   
   
   
   
60,904
   
60,904
 
Other comprehensive income
 
   
   
   
   
   
836
   
   
   
836
 
Total comprehensive income
                                                 
61,740
 
Balance at September 30, 2010
 
71,656,232
 
$
717
 
$
29,092
 
$
52,500
 
$
1,762,968
 
$
(2,975
)
$
4,958
 
$
(740,356
)
$
1,106,904
 
 
 

   
Number of Common
 Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Series B Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive
Loss
 
Non-Controlling Interests in
Consolidated Affiliates
 
Distributions in Excess of Net Income Available for Common Stockholders
 
Total
 
Balance at December 31, 2008
 
63,571,705
 
$
636
 
$
29,092
 
$
52,500
 
$
1,616,093
 
$
(4,792
)
$
6,176
 
$
(639,281
)
$
1,060,424
 
Issuances of Common Stock, net
 
7,156,203
   
72
   
   
   
147,238
   
   
   
   
147,310
 
Conversion of Common Units to Common Stock
 
101,935
   
1
   
   
   
3,240
   
   
   
   
3,241
 
Dividends on Common Stock
 
   
   
   
   
   
   
   
(84,221
)
 
(84,221
)
Dividends on Preferred Stock
 
   
   
   
   
   
   
   
(5,031
)
 
(5,031
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
   
   
   
   
(18,497
)
 
   
   
   
(18,497
)
Distributions to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
(796
)
 
   
(796
)
Issuances of restricted stock, net
 
240,740
   
   
   
   
   
   
   
   
 
Share-based compensation expense
 
   
2
   
   
   
5,202
   
   
   
   
5,204
 
Net (income) attributable to noncontrolling interests in the Operating Partnership
 
   
   
   
   
   
   
   
(3,339
)
 
(3,339
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
 
   
   
   
   
   
   
158
   
(158
)
 
 
Comprehensive income:
                                                     
Net income
 
   
   
   
   
   
   
   
62,847
   
62,847
 
Other comprehensive income
 
   
   
   
   
   
813
   
   
   
813
 
Total comprehensive income
                                                 
63,660
 
Balance at September 30, 2009
 
71,070,583
 
$
711
 
$
29,092
 
$
52,500
 
$
1,753,276
 
$
(3,979
)
$
5,538
 
$
(669,183
)
$
1,167,955
 

See accompanying notes to consolidated financial statements.

 
5



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Cash Flows
 
(Unaudited and in thousands)

   
Nine Months Ended
September 30,
 
   
2010
 
2009
 
Operating activities:
             
Net income
 
$
60,904
 
$
62,847
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation and amortization
   
100,728
   
99,199
 
Amortization of lease incentives
   
807
   
866
 
Share-based compensation expense
   
5,060
   
5,204
 
Additions to allowance for doubtful accounts
   
3,605
   
4,530
 
Amortization of deferred financing costs
   
2,528
   
1,978
 
Amortization of past cash-flow hedges
   
262
   
(229
)
(Gain)/loss on debt extinguishment
   
85
   
(1,287
)
Net (gains)/losses on disposition of property
   
31
   
(20,886
)
Gains on disposition of for-sale residential condominiums
   
(407
)
 
(823
)
Gains on disposition of investment in unconsolidated affiliates
   
(25,330
)
 
 
Equity in earnings of unconsolidated affiliates
   
(2,701
)
 
(3,844
)
Changes in financing obligations
   
103
   
869
 
Distributions of earnings from unconsolidated affiliates
   
2,933
   
3,076
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
(4,689
)
 
(534
)
Prepaid expenses and other assets
   
(195
)
 
(1,627
)
Accrued straight-line rents receivable
   
(8,477
)
 
(5,058
)
Accounts payable, accrued expenses and other liabilities
   
7,407
   
10,548
 
Net cash provided by operating activities
   
142,654
   
154,829
 
Investing activities:
             
Additions to real estate assets and deferred leasing costs
   
(66,370
)
 
(101,675
)
Net proceeds from disposition of real estate assets
   
6,801
   
61,926
 
Net proceeds from disposition of for-sale residential condominiums
   
3,732
   
7,940
 
Proceeds from disposition of investment in unconsolidated affiliates
   
15,000
   
 
Distributions of capital from unconsolidated affiliates
   
1,591
   
3,257
 
Repayments of mortgages and notes receivable
   
231
   
356
 
Contributions to unconsolidated affiliates
   
(907
)
 
(922
)
Changes in restricted cash and other investing activities
   
2,396
   
(15,506
)
Net cash used in investing activities
   
(37,526
)
 
(44,624
)
Financing activities:
             
Dividends on Common Stock
   
(91,197
)
 
(84,221
)
Dividends on Preferred Stock
   
(5,031
)
 
(5,031
)
Distributions to noncontrolling interests in the Operating Partnership
   
(4,857
)
 
(5,168
)
Distributions to noncontrolling interests in consolidated affiliates
   
(506
)
 
(796
)
Net proceeds from the issuance of Common Stock
   
2,076
   
147,310
 
Borrowings on revolving credit facility
   
4,000
   
128,000
 
Repayments of revolving credit facility
   
(4,000
)
 
(291,000
)
Borrowings on mortgages and notes payable
   
10,368
   
217,215
 
Repayments of mortgages and notes payable
   
(18,205
)
 
(185,084
)
Additions to deferred financing costs
   
(506
)
 
(3,118
)
Net cash used in financing activities
   
(107,858
)
 
(81,893
)
Net increase/(decrease) in cash and cash equivalents
   
(2,730
)
 
28,312
 
Cash and cash equivalents at beginning of the period
   
23,699
   
13,757
 
Cash and cash equivalents at end of the period
 
$
20,969
 
$
42,069
 

See accompanying notes to consolidated financial statements.

 
6



HIGHWOODS PROPERTIES, INC.
 
Consolidated Statements of Cash Flows – Continued
 
(Unaudited and in thousands)

Supplemental disclosure of cash flow information:

   
Nine Months Ended
September 30,
 
   
2010
 
2009
 
Cash paid for interest, net of amounts capitalized
 
$
66,435
 
$
64,734
 

Supplemental disclosure of non-cash investing and financing activities:

   
Nine Months Ended
September 30,
 
   
2010
 
2009
 
Unrealized gains on cash-flow hedges                                                                                                         
 
$
 
$
591
 
Conversion of Common Units to Common Stock                                                                                                         
 
$
2,958
 
$
3,241
 
Change in accrued capital expenditures                                                                                                         
 
$
890
 
$
(9,560
)
Write-off of fully depreciated real estate assets                                                                                                         
 
$
34,703
 
$
24,991
 
Write-off of fully amortized deferred financing and leasing costs
 
$
11,521
 
$
14,592
 
Unrealized gains/(losses) on marketable securities of non-qualified deferred compensation plan
 
$
489
 
$
(109
)
Settlement of financing obligation
 
$
4,184
 
$
 
Adjustment of noncontrolling interests in the Operating Partnership to fair value
 
$
(1,480
)
$
18,497
 
Unrealized gain on tax increment financing bond                                                                                                         
 
$
471
 
$
451
 
Mortgages receivable from seller financing                                                                                                         
 
$
17,030
 
$
 
Assumption of mortgages and notes payable                                                                                                         
 
$
40,306
 
$
 

See accompanying notes to consolidated financial statements.


 
7


HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements
 
September 30, 2010
 
(tabular dollar amounts in thousands, except per share data)
 
(Unaudited)

1.      Description of Business and Significant Accounting Policies

Description of Business

The Company is a fully-integrated, self-administered and self-managed equity real estate investment trust (“REIT”) that operates in the Southeastern and Midwestern United States. The Company conducts virtually all of its activities through the Operating Partnership. At September 30, 2010, the Company and/or the Operating Partnership wholly owned 294 in-service office, industrial and retail properties, comprising 27.1 million square feet; 96 rental residential units; 580 acres of undeveloped land suitable for future development, of which 490 acres are considered core holdings; one 100% pre-leased office property under re-development; one recently developed office property that is in service but not yet stabilized; and 30 for-sale residential condominiums (which are owned through a consolidated, majority-owned joint venture).

The Company is the sole general partner of the Operating Partnership. At September 30, 2010, the Company owned all of the Preferred Units and 71.2 million, or 95.0%, of the Common Units. Limited partners (including one officer and two directors of the Company) own the remaining 3.8 million Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock, $.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, 2010, the Company redeemed 93,971 Common Units for a like number of shares of Common Stock, which increased the percentage of Common Units owned by the Company from 94.8% at December 31, 2009 to 95.0% at September 30, 2010.

Basis of Presentation

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Our Consolidated Statements of Income for the three and nine months ended September 30, 2009 were revised from previously reported amounts to reflect in discontinued operations the operations for those properties sold or held for sale during the 12 months ended September 30, 2010 which required discontinued operations presentation. Prior period amounts related to additions to allowance for doubtful accounts and amortization of lease commissions in our Consolidated Statements of Cash Flows have been reclassified 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 significant intercompany transactions and accounts have been eliminated. At September 30, 2010 and December 31, 2009, we were not involved with any entities that were determined to be variable interest entities.

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 2009 Annual Report on Form 10-K.



 
8

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


1.      Description of Business and Significant Accounting Policies - Continued

Use of Estimates

The preparation of these 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

Beginning with our 2010 Annual Report on Form 10-K, we will be required to provide enhanced disclosure about our financial receivables, such as our mortgages and notes receivable, and our policy for measuring credit losses related to those receivables.

2.      Real Estate Assets

Acquisitions

During the third quarter of 2010, we acquired a 336,000 square foot office property in Memphis, TN for $10.0 million in cash and the assumption of secured debt, which was recorded at fair value of $40.3 million with an implied interest rate of 6.4%. The debt matures in November 2015. We have incurred or expect to incur $0.4 million of acquisition-related expenses and approximately $2.3 million of near-term building improvements. In connection with this acquisition, we recorded $2.8 million of above market lease intangible assets and $7.1 million of in-place lease intangible assets with weighted average amortization periods at the time of acquisition of 7.3 and 5.9 years, respectively.

Dispositions

During the second quarter of 2010, we sold seven office properties in Winston Salem, NC for gross proceeds of $12.9 million. In connection with this disposition, we received cash of $4.5 million and provided seller financing of $8.4 million (recorded at fair value of $8.4 million in mortgages and notes receivable) and committed to lend up to an additional $1.7 million for tenant improvements and lease commissions, of which $0.2 million was funded as of September 30, 2010. The three-year, interest-only first mortgage carries a 6.0% average interest rate. Assuming no default exists, the note can be extended by the buyer for two additional one-year periods, subject to an increase in the interest rate to 7.0% in the fourth year and to 8.0% in the fifth year. We have accounted for this disposition using the installment method, whereby the $0.4 million gain on disposition of property has been deferred and will be recognized when the seller financing is repaid.

During the second quarter of 2010, we also sold six industrial properties in Greensboro, NC for gross proceeds of $12.0 million. In connection with this disposition, we received cash of $3.4 million and provided seller financing of $8.6 million (recorded at fair value of $8.6 million in mortgages and notes receivable) and a limited rent guarantee with maximum exposure to loss of $1.0 million as of September 30, 2010. The three-year, interest-only first mortgage carries a 6.25% average interest rate. Assuming no default exists, the note can be extended by the buyer for two additional one-year periods, subject to an increase in the interest rate to 7.0% in the fourth year and to 7.75% in the fifth year. We currently have concluded that a loss from the rent guarantee is not probable. We have accounted for this disposition using the installment method, whereby the $0.3 million impairment was recognized in net gains/(losses) on disposition of discontinued operations in the second quarter of 2010.

During the first quarter of 2010, we recorded a completed sale in connection with the disposition of an office property in Raleigh, NC in the fourth quarter of 2009 where the buyer’s right to compel us to repurchase the property expired. Accordingly, we recognized the $0.2 million gain on disposition of property in the first quarter of 2010.


 
9

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


3.      Investment in Affiliates

Unconsolidated Affiliates

We have equity interests ranging from 10.0% to 50.0% in various joint ventures with unrelated third parties. The following table sets forth the combined, summarized income statements for our unconsolidated joint ventures:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Income Statements:
                         
Revenues                                                                      
 
$
26,517
 
$
36,152
 
$
93,819
 
$
112,368
 
Expenses:
                         
Rental property and other expenses
   
12,664
   
17,805
   
45,463
   
54,510
 
Depreciation and amortization
   
6,730
   
9,092
   
24,108
   
26,817
 
Interest expense
   
6,094
   
8,743
   
21,892
   
26,584
 
Total expenses
   
25,488
   
35,640
   
91,463
   
107,911
 
Income before disposition of property
   
1,029
   
512
   
2,356
   
4,457
 
Gains/(losses) on disposition of property
   
   
(463
)
 
   
2,963
 
Net income
 
$
1,029
 
$
49
 
$
2,356
 
$
7,420
 
Our share of:
                         
Net income (1)
 
$
1,018
 
$
682
 
$
2,701
 
$
3,844
 
Depreciation and amortization of real estate assets
 
$
2,115
 
$
3,352
 
$
8,193
 
$
9,825
 
Interest expense
 
$
2,190
 
$
3,491
 
$
8,368
 
$
10,611
 
Gain/(loss) on disposition of property
 
$
 
$
(199
)
$
 
$
582
 
__________
 
(1)
Our share of net income differs from our weighted average ownership percentage in the joint ventures’ net income due to our purchase accounting and other adjustments related primarily to management and leasing fees.

During the second quarter of 2010, we sold our equity interests in a series of unconsolidated joint ventures relating to properties in Des Moines, IA. The assets in the joint ventures included 2.5 million square feet of office (1.7 million square feet), industrial (788,000 square feet) and retail (45,000 square feet) properties, as well as 418 apartment units. In connection with the closing, we received $15.0 million in cash. We had a negative book basis in certain of the joint ventures, primarily as a result of prior cash distributions to the partners. Accordingly, we recorded gain on disposition of investment in unconsolidated affiliates of $25.3 million in the second quarter of 2010. As of the closing date, the joint ventures had approximately $170 million of secured debt, which was non-recourse to us except (1) in the case of customary exceptions pertaining to matters such as misuse of funds, borrower bankruptcy, unpermitted transfers, environmental conditions and material misrepresentations and (2) approximately $9.0 million of direct and indirect guarantees. We have been released by the applicable lenders from all such direct and indirect guarantees and we have no ongoing lender liability relating to such customary exceptions to non-recourse liability with respect to most, but not all, of the debt. The buyer has agreed to indemnify and hold us harmless from any and all future losses that we suffer as a result of our prior investment in the joint ventures (other than losses directly resulting from our acts or omissions). In the event we are exposed to any such future loss, our financial condition and results of operations would not be adversely affected unless the buyer defaults on its indemnification obligation.

 
10

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


3.      Investment in Affiliates - Continued

Consolidated Affiliates

We own a majority interest in Plaza Residential, LLC (“Plaza Residential”), a joint venture which was formed to develop and sell 139 for-sale residential condominiums constructed above an office tower developed by us in Raleigh, NC. For-sale residential condominiums in our Consolidated Balance Sheets include 30 and 40 completed, but unsold, condominiums owned by Plaza Residential at September 30, 2010 and December 31, 2009, respectively. We initially record receipts of earnest money deposits in accounts payable, accrued expenses and other liabilities in accordance with the deposit method. We then record completed sales when units close and the remaining net cash is received. During the three months ended September 30, 2010 and 2009, we received $0.6 million and $2.9 million, respectively, in gross proceeds and recorded $0.5 million and $2.7 million, respectively, of cost of goods sold from condominium sales activity. During the nine months ended September 30, 2010 and 2009, we received $4.0 million and $8.4 million, respectively, in gross proceeds and had $3.6 million and $7.6 million, respectively, of cost of goods sold from condominium sales activity.

4.      Deferred Financing and Leasing Costs

The following table sets forth total deferred financing and leasing costs, net of accumulated amortization:

   
September 30,
2010
 
December 31,
2009
 
Deferred financing costs
 
$
17,078
 
$
16,811
 
Less accumulated amortization
   
(6,917
)
 
(4,549
)
     
10,161
   
12,262
 
Deferred leasing costs
   
113,134
   
108,835
 
Less accumulated amortization
   
(48,226
)
 
(47,580
)
     
64,908
   
61,255
 
Deferred financing and leasing costs, net                                                                                              
 
$
75,069
 
$
73,517
 

Amortization of deferred financing and leasing costs were as follows:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Amortization of deferred financing costs
 
$
858
 
$
627
 
$
2,528
 
$
1,978
 
Amortization of lease commissions (included in depreciation and amortization)
 
$
3,912
 
$
3,806
 
$
11,495
 
$
11,598
 
Amortization of lease incentives (included in rental and other revenues)
 
$
270
 
$
318
 
$
807
 
$
866
 

The following table sets forth scheduled future amortization for deferred financing and leasing costs:

   
Amortization of Deferred Financing Costs
 
Amortization of Lease Commissions
 
Amortization of Lease Incentives
 
September 30, 2010 through December 31, 2010
 
$
788
 
$
3,855
 
$
261
 
2011                                                                                     
   
2,680
   
13,825
   
982
 
2012                                                                                     
   
2,526
   
11,390
   
881
 
2013                                                                                     
   
897
   
9,151
   
683
 
2014                                                                                     
   
520
   
7,015
   
512
 
Thereafter                                                                                     
   
2,750
   
14,947
   
1,406
 
   
$
10,161
 
$
60,183
 
$
4,725
 

 
11

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


4.      Deferred Financing and Leasing Costs - Continued

The weighted average remaining amortization periods for deferred financing and leasing costs were 3.6 years and 6.3 years, respectively, as of September 30, 2010.

5.      Mortgages and Notes Payable

The following table sets forth our consolidated mortgages and notes payable:

   
September 30,
2010
 
December 31,
2009
 
Secured indebtedness                                                                                                      
 
$
763,107
 
$
720,727
 
Unsecured indebtedness                                                                                                      
   
738,517
   
748,428
 
Total mortgages and notes payable                                                                                                
 
$
1,501,624
 
$
1,469,155
 

At September 30, 2010, our secured mortgage loans were secured by real estate assets with an aggregate undepreciated book value of $1.2 billion.

Our $400.0 million unsecured revolving credit facility is scheduled to mature on February 21, 2013 and includes an accordion feature that allows for an additional $50.0 million of borrowing capacity subject to additional lender commitments. Assuming we continue to have three publicly announced ratings from the credit rating agencies, the interest rate and facility fee under our revolving credit facility are based on the lower of the two highest publicly announced ratings. Based on our current credit ratings, the interest rate is LIBOR plus 290 basis points and the annual facility fee is 60 basis points. There were no amounts outstanding under our revolving credit facility at September 30, 2010 and October 21, 2010. At September 30, 2010 and October 21, 2010, we had $1.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at September 30, 2010 and October 21, 2010 was $398.9 million.

Our $70.0 million secured construction facility, of which $52.1 million was outstanding at September 30, 2010, is initially scheduled to mature on December 20, 2010. The outstanding balance increased in the third quarter of 2010 due to the use of proceeds to reduce the balance outstanding under a bank term loan due in March 2012. Assuming no defaults have occurred, we have options to extend the maturity date for two successive one-year periods. During the third quarter of 2010, we submitted our notice to extend the maturity date by one year. Upon payment of the extension fee and assuming no default exists at December 20, 2010, the facility will be extended until December 20, 2011. The interest rate is LIBOR plus 85 basis points. This facility had $17.9 million of availability at September 30, 2010 and October 21, 2010.

We are currently in compliance with all debt covenants and requirements.

6.      Derivative Financial Instruments

We had no outstanding interest rate hedge contracts at September 30, 2010 or December 31, 2009. The following table sets forth the effect of our past cash-flow hedges on accumulated other comprehensive loss (“AOCL”) and interest expense:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Derivatives Designated as Cash-flow Hedges:
                         
Unrealized gain recognized in AOCL on derivatives (effective portion):
                         
Interest rate hedge contracts
 
$
 
$
177
 
$
 
$
591
 
                           
(Gain)/loss reclassified out of AOCL into interest expense (effective portion):
                         
Interest rate hedge contracts
 
$
(25
)
$
(89
)
$
262
 
$
(229
)

 
12

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


7.      Noncontrolling Interests

Noncontrolling Interests in the Operating Partnership

Noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company. The following table sets forth noncontrolling interests in the Operating Partnership:

   
Nine Months Ended
September 30,
 
   
2010
 
2009
 
Beginning noncontrolling interests in the Operating Partnership
 
$
129,769
 
$
111,278
 
Adjustments of noncontrolling interests in the Operating Partnership to fair value
   
(1,480
)
 
18,497
 
Conversion of Common Units to Common Stock
   
(2,958
)
 
(3,241
)
Net income attributable to noncontrolling interests in the Operating Partnership
   
2,819
   
3,339
 
Distributions to noncontrolling interests in the Operating Partnership
   
(4,857
)
 
(5,168
)
Total noncontrolling interests in the Operating Partnership
 
$
123,293
 
$
124,705
 

The following table sets forth the change in equity from net income available for common stockholders and transfers from noncontrolling interests:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Net income available for common stockholders
 
$
6,878
 
$
10,281
 
$
52,773
 
$
54,319
 
Conversion of Common Units to Common Stock
   
   
3,052
   
2,958
   
3,241
 
Change in equity from net income available for common stockholders and conversion of Common Units to Common Stock
 
$
6,878
 
$
13,333
 
$
55,731
 
$
57,560
 

Noncontrolling Interests in Consolidated Affiliates

Noncontrolling interests in consolidated affiliates relates to our respective joint venture partners’ 50.0% interest in Highwoods-Markel Associates, LLC and both legal and estimated economic interests of 7% in Plaza Residential. Each of our joint venture partners is an unrelated third party.

8.      Disclosure About Fair Value of Financial Instruments

The following summarizes the three levels of inputs that we use to measure fair value, as well as the assets, noncontrolling interests in the Operating Partnership and liabilities that we recognize at fair value using those levels of inputs.

Level 1.  Quoted prices in active markets for identical assets or liabilities.

Our Level 1 assets are investments in marketable securities which we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company. Our Level 1 liability is our non-qualified deferred compensation obligation.

 
13

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


8.      Disclosure About Fair Value of Financial Instruments - Continued

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. We had no Level 2 assets or liabilities at September 30, 2010 and December 31, 2009.

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our Level 3 assets are our tax increment financing bond, which is not routinely traded but whose fair value is determined using an estimate of projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds, and real estate assets recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which were valued using independent appraisals.

The following tables set forth the assets, noncontrolling interests in the Operating Partnership and liability that we measure at fair value by level within the fair value hierarchy. We determine the level based on the lowest level of substantive input used to determine fair value.

       
Level 1
 
Level 3
 
   
September 30,
2010
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant
Unobservable
Inputs
 
Assets:
                   
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)
 
$
3,232
 
$
3,232
 
$
 
Tax increment financing bond (in prepaid expenses and other assets)
   
17,342
   
   
17,342
 
Total Assets
 
$
20,574
 
$
3,232
 
$
17,342
 
                     
Noncontrolling Interests in the Operating Partnership
 
$
123,293
 
$
123,293
 
$
 
                     
Liability:
                   
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)
 
$
3,846
 
$
3,846
 
$
 

       
Level 1
 
Level 3
 
   
December 31,
2009
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant
Unobservable
Inputs
 
Assets:
                   
Marketable securities of non-qualified deferred compensation plan
 
$
6,135
 
$
6,135
 
$
 
Tax increment financing bond
   
16,871
   
   
16,871
 
Impaired real estate assets
   
32,000
   
   
32,000
 
Total Assets
 
$
55,006
 
$
6,135
 
$
48,871
 
                     
Noncontrolling Interests in the Operating Partnership
 
$
129,769
 
$
129,769
 
$
 
                     
Liability:
                   
Non-qualified deferred compensation obligation
 
$
6,898
 
$
6,898
 
$
 


 
14

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


8.      Disclosure About Fair Value of Financial Instruments – Continued

The following table sets forth our Level 3 asset:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Asset:
                         
Tax Increment Financing Bond
                         
Beginning balance
 
$
17,017
 
$
17,660
 
$
16,871
 
$
17,468
 
Unrealized gain (in AOCL)
   
325
   
259
   
471
   
451
 
Ending balance
 
$
17,342
 
$
17,919
 
$
17,342
 
$
17,919
 

In the fourth quarter of 2007, we acquired a tax increment financing bond associated with a property developed by us. This bond amortizes to maturity in 2020. The estimated fair value at September 30, 2010 was $1.9 million below the outstanding principal due on the bond. If the yield-to-maturity used to fair value this bond was 100 basis points higher, the fair value of the bond would have been $0.8 million lower as of September 30, 2010. If the yield-to-maturity used to fair value this bond was 100 basis points lower, the fair value of the bond would have been $0.8 million higher as of September 30, 2010. Currently, we intend to hold this bond and have concluded that we will not be required to sell this bond before recovery of the bond principal. Payment of the principal and interest for the bond is guaranteed by us and, therefore, we have recorded no credit losses related to the bond in the three and nine months ended September 30, 2010 and 2009. There is no legal right of offset with the liability, which we report as a financing obligation, related to this tax increment financing bond.

The following table sets forth the carrying amounts and fair values of our financial instruments:

   
Carrying
Amount
 
Fair Value
 
September 30, 2010
             
Cash and cash equivalents
 
$
20,969
 
$
20,969
 
Restricted cash
 
$
4,757
 
$
4,757
 
Accounts, mortgages and notes receivable
 
$
42,368
 
$
42,481
 
Marketable securities of non-qualified deferred compensation plan
 
$
3,232
 
$
3,232
 
Tax increment financing bond
 
$
17,342
 
$
17,342
 
Mortgages and notes payable
 
$
1,501,624
 
$
1,597,621
 
Financing obligations
 
$
33,625
 
$
22,861
 
Non-qualified deferred compensation obligation
 
$
3,846
 
$
3,846
 
Noncontrolling interests in the Operating Partnership
 
$
123,293
 
$
123,293
 
               
December 31, 2009
             
Cash and cash equivalents
 
$
23,699
 
$
23,699
 
Restricted cash
 
$
6,841
 
$
6,841
 
Accounts, mortgages and notes receivable
 
$
24,212
 
$
24,212
 
Marketable securities of non-qualified deferred compensation plan
 
$
6,135
 
$
6,135
 
Tax increment financing bond
 
$
16,871
 
$
16,871
 
Mortgages and notes payable
 
$
1,469,155
 
$
1,440,317
 
Financing obligations
 
$
37,706
 
$
31,664
 
Non-qualified deferred compensation obligation
 
$
6,898
 
$
6,898
 
Noncontrolling interests in the Operating Partnership
 
$
129,769
 
$
129,769
 


 
15

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


8.      Disclosure About Fair Value of Financial Instruments – Continued

The carrying values of our cash and cash equivalents, restricted cash, accounts receivable, marketable securities of non-qualified deferred compensation plan, tax increment financing bond, non-qualified deferred compensation obligation and noncontrolling interests in the Operating Partnership are equal to or approximate fair value. The fair values of our mortgages and notes receivable, mortgages and notes payable and financing obligations were estimated using the income or market approaches to approximate the price that would be paid in an orderly transaction between market participants on the respective measurement dates.

9.      Share-Based Payments

During the nine months ended September 30, 2010, we granted 190,826 stock options at an exercise price equal to the closing market price of a share of our Common Stock on the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted-average grant date fair value per share of $4.96. During the nine months ended September 30, 2010, we also granted 89,635 shares of time-based restricted stock and 78,151 shares of total return-based restricted stock with weighted-average grant date fair values per share of $29.05 and $29.75, respectively. We recorded stock-based compensation expense of $1.6 million each during the three months ended September 30, 2010 and 2009 and $5.1 million and $5.2 million during the nine months ended September 30, 2010 and 2009, respectively. At September 30, 2010, there was $8.4 million of total unrecognized stock-based compensation costs, which will be recognized over a weighted average remaining contractual term of 1.7 years.

10.      Comprehensive Income and Accumulated Other Comprehensive Loss

The following table sets forth the components of comprehensive income:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Net income                                                                               
 
$
8,773
 
$
12,573
 
$
60,904
 
$
62,847
 
Other comprehensive income/(loss):
                         
Unrealized gain on tax increment financing bond
   
325
   
259
   
471
   
451
 
Unrealized gains on cash-flow hedges
   
   
177
   
   
591
 
Amortization of past cash-flow hedges
   
(25
)
 
(89
)
 
262
   
(229
)
Settlement of past cash-flow hedge from disposition of investment in unconsolidated affiliate
   
   
   
103
   
 
Total other comprehensive income
   
300
   
347
   
836
   
813
 
Total comprehensive income
 
$
9,073
 
$
12,920
 
$
61,740
 
$
63,660
 

The following table sets forth the components of AOCL:

   
September 30,
2010
 
December 31,
2009
 
Tax increment financing bond                                                                                                      
 
$
1,895
 
$
2,366
 
Past cash-flow hedges                                                                                                      
   
1,080
   
1,445
 
Total accumulated other comprehensive loss                                                                                                
 
$
2,975
 
$
3,811
 


 
16

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


11.      Discontinued Operations

The following table sets forth our operations which required classification as discontinued operations:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Rental and other revenues                                                                                     
 
$
 
$
1,455
 
$
1,432
 
$
7,837
 
Operating expenses:
                         
Rental property and other expenses
   
   
488
   
656
   
3,010
 
Depreciation and amortization
   
   
322
   
365
   
1,609
 
Total operating expenses
   
   
810
   
1,021
   
4,619
 
Other income                                                                                     
   
   
1
   
   
2
 
Income before net gains/(losses) on disposition of discontinued operations
   
   
646
   
411
   
3,220
 
Net gains/(losses) on disposition of discontinued operations
   
   
(377
)
 
(86
)
 
20,639
 
Total discontinued operations                                                                                     
 
$
 
$
269
 
$
325
 
$
23,859
 

The following table sets forth the major classes of assets and liabilities of the properties classified as held for sale:

   
September 30,
2010
 
December 31,
2009
 
Assets:
             
Land
 
$
 
$
867
 
Buildings and tenant improvements                                                                                                 
   
   
3,876
 
Land held for development                                                                                                 
   
1,217
   
1,197
 
Total real estate assets                                                                                            
   
1,217
   
5,940
 
Less accumulated depreciation                                                                                                 
   
   
(1,484
)
Net real estate assets
   
1,217
   
4,456
 
Deferred leasing costs, net
   
   
209
 
Accrued straight line rents receivable
   
   
289
 
Prepaid expenses and other assets
   
32
   
77
 
Real estate and other assets, net, held for sale
 
$
1,249
 
$
5,031
 
Liabilities of real estate and other assets, net, held for sale (1)
 
$
12
 
$
12
 
__________
 
(1)
Included in accounts payable, accrued expenses and other liabilities.
 


 
17

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 

 
12.      Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per Common Share:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Earnings per Common Share - basic:
                         
Numerator:
                         
Income from continuing operations
 
$
8,773
 
$
12,304
 
$
60,579
 
$
38,988
 
Net (income) attributable to noncontrolling  interests in the Operating Partnership from continuing operations
   
(366
)
 
(576
)
 
(2,802
)
 
(1,948
)
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
148
   
(24
)
 
(281
)
 
(158
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
 
(5,031
)
 
(5,031
)
Income from continuing operations available for common stockholders
   
6,878
   
10,027
   
52,465
   
31,851
 
Income from discontinued operations
   
   
269
   
325
   
23,859
 
Net (income) attributable to noncontrolling interests in the Operating Partnership from discontinued operations
   
   
(15
)
 
(17
)
 
(1,391
)
Income from discontinued operations available for common stockholders
   
   
254
   
308
   
22,468
 
Net income available for common stockholders
 
$
6,878
 
$
10,281
 
$
52,773
 
$
54,319
 
Denominator:
                         
Denominator for basic earnings per Common Share – weighted average shares
   
71,631
   
70,902
   
71,549
   
66,912
 
Earnings per Common Share – basic:
                         
Income from continuing operations available for common stockholders
 
$
0.10
 
$
0.15
 
$
0.74
 
$
0.47
 
Income from discontinued operations available for common stockholders
   
   
   
   
0.34
 
Net income available for common stockholders
 
$
0.10
 
$
0.15
 
$
0.74
 
$
   0.81
 
Earnings per Common Share - diluted:
                         
Numerator:
                         
Income from continuing operations
 
$
8,773
 
$
12,304
 
$
60,579
 
$
38,988
 
Net (income)/loss attributable to noncontrolling interests in consolidated affiliates from continuing operations
   
148
   
(24
)
 
(281
)
 
(158
)
Dividends on Preferred Stock
   
(1,677
)
 
(1,677
)
 
(5,031
)
 
(5,031
)
Income from continuing operations available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership
   
7,244
   
10,603
   
55,267
   
33,799
 
Income from discontinued operations available for common stockholders
   
   
269
   
325
   
23,859
 
Net income available for common stockholders before net income attributable to noncontrolling interests in the Operating Partnership
 
$
7,244
 
$
10,872
 
$
55,592
 
$
57,658
 
Denominator:
                         
Denominator for basic earnings per Common Share –weighted average shares
   
71,631
   
70,902
   
71,549
   
66,912
 
Add:
                         
Stock options using the treasury method
   
210
   
121
   
183
   
52
 
Noncontrolling interests partnership units
   
3,797
   
4,049
   
3,805
   
4,060
 
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions (1)
   
75,638
   
75,072
   
75,537
   
71,024
 
Earnings per Common Share – diluted:
                         
Income from continuing operations available for common stockholders
 
$
0.10
 
$
0.14
 
$
0.74
 
$
0.47
 
Income from discontinued operations available for common stockholders
   
   
   
   
0.34
 
Net income available for common stockholders
 
$
0.10
 
$
0.14
 
$
0.74
 
$
0.81
 
__________

 
18

HIGHWOODS PROPERTIES, INC.
 
Notes To Consolidated Financial Statements (Continued)
 
(tabular dollar amounts in thousands, except per share data)
 


12.      Earnings Per Share Continued
 
(1)
Options and warrants aggregating 0.7 million and 0.9 million shares were outstanding during the three months ended September 30, 2010 and 2009, respectively, and 0.7 million and 1.2 million shares were outstanding during the nine months ended September 30, 2010 and 2009, respectively, but were not included in the computation of diluted earnings per Common Share because the impact of including such shares would be anti-dilutive.

13.      Segment Information

Our principal business is the operation, acquisition and development of rental real estate properties. We evaluate our business by product type and by geographic location. Each product type has different customers and economic characteristics as to rental rates and terms, cost per square foot of buildings, the purposes for which customers use the space, the degree of maintenance and customer support required and customer dependency on different economic drivers, among others. The operating results by geographic grouping are also regularly reviewed by our chief operating decision maker for assessing performance and other purposes. There are no material inter-segment transactions.

Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States and, at September 30, 2010, no single customer of the Wholly Owned Properties generated more than 9.4% of our consolidated revenues on an annualized basis.

The following table summarizes the rental and other revenues and net operating income, the primary industry property-level performance metric which is defined as rental and other revenues less rental property and other expenses, for each reportable segment:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2010
 
2009
 
2010
 
2009
 
Rental and Other Revenues: (1)
                         
Office:
                         
Atlanta, GA
 
$
11,870
 
$
12,617
 
$
36,069
 
$
36,213
 
Greenville, SC
   
3,312
   
3,429
   
10,440
   
10,668
 
Kansas City, MO
   
3,673
   
3,742
   
11,045
   
11,200
 
Memphis, TN
   
9,692
   
8,185
   
24,889
   
22,615
 
Nashville, TN
   
14,599
   
14,901
   
44,564
   
45,498
 
Orlando, FL
   
2,920
   
3,110
   
8,985
   
8,903
 
Piedmont Triad, NC
   
5,802
   
5,720
   
17,722
   
17,575
 
Raleigh, NC
   
18,814
   
18,205
   
56,070
   
54,509
 
Richmond, VA
   
12,210
   
12,173
   
35,486
   
35,114
 
Tampa, FL