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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, 2022
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from [ ] to [
]
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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Maryland |
001-13100 |
56-1871668 |
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(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)
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North Carolina |
000-21731 |
56-1869557 |
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(State or other jurisdiction of incorporation or
organization) |
(Commission File Number) |
(I.R.S. Employer Identification Number) |
150 Fayetteville Street, Suite 1400
Raleigh, NC 27601
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrants’ telephone number, including area code)
___________________
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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Common Stock, $.01 par value, of Highwoods Properties,
Inc. |
HIW |
New York Stock Exchange |
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 ☒ No
☐ Highwoods
Realty Limited Partnership Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
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 such files).
Highwoods Properties, Inc. Yes ☒ 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, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Highwoods Properties, Inc.
Large accelerated filer
☒ Accelerated
filer
☐ Non-accelerated
filer
☐ Smaller
reporting company
☐
Emerging growth company
☐
Highwoods Realty Limited Partnership
Large accelerated filer
☐ Accelerated
filer
☐ Non-accelerated
filer
☒ Smaller
reporting company
☐ Emerging
growth company
☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Highwoods Properties, Inc. ☐ Highwoods
Realty Limited Partnership ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Highwoods Properties, Inc. Yes ☐ No
☒ Highwoods
Realty Limited Partnership Yes ☐ No
☒
The Company had 105,197,658 shares of Common Stock outstanding as
of October 18, 2022.
EXPLANATORY NOTE
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” and the Operating Partnership’s preferred
partnership interests as “Preferred Units.” References to “we” and
“our” mean the Company and the Operating Partnership, collectively,
unless the context indicates otherwise.
The Company conducts its activities through the Operating
Partnership and is its sole general partner. 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 18, 2022, the latest practicable date for financial
information prior to the filing of this Quarterly
Report.
This report combines the Quarterly Reports on Form 10-Q for the
period ended September 30, 2022 of the Company and the
Operating Partnership. We believe combining the quarterly reports
into this single report results in the following
benefits:
•combined
reports better reflect how management and investors view the
business as a single operating unit;
•combined
reports enhance investors’ understanding of the Company and the
Operating Partnership by enabling them to view the business as a
whole and in the same manner as management;
•combined
reports are more efficient for the Company and the Operating
Partnership and result in savings in time, effort and expense;
and
•combined
reports are more efficient for investors by reducing duplicative
disclosure and providing a single document for their
review.
To help investors understand the significant differences between
the Company and the Operating Partnership, this report presents the
following separate sections for each of the Company and the
Operating Partnership:
•Consolidated
Financial Statements;
•Note
13 to Consolidated Financial Statements - Earnings Per Share and
Per Unit;
•Item
4 - Controls and Procedures; and
•Item
6 - Certifications of CEO and CFO Pursuant to Sections 302 and 906
of the Sarbanes-Oxley Act.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30,
2022
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION |
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PART II - OTHER INFORMATION |
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(Unaudited and in thousands, except share and per share
data)
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September 30,
2022 |
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December 31,
2021 |
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Assets: |
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Real estate assets, at cost: |
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Land |
$ |
548,720 |
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$ |
549,228 |
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Buildings and tenant improvements |
5,867,137 |
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5,718,169 |
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Development in-process |
29,774 |
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6,890 |
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Land held for development |
231,911 |
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215,257 |
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6,677,542 |
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6,489,544 |
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Less-accumulated depreciation |
(1,562,374) |
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(1,457,511) |
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Net real estate assets |
5,115,168 |
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5,032,033 |
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Real estate and other assets, net, held for sale |
— |
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3,518 |
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Cash and cash equivalents |
23,055 |
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23,152 |
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Restricted cash |
6,038 |
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8,046 |
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Accounts receivable |
24,589 |
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14,002 |
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Mortgages and notes receivable |
1,103 |
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1,227 |
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Accrued straight-line rents receivable |
284,515 |
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268,324 |
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Investments in and advances to unconsolidated
affiliates |
88,974 |
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7,383 |
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Deferred leasing costs, net of accumulated amortization of $157,205
and $143,111, respectively
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255,831 |
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258,902 |
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Prepaid expenses and other assets, net of accumulated depreciation
of $20,753 and $21,408, respectively
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71,278 |
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78,551 |
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Total Assets |
$ |
5,870,551 |
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$ |
5,695,138 |
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Liabilities, Noncontrolling Interests in the Operating Partnership
and Equity: |
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Mortgages and notes payable, net |
$ |
2,973,369 |
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$ |
2,788,915 |
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Accounts payable, accrued expenses and other
liabilities |
307,294 |
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294,976 |
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Total Liabilities |
3,280,663 |
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3,083,891 |
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Commitments and contingencies |
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Noncontrolling interests in the Operating Partnership |
64,219 |
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111,689 |
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Equity: |
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Preferred Stock, $.01 par value, 50,000,000 authorized
shares;
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8.625% Series A Cumulative Redeemable Preferred Shares (liquidation
preference $1,000 per share), 28,821 shares issued and
outstanding
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28,821 |
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28,821 |
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Common Stock, $.01 par value, 200,000,000 authorized
shares;
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105,197,658 and 104,892,780 shares issued and outstanding,
respectively
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1,052 |
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1,049 |
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Additional paid-in capital |
3,083,229 |
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3,027,861 |
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Distributions in excess of net income available for common
stockholders |
(608,181) |
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(579,616) |
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Accumulated other comprehensive loss |
(1,137) |
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(973) |
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Total Stockholders’ Equity |
2,503,784 |
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2,477,142 |
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Noncontrolling interests in consolidated affiliates |
21,885 |
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22,416 |
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Total Equity |
2,525,669 |
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2,499,558 |
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Total Liabilities, Noncontrolling Interests in the Operating
Partnership and Equity |
$ |
5,870,551 |
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$ |
5,695,138 |
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See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(Unaudited and in thousands, except per share amounts)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Rental and other revenues |
$ |
206,997 |
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$ |
195,495 |
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$ |
617,216 |
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$ |
564,802 |
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Operating expenses: |
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Rental property and other expenses |
66,334 |
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60,567 |
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190,125 |
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172,982 |
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Depreciation and amortization |
73,057 |
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66,547 |
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212,466 |
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189,423 |
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Impairments of real estate assets |
1,515 |
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— |
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36,515 |
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— |
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General and administrative |
9,586 |
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10,350 |
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32,733 |
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30,409 |
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Total operating expenses |
150,492 |
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137,464 |
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471,839 |
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392,814 |
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Interest expense |
26,392 |
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21,986 |
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75,812 |
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60,755 |
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Other income |
138 |
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424 |
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621 |
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1,068 |
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Gains on disposition of property |
9,402 |
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38,572 |
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63,546 |
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80,371 |
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Equity in earnings of unconsolidated affiliates |
457 |
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546 |
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1,083 |
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1,614 |
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Net income |
40,110 |
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75,587 |
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134,815 |
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194,286 |
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Net (income) attributable to noncontrolling interests in the
Operating Partnership |
(881) |
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(1,967) |
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(3,049) |
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(5,084) |
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Net (income) attributable to noncontrolling interests in
consolidated affiliates |
(357) |
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(894) |
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(880) |
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(1,469) |
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Dividends on Preferred Stock |
(621) |
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(621) |
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(1,864) |
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(1,864) |
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Net income available for common stockholders |
$ |
38,251 |
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$ |
72,105 |
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$ |
129,022 |
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$ |
185,869 |
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Earnings per Common Share – basic: |
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Net income available for common stockholders |
$ |
0.36 |
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$ |
0.69 |
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$ |
1.23 |
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$ |
1.79 |
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Weighted average Common Shares outstanding – basic |
105,184 |
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104,277 |
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105,094 |
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104,117 |
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Earnings per Common Share – diluted: |
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Net income available for common stockholders |
$ |
0.36 |
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$ |
0.69 |
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$ |
1.23 |
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$ |
1.79 |
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Weighted average Common Shares outstanding – diluted |
107,601 |
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107,139 |
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107,570 |
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106,972 |
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See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2022 |
|
2021 |
|
2022 |
|
2021 |
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Comprehensive income: |
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Net income |
$ |
40,110 |
|
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$ |
75,587 |
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$ |
134,815 |
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$ |
194,286 |
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Other comprehensive income/(loss): |
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Unrealized losses on cash flow hedges |
— |
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(6) |
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— |
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(17) |
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Amortization of cash flow hedges |
(75) |
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129 |
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(164) |
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|
377 |
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Total other comprehensive income/(loss) |
(75) |
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123 |
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(164) |
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|
360 |
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Total comprehensive income |
40,035 |
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|
75,710 |
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|
134,651 |
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|
194,646 |
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Less-comprehensive (income) attributable to noncontrolling
interests |
(1,238) |
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(2,861) |
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(3,929) |
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(6,553) |
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Comprehensive income attributable to common
stockholders |
$ |
38,797 |
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$ |
72,849 |
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$ |
130,722 |
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$ |
188,093 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity
(Unaudited and in thousands, except share amounts)
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Three Months Ended September 30, 2022 |
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Number of Common Shares |
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Common Stock |
|
Series A Cumulative Redeemable Preferred Shares |
|
Additional Paid-In Capital |
|
Accumulated Other Compre-hensive Loss |
|
Non-controlling Interests in Consolidated Affiliates |
|
Distributions in Excess of Net Income Available for Common
Stockholders |
|
Total |
|
Balance at June 30, 2022 |
105,184,854 |
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|
$ |
1,052 |
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|
$ |
28,821 |
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$ |
3,065,208 |
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|
$ |
(1,062) |
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$ |
21,528 |
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|
$ |
(593,846) |
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$ |
2,521,701 |
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|
Issuances of Common Stock, net of issuance costs and tax
withholdings
|
13,583 |
|
|
— |
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|
— |
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|
362 |
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— |
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— |
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— |
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362 |
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Dividends on Common Stock ($0.50 per share)
|
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|
— |
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|
— |
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— |
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— |
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— |
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|
(52,586) |
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|
(52,586) |
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Dividends on Preferred Stock ($21.5625 per share)
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— |
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— |
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— |
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— |
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— |
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(621) |
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|
(621) |
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Adjustment of noncontrolling interests in the Operating Partnership
to fair value
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— |
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— |
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16,952 |
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— |
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— |
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— |
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16,952 |
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Share-based compensation expense, net of forfeitures |
(779) |
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— |
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— |
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|
707 |
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— |
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— |
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— |
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|
707 |
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Net (income) attributable to noncontrolling interests in the
Operating Partnership
|
|
|
— |
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— |
|
|
— |
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— |
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— |
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(881) |
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|
(881) |
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Net (income) attributable to noncontrolling interests in
consolidated affiliates
|
|
|
— |
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— |
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— |
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— |
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|
357 |
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(357) |
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|
— |
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Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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|
— |
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|
40,110 |
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|
40,110 |
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Other comprehensive loss |
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— |
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— |
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— |
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(75) |
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— |
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— |
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(75) |
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Total comprehensive income |
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|
40,035 |
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Balance at September 30, 2022 |
105,197,658 |
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|
$ |
1,052 |
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|
$ |
28,821 |
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|
$ |
3,083,229 |
|
|
$ |
(1,137) |
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$ |
21,885 |
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$ |
(608,181) |
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$ |
2,525,669 |
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Nine Months Ended September 30, 2022 |
|
Number of Common Shares |
|
Common Stock |
|
Series A Cumulative Redeemable Preferred Shares |
|
Additional Paid-In Capital |
|
Accumulated Other Compre-hensive Loss |
|
Non-controlling Interests in Consolidated Affiliates |
|
Distributions in Excess of Net Income Available for Common
Stockholders |
|
Total |
|
Balance at December 31, 2021 |
104,892,780 |
|
|
$ |
1,049 |
|
|
$ |
28,821 |
|
|
$ |
3,027,861 |
|
|
$ |
(973) |
|
|
$ |
22,416 |
|
|
$ |
(579,616) |
|
|
$ |
2,499,558 |
|
|
Issuances of Common Stock, net of issuance costs and tax
withholdings |
92,941 |
|
|
1 |
|
|
— |
|
|
4,796 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,797 |
|
|
Conversions of Common Units to Common Stock |
30,909 |
|
|
|
|
|
|
1,251 |
|
|
|
|
|
|
|
|
1,251 |
|
|
Dividends on Common Stock ($1.50 per share)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(157,587) |
|
|
(157,587) |
|
|
Dividends on Preferred Stock ($64.6875 per share)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,864) |
|
|
(1,864) |
|
|
Adjustment of noncontrolling interests in the Operating Partnership
to fair value |
|
|
— |
|
|
— |
|
|
42,480 |
|
|
— |
|
|
— |
|
|
— |
|
|
42,480 |
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,411) |
|
|
— |
|
|
(1,411) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of restricted stock |
181,807 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense, net of forfeitures |
(779) |
|
|
2 |
|
|
— |
|
|
6,841 |
|
|
— |
|
|
— |
|
|
— |
|
|
6,843 |
|
|
Net (income) attributable to noncontrolling interests in the
Operating Partnership |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,049) |
|
|
(3,049) |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
880 |
|
|
(880) |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
134,815 |
|
|
134,815 |
|
|
Other comprehensive loss |
|
|
— |
|
|
— |
|
|
— |
|
|
(164) |
|
|
— |
|
|
— |
|
|
(164) |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,651 |
|
|
Balance at September 30, 2022 |
105,197,658 |
|
|
$ |
1,052 |
|
|
$ |
28,821 |
|
|
$ |
3,083,229 |
|
|
$ |
(1,137) |
|
|
$ |
21,885 |
|
|
$ |
(608,181) |
|
|
$ |
2,525,669 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity - Continued
(Unaudited and in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021 |
|
Number of Common Shares |
|
Common Stock |
|
Series A Cumulative Redeemable Preferred Shares |
|
Additional Paid-In Capital |
|
Accumulated Other Compre-hensive Loss |
|
Non-controlling Interests in Consolidated Affiliates |
|
Distributions in Excess of Net Income Available for Common
Stockholders |
|
Total |
|
Balance at June 30, 2021 |
104,209,513 |
|
|
$ |
1,042 |
|
|
$ |
28,821 |
|
|
$ |
2,989,405 |
|
|
$ |
(1,225) |
|
|
$ |
21,839 |
|
|
$ |
(672,239) |
|
|
$ |
2,367,643 |
|
|
Issuances of Common Stock, net of issuance costs and tax
withholdings
|
168,311 |
|
|
2 |
|
|
— |
|
|
7,506 |
|
|
— |
|
|
— |
|
|
— |
|
|
7,508 |
|
|
Conversions of Common Units to Common Stock |
5,238 |
|
|
— |
|
|
— |
|
|
234 |
|
|
— |
|
|
— |
|
|
— |
|
|
234 |
|
|
Dividends on Common Stock ($0.50 per share)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(52,120) |
|
|
(52,120) |
|
|
Dividends on Preferred Stock ($21.5625 per share)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(621) |
|
|
(621) |
|
|
Adjustment of noncontrolling interests in the Operating Partnership
to fair value
|
|
|
— |
|
|
— |
|
|
4,262 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,262 |
|
|
Distributions to noncontrolling interests in consolidated
affiliates
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(560) |
|
|
— |
|
|
(560) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense, net of forfeitures |
— |
|
|
— |
|
|
— |
|
|
1,896 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,896 |
|
|
Net (income) attributable to noncontrolling interests in the
Operating Partnership
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,967) |
|
|
(1,967) |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
894 |
|
|
(894) |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
75,587 |
|
|
75,587 |
|
|
Other comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
123 |
|
|
— |
|
|
— |
|
|
123 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,710 |
|
|
Balance at September 30, 2021 |
104,383,062 |
|
|
$ |
1,044 |
|
|
$ |
28,821 |
|
|
$ |
3,003,303 |
|
|
$ |
(1,102) |
|
|
$ |
22,173 |
|
|
$ |
(652,254) |
|
|
$ |
2,401,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
Number of Common Shares |
|
Common Stock |
|
Series A Cumulative Redeemable Preferred Shares |
|
Additional Paid-In Capital |
|
Accumulated Other Compre-hensive Loss |
|
Non-controlling Interests in Consolidated Affiliates |
|
Distributions in Excess of Net Income Available for Common
Stockholders |
|
Total |
|
Balance at December 31, 2020 |
103,921,546 |
|
|
$ |
1,039 |
|
|
$ |
28,826 |
|
|
$ |
2,993,946 |
|
|
$ |
(1,462) |
|
|
$ |
22,046 |
|
|
$ |
(686,225) |
|
|
$ |
2,358,170 |
|
|
Issuances of Common Stock, net of issuance costs and tax
withholdings |
277,441 |
|
|
3 |
|
|
— |
|
|
13,402 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,405 |
|
|
Conversions of Common Units to Common Stock |
6,238 |
|
|
— |
|
|
— |
|
|
278 |
|
|
— |
|
|
— |
|
|
— |
|
|
278 |
|
|
Dividends on Common Stock ($1.46 per share)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(151,898) |
|
|
(151,898) |
|
|
Dividends on Preferred Stock ($64.6875 per share)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,864) |
|
|
(1,864) |
|
|
Adjustment of noncontrolling interests in the Operating Partnership
to fair value |
|
|
— |
|
|
— |
|
|
(11,072) |
|
|
— |
|
|
— |
|
|
— |
|
|
(11,072) |
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,342) |
|
|
— |
|
|
(1,342) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of restricted stock |
184,584 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Redemptions/repurchases of Preferred Stock |
|
|
— |
|
|
(5) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5) |
|
|
Share-based compensation expense, net of forfeitures |
(6,747) |
|
|
2 |
|
|
— |
|
|
6,749 |
|
|
— |
|
|
— |
|
|
— |
|
|
6,751 |
|
|
Net (income) attributable to noncontrolling interests in the
Operating Partnership |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,084) |
|
|
(5,084) |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,469 |
|
|
(1,469) |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
194,286 |
|
|
194,286 |
|
|
Other comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
360 |
|
|
— |
|
|
— |
|
|
360 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,646 |
|
|
Balance at September 30, 2021 |
104,383,062 |
|
|
$ |
1,044 |
|
|
$ |
28,821 |
|
|
$ |
3,003,303 |
|
|
$ |
(1,102) |
|
|
$ |
22,173 |
|
|
$ |
(652,254) |
|
|
$ |
2,401,985 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Operating activities: |
|
|
|
|
Net income |
$ |
134,815 |
|
|
$ |
194,286 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
212,466 |
|
|
189,423 |
|
|
Amortization of lease incentives and acquisition-related intangible
assets and liabilities |
(342) |
|
|
(1,770) |
|
|
Share-based compensation expense |
6,843 |
|
|
6,751 |
|
|
|
|
|
|
Net credit losses/(reversals) on operating lease
receivables |
3,167 |
|
|
(60) |
|
|
|
|
|
|
Accrued interest on mortgages and notes receivable |
(67) |
|
|
(79) |
|
|
Amortization of debt issuance costs |
3,096 |
|
|
2,963 |
|
|
Amortization of cash flow hedges |
(164) |
|
|
377 |
|
|
Amortization of mortgages and notes payable fair value
adjustments |
(60) |
|
|
882 |
|
|
Impairments of real estate assets |
36,515 |
|
|
— |
|
|
|
|
|
|
Losses on debt extinguishment |
— |
|
|
134 |
|
|
Net gains on disposition of property |
(63,546) |
|
|
(80,371) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
(1,083) |
|
|
(1,614) |
|
|
|
|
|
|
Distributions of earnings from unconsolidated
affiliates |
606 |
|
|
1,410 |
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
(11,454) |
|
|
5,753 |
|
|
Prepaid expenses and other assets |
(2,150) |
|
|
(1,210) |
|
|
Accrued straight-line rents receivable |
(20,558) |
|
|
(13,734) |
|
|
Accounts payable, accrued expenses and other
liabilities |
21,795 |
|
|
6,077 |
|
|
Net cash provided by operating activities |
319,879 |
|
|
309,218 |
|
|
Investing activities: |
|
|
|
|
Investments in acquired real estate and related intangible assets,
net of cash acquired |
(224,934) |
|
|
(270,160) |
|
|
Investments in development in-process |
(26,220) |
|
|
(65,333) |
|
|
Investments in tenant improvements and deferred leasing
costs |
(90,910) |
|
|
(68,197) |
|
|
Investments in building improvements |
(45,289) |
|
|
(34,452) |
|
|
Investment in acquired controlling interest in unconsolidated
affiliate |
— |
|
|
(127,339) |
|
|
Net proceeds from disposition of real estate assets |
130,038 |
|
|
187,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in mortgages and notes receivable |
(24) |
|
|
(56) |
|
|
Repayments of mortgages and notes receivable |
215 |
|
|
229 |
|
|
Investments in and advances to unconsolidated
affiliates |
(81,693) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Payments of earnest money deposits |
(3,000) |
|
|
— |
|
|
Changes in other investing activities |
224 |
|
|
4,119 |
|
|
Net cash used in investing activities |
(341,593) |
|
|
(373,225) |
|
|
Financing activities: |
|
|
|
|
Dividends on Common Stock |
(157,587) |
|
|
(151,898) |
|
|
|
|
|
|
Redemptions/repurchases of Preferred Stock |
— |
|
|
(5) |
|
|
Redemptions of Common Units |
(3,101) |
|
|
— |
|
|
Dividends on Preferred Stock |
(1,864) |
|
|
(1,864) |
|
|
Distributions to noncontrolling interests in the Operating
Partnership |
(3,687) |
|
|
(4,144) |
|
|
|
|
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
(1,411) |
|
|
(1,342) |
|
|
Proceeds from the issuance of Common Stock |
7,200 |
|
|
15,453 |
|
|
Costs paid for the issuance of Common Stock |
(247) |
|
|
(355) |
|
|
Repurchase of shares related to tax withholdings |
(2,156) |
|
|
(1,693) |
|
|
Borrowings on revolving credit facility |
275,000 |
|
|
310,000 |
|
|
Repayments of revolving credit facility |
(235,000) |
|
|
(175,000) |
|
|
Borrowings on mortgages and notes payable |
350,000 |
|
|
200,000 |
|
|
Repayments of mortgages and notes payable |
(204,807) |
|
|
(264,212) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in debt issuance costs and other financing
activities |
(2,731) |
|
|
(9,279) |
|
|
Net cash provided by/(used in) financing activities |
19,609 |
|
|
(84,339) |
|
|
Net decrease in cash and cash equivalents and restricted
cash |
$ |
(2,105) |
|
|
$ |
(148,346) |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows – Continued
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Net decrease in cash and cash equivalents and restricted
cash |
$ |
(2,105) |
|
|
$ |
(148,346) |
|
|
Cash and cash equivalents and restricted cash at beginning of the
period |
31,198 |
|
|
189,244 |
|
|
Cash and cash equivalents and restricted cash at end of the
period |
$ |
29,093 |
|
|
$ |
40,898 |
|
Reconciliation of cash and cash equivalents and restricted
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash and cash equivalents at end of the period |
$ |
23,055 |
|
|
$ |
27,871 |
|
|
Restricted cash at end of the period |
6,038 |
|
|
13,027 |
|
|
Cash and cash equivalents and restricted cash at end of the
period |
$ |
29,093 |
|
|
$ |
40,898 |
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash paid for interest, net of amounts capitalized |
$ |
82,908 |
|
|
$ |
66,457 |
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Unrealized losses on cash flow hedges |
$ |
— |
|
|
$ |
(17) |
|
|
Conversions of Common Units to Common Stock |
1,251 |
|
|
278 |
|
|
Changes in accrued capital expenditures
(1)
|
(10,180) |
|
|
(20,150) |
|
|
Write-off of fully depreciated real estate assets |
42,817 |
|
|
52,158 |
|
|
Write-off of fully amortized leasing costs |
22,739 |
|
|
37,045 |
|
|
Write-off of fully amortized debt issuance costs |
1,216 |
|
|
4,158 |
|
|
Adjustment of noncontrolling interests in the Operating Partnership
to fair value |
(42,480) |
|
|
11,072 |
|
|
|
|
|
|
|
|
|
|
Assumption of mortgages and notes payable related to acquisition
activities |
— |
|
|
403,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial recognition of lease liabilities related to right of use
assets |
— |
|
|
5,310 |
|
|
Future consideration in connection with the acquisition of
land |
— |
|
|
16,000 |
|
__________
(1)Accrued
capital expenditures included in accounts payable, accrued expenses
and other liabilities at September 30, 2022 and 2021 were
$44.4 million and $45.8 million, respectively.
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Unaudited and in thousands, except unit and per unit
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Assets: |
|
|
|
|
Real estate assets, at cost: |
|
|
|
|
Land |
$ |
548,720 |
|
|
$ |
549,228 |
|
|
Buildings and tenant improvements |
5,867,137 |
|
|
5,718,169 |
|
|
Development in-process |
29,774 |
|
|
6,890 |
|
|
Land held for development |
231,911 |
|
|
215,257 |
|
|
|
6,677,542 |
|
|
6,489,544 |
|
|
Less-accumulated depreciation |
(1,562,374) |
|
|
(1,457,511) |
|
|
Net real estate assets |
5,115,168 |
|
|
5,032,033 |
|
|
Real estate and other assets, net, held for sale |
— |
|
|
3,518 |
|
|
Cash and cash equivalents |
23,055 |
|
|
23,152 |
|
|
Restricted cash |
6,038 |
|
|
8,046 |
|
|
Accounts receivable |
24,589 |
|
|
14,002 |
|
|
Mortgages and notes receivable |
1,103 |
|
|
1,227 |
|
|
Accrued straight-line rents receivable |
284,515 |
|
|
268,324 |
|
|
Investments in and advances to unconsolidated
affiliates |
88,974 |
|
|
7,383 |
|
|
Deferred leasing costs, net of accumulated amortization of $157,205
and $143,111, respectively
|
255,831 |
|
|
258,902 |
|
|
Prepaid expenses and other assets, net of accumulated depreciation
of $20,753 and $21,408, respectively
|
71,278 |
|
|
78,551 |
|
|
Total Assets |
$ |
5,870,551 |
|
|
$ |
5,695,138 |
|
|
Liabilities, Redeemable Operating Partnership Units and
Capital: |
|
|
|
|
Mortgages and notes payable, net |
$ |
2,973,369 |
|
|
$ |
2,788,915 |
|
|
Accounts payable, accrued expenses and other
liabilities |
307,294 |
|
|
294,976 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
3,280,663 |
|
|
3,083,891 |
|
|
Commitments and contingencies |
|
|
|
|
Redeemable Operating Partnership Units: |
|
|
|
|
Common Units, 2,382,009 and 2,504,805 outstanding,
respectively
|
64,219 |
|
|
111,689 |
|
|
Series A Preferred Units (liquidation preference $1,000 per unit),
28,821 units issued and outstanding
|
28,821 |
|
|
28,821 |
|
|
Total Redeemable Operating Partnership Units |
93,040 |
|
|
140,510 |
|
|
Capital: |
|
|
|
|
Common Units: |
|
|
|
|
General partner Common Units, 1,071,709 and 1,069,888 outstanding,
respectively
|
24,759 |
|
|
24,492 |
|
|
Limited partner Common Units, 103,717,140 and 103,414,083
outstanding, respectively
|
2,451,341 |
|
|
2,424,802 |
|
|
Accumulated other comprehensive loss |
(1,137) |
|
|
(973) |
|
|
Noncontrolling interests in consolidated affiliates |
21,885 |
|
|
22,416 |
|
|
Total Capital |
2,496,848 |
|
|
2,470,737 |
|
|
Total Liabilities, Redeemable Operating Partnership Units and
Capital |
$ |
5,870,551 |
|
|
$ |
5,695,138 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(Unaudited and in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Rental and other revenues |
$ |
206,997 |
|
|
$ |
195,495 |
|
|
$ |
617,216 |
|
|
$ |
564,802 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Rental property and other expenses |
66,334 |
|
|
60,567 |
|
|
190,125 |
|
|
172,982 |
|
|
Depreciation and amortization |
73,057 |
|
|
66,547 |
|
|
212,466 |
|
|
189,423 |
|
|
Impairments of real estate assets |
1,515 |
|
|
— |
|
|
36,515 |
|
|
— |
|
|
General and administrative |
9,586 |
|
|
10,350 |
|
|
32,733 |
|
|
30,409 |
|
|
Total operating expenses |
150,492 |
|
|
137,464 |
|
|
471,839 |
|
|
392,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
26,392 |
|
|
21,986 |
|
|
75,812 |
|
|
60,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
138 |
|
|
424 |
|
|
621 |
|
|
1,068 |
|
|
|
|
|
|
|
|
|
|
Gains on disposition of property |
9,402 |
|
|
38,572 |
|
|
63,546 |
|
|
80,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
457 |
|
|
546 |
|
|
1,083 |
|
|
1,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
40,110 |
|
|
75,587 |
|
|
134,815 |
|
|
194,286 |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
(357) |
|
|
(894) |
|
|
(880) |
|
|
(1,469) |
|
|
Distributions on Preferred Units |
(621) |
|
|
(621) |
|
|
(1,864) |
|
|
(1,864) |
|
|
|
|
|
|
|
|
|
|
Net income available for common unitholders |
$ |
39,132 |
|
|
$ |
74,072 |
|
|
$ |
132,071 |
|
|
$ |
190,953 |
|
|
Earnings per Common Unit – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common unitholders |
$ |
0.37 |
|
|
$ |
0.69 |
|
|
$ |
1.23 |
|
|
$ |
1.79 |
|
|
Weighted average Common Units outstanding – basic |
107,192 |
|
|
106,705 |
|
|
107,154 |
|
|
106,546 |
|
|
Earnings per Common Unit – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common unitholders |
$ |
0.37 |
|
|
$ |
0.69 |
|
|
$ |
1.23 |
|
|
$ |
1.79 |
|
|
Weighted average Common Units outstanding – diluted |
107,192 |
|
|
106,730 |
|
|
107,161 |
|
|
106,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
Net income |
$ |
40,110 |
|
|
$ |
75,587 |
|
|
$ |
134,815 |
|
|
$ |
194,286 |
|
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on cash flow hedges |
— |
|
|
(6) |
|
|
— |
|
|
(17) |
|
|
Amortization of cash flow hedges |
(75) |
|
|
129 |
|
|
(164) |
|
|
377 |
|
|
Total other comprehensive income/(loss) |
(75) |
|
|
123 |
|
|
(164) |
|
|
360 |
|
|
Total comprehensive income |
40,035 |
|
|
75,710 |
|
|
134,651 |
|
|
194,646 |
|
|
Less-comprehensive (income) attributable to noncontrolling
interests |
(357) |
|
|
(894) |
|
|
(880) |
|
|
(1,469) |
|
|
Comprehensive income attributable to common unitholders |
$ |
39,678 |
|
|
$ |
74,816 |
|
|
$ |
133,771 |
|
|
$ |
193,177 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Capital
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
Common Units |
|
Accumulated
Other
Comprehensive Loss |
|
Noncontrolling
Interests in
Consolidated
Affiliates |
|
Total |
|
General
Partners’
Capital |
|
Limited
Partners’
Capital |
|
|
Balance at June 30, 2022 |
$ |
24,723 |
|
|
$ |
2,447,691 |
|
|
$ |
(1,062) |
|
|
$ |
21,528 |
|
|
$ |
2,492,880 |
|
|
Issuances of Common Units, net of issuance costs and tax
withholdings |
4 |
|
|
358 |
|
|
— |
|
|
— |
|
|
362 |
|
|
Redemptions of Common Units |
(31) |
|
|
(3,070) |
|
|
— |
|
|
— |
|
|
(3,101) |
|
|
Distributions on Common Units ($0.50 per unit)
|
(536) |
|
|
(53,037) |
|
|
— |
|
|
— |
|
|
(53,573) |
|
|
Distributions on Preferred Units ($21.5625 per unit)
|
(7) |
|
|
(614) |
|
|
— |
|
|
— |
|
|
(621) |
|
|
Share-based compensation expense, net of forfeitures |
7 |
|
|
700 |
|
|
— |
|
|
— |
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of Redeemable Common Units to fair value and
contributions/distributions from/to the General Partner |
202 |
|
|
19,957 |
|
|
— |
|
|
— |
|
|
20,159 |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
(4) |
|
|
(353) |
|
|
— |
|
|
357 |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
Net income |
401 |
|
|
39,709 |
|
|
— |
|
|
— |
|
|
40,110 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
(75) |
|
|
— |
|
|
(75) |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
40,035 |
|
|
Balance at September 30, 2022 |
$ |
24,759 |
|
|
$ |
2,451,341 |
|
|
$ |
(1,137) |
|
|
$ |
21,885 |
|
|
$ |
2,496,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
Common Units |
|
Accumulated
Other
Comprehensive Loss |
|
Noncontrolling
Interests in
Consolidated
Affiliates |
|
Total |
|
General
Partners’
Capital |
|
Limited
Partners’
Capital |
|
|
Balance at December 31, 2021 |
$ |
24,492 |
|
|
$ |
2,424,802 |
|
|
$ |
(973) |
|
|
$ |
22,416 |
|
|
$ |
2,470,737 |
|
|
Issuances of Common Units, net of issuance costs and tax
withholdings |
48 |
|
|
4,749 |
|
|
— |
|
|
— |
|
|
4,797 |
|
|
Redemptions of Common Units |
(31) |
|
|
(3,070) |
|
|
— |
|
|
— |
|
|
(3,101) |
|
|
Distributions on Common Units ($1.50 per unit)
|
(1,607) |
|
|
(159,053) |
|
|
— |
|
|
— |
|
|
(160,660) |
|
|
Distributions on Preferred Units ($64.6875 per unit)
|
(19) |
|
|
(1,845) |
|
|
— |
|
|
— |
|
|
(1,864) |
|
|
Share-based compensation expense, net of forfeitures |
68 |
|
|
6,775 |
|
|
— |
|
|
— |
|
|
6,843 |
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
— |
|
|
— |
|
|
— |
|
|
(1,411) |
|
|
(1,411) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of Redeemable Common Units to fair value and
contributions/distributions from/to the General Partner |
469 |
|
|
46,387 |
|
|
— |
|
|
— |
|
|
46,856 |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
(9) |
|
|
(871) |
|
|
— |
|
|
880 |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
Net income |
1,348 |
|
|
133,467 |
|
|
— |
|
|
— |
|
|
134,815 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
(164) |
|
|
— |
|
|
(164) |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
134,651 |
|
|
Balance at September 30, 2022 |
$ |
24,759 |
|
|
$ |
2,451,341 |
|
|
$ |
(1,137) |
|
|
$ |
21,885 |
|
|
$ |
2,496,848 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Capital - Continued
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021 |
|
Common Units |
|
Accumulated
Other
Comprehensive Loss |
|
Noncontrolling
Interests in
Consolidated
Affiliates |
|
Total |
|
General
Partners’
Capital |
|
Limited
Partners’
Capital |
|
|
Balance at June 30, 2021 |
$ |
23,182 |
|
|
$ |
2,295,026 |
|
|
$ |
(1,225) |
|
|
$ |
21,839 |
|
|
$ |
2,338,822 |
|
|
Issuances of Common Units, net of issuance costs and tax
withholdings |
75 |
|
|
7,433 |
|
|
— |
|
|
— |
|
|
7,508 |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on Common Units ($0.50 per unit)
|
(533) |
|
|
(52,800) |
|
|
— |
|
|
— |
|
|
(53,333) |
|
|
Distributions on Preferred Units ($21.5625 per unit)
|
(7) |
|
|
(614) |
|
|
— |
|
|
— |
|
|
(621) |
|
|
Share-based compensation expense, net of forfeitures |
19 |
|
|
1,877 |
|
|
— |
|
|
— |
|
|
1,896 |
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
— |
|
|
— |
|
|
— |
|
|
(560) |
|
|
(560) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of Redeemable Common Units to fair value and
contributions/distributions from/to the General Partner |
38 |
|
|
3,704 |
|
|
— |
|
|
— |
|
|
3,742 |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
(9) |
|
|
(885) |
|
|
— |
|
|
894 |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
Net income |
756 |
|
|
74,831 |
|
|
— |
|
|
— |
|
|
75,587 |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
123 |
|
|
— |
|
|
123 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
75,710 |
|
|
Balance at September 30, 2021 |
$ |
23,521 |
|
|
$ |
2,328,572 |
|
|
$ |
(1,102) |
|
|
$ |
22,173 |
|
|
$ |
2,373,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
Common Units |
|
Accumulated
Other
Comprehensive Loss |
|
Noncontrolling
Interests in
Consolidated
Affiliates |
|
Total |
|
General
Partners’
Capital |
|
Limited
Partners’
Capital |
|
|
Balance at December 31, 2020 |
$ |
23,087 |
|
|
$ |
2,285,673 |
|
|
$ |
(1,462) |
|
|
$ |
22,046 |
|
|
$ |
2,329,344 |
|
|
Issuances of Common Units, net of issuance costs and tax
withholdings |
134 |
|
|
13,271 |
|
|
— |
|
|
— |
|
|
13,405 |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on Common Units ($1.46 per unit)
|
(1,554) |
|
|
(153,891) |
|
|
— |
|
|
— |
|
|
(155,445) |
|
|
Distributions on Preferred Units ($64.6875 per unit)
|
(19) |
|
|
(1,845) |
|
|
— |
|
|
— |
|
|
(1,864) |
|
|
Share-based compensation expense, net of forfeitures |
68 |
|
|
6,683 |
|
|
— |
|
|
— |
|
|
6,751 |
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
— |
|
|
— |
|
|
— |
|
|
(1,342) |
|
|
(1,342) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of Redeemable Common Units to fair value and
contributions/distributions from/to the General Partner |
(123) |
|
|
(12,208) |
|
|
— |
|
|
— |
|
|
(12,331) |
|
|
Net (income) attributable to noncontrolling interests in
consolidated affiliates |
(15) |
|
|
(1,454) |
|
|
|
|
1,469 |
|
|
— |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
Net income |
1,943 |
|
|
192,343 |
|
|
— |
|
|
— |
|
|
194,286 |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
360 |
|
|
— |
|
|
360 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
194,646 |
|
|
Balance at September 30, 2021 |
$ |
23,521 |
|
|
$ |
2,328,572 |
|
|
$ |
(1,102) |
|
|
$ |
22,173 |
|
|
$ |
2,373,164 |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Operating activities: |
|
|
|
|
Net income |
$ |
134,815 |
|
|
$ |
194,286 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
212,466 |
|
|
189,423 |
|
|
Amortization of lease incentives and acquisition-related intangible
assets and liabilities |
(342) |
|
|
(1,770) |
|
|
Share-based compensation expense |
6,843 |
|
|
6,751 |
|
|
|
|
|
|
Net credit losses/(reversals) on operating lease
receivables |
3,167 |
|
|
(60) |
|
|
|
|
|
|
Accrued interest on mortgages and notes receivable |
(67) |
|
|
(79) |
|
|
Amortization of debt issuance costs |
3,096 |
|
|
2,963 |
|
|
Amortization of cash flow hedges |
(164) |
|
|
377 |
|
|
Amortization of mortgages and notes payable fair value
adjustments |
(60) |
|
|
882 |
|
|
Impairments of real estate assets |
36,515 |
|
|
— |
|
|
|
|
|
|
Losses on debt extinguishment |
— |
|
|
134 |
|
|
Net gains on disposition of property |
(63,546) |
|
|
(80,371) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
(1,083) |
|
|
(1,614) |
|
|
|
|
|
|
Distributions of earnings from unconsolidated
affiliates |
606 |
|
|
1,410 |
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
(11,454) |
|
|
5,753 |
|
|
Prepaid expenses and other assets |
(2,150) |
|
|
(1,210) |
|
|
Accrued straight-line rents receivable |
(20,558) |
|
|
(13,734) |
|
|
Accounts payable, accrued expenses and other
liabilities |
21,795 |
|
|
6,077 |
|
|
Net cash provided by operating activities |
319,879 |
|
|
309,218 |
|
|
Investing activities: |
|
|
|
|
Investments in acquired real estate and related intangible assets,
net of cash acquired |
(224,934) |
|
|
(270,160) |
|
|
Investments in development in-process |
(26,220) |
|
|
(65,333) |
|
|
Investments in tenant improvements and deferred leasing
costs |
(90,910) |
|
|
(68,197) |
|
|
Investments in building improvements |
(45,289) |
|
|
(34,452) |
|
|
Investment in acquired controlling interest in unconsolidated
affiliate |
— |
|
|
(127,339) |
|
|
Net proceeds from disposition of real estate assets |
130,038 |
|
|
187,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in mortgages and notes receivable |
(24) |
|
|
(56) |
|
|
Repayments of mortgages and notes receivable |
215 |
|
|
229 |
|
|
Investments in and advances to unconsolidated
affiliates |
(81,693) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Payments of earnest money deposits |
(3,000) |
|
|
— |
|
|
Changes in other investing activities |
224 |
|
|
4,119 |
|
|
Net cash used in investing activities |
(341,593) |
|
|
(373,225) |
|
|
Financing activities: |
|
|
|
|
Distributions on Common Units |
(160,660) |
|
|
(155,445) |
|
|
|
|
|
|
Redemptions/repurchases of Preferred Units |
— |
|
|
(5) |
|
|
Redemptions of Common Units |
(3,101) |
|
|
— |
|
|
Distributions on Preferred Units |
(1,864) |
|
|
(1,864) |
|
|
Distributions to noncontrolling interests in consolidated
affiliates |
(1,411) |
|
|
(1,342) |
|
|
Proceeds from the issuance of Common Units |
7,200 |
|
|
15,453 |
|
|
Costs paid for the issuance of Common Units |
(247) |
|
|
(355) |
|
|
Repurchase of units related to tax withholdings |
(2,156) |
|
|
(1,693) |
|
|
Borrowings on revolving credit facility |
275,000 |
|
|
310,000 |
|
|
Repayments of revolving credit facility |
(235,000) |
|
|
(175,000) |
|
|
Borrowings on mortgages and notes payable |
350,000 |
|
|
200,000 |
|
|
Repayments of mortgages and notes payable |
(204,807) |
|
|
(264,212) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in debt issuance costs and other financing
activities |
(3,345) |
|
|
(9,876) |
|
|
Net cash provided by/(used in) financing activities |
19,609 |
|
|
(84,339) |
|
|
Net decrease in cash and cash equivalents and restricted
cash |
$ |
(2,105) |
|
|
$ |
(148,346) |
|
See accompanying notes to consolidated financial
statements.
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - Continued
(Unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Net decrease in cash and cash equivalents and restricted
cash |
$ |
(2,105) |
|
|
$ |
(148,346) |
|
|
Cash and cash equivalents and restricted cash at beginning of the
period |
31,198 |
|
|
189,244 |
|
|
Cash and cash equivalents and restricted cash at end of the
period |
$ |
29,093 |
|
|
$ |
40,898 |
|
Reconciliation of cash and cash equivalents and restricted
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash and cash equivalents at end of the period |
$ |
23,055 |
|
|
$ |
27,871 |
|
|
Restricted cash at end of the period |
6,038 |
|
|
13,027 |
|
|
Cash and cash equivalents and restricted cash at end of the
period |
$ |
29,093 |
|
|
$ |
40,898 |
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Cash paid for interest, net of amounts capitalized |
$ |
82,908 |
|
|
$ |
66,457 |
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
Unrealized losses on cash flow hedges |
$ |
— |
|
|
$ |
(17) |
|
|
Changes in accrued capital expenditures
(1)
|
(10,180) |
|
|
(20,150) |
|
|
Write-off of fully depreciated real estate assets |
42,817 |
|
|
52,158 |
|
|
Write-off of fully amortized leasing costs |
22,739 |
|
|
37,045 |
|
|
Write-off of fully amortized debt issuance costs |
1,216 |
|
|
4,158 |
|
|
|
|
|
|
Adjustment of Redeemable Common Units to fair value |
(47,470) |
|
|
11,734 |
|
|
|
|
|
|
|
|
|
|
Assumption of mortgages and notes payable related to acquisition
activities |
— |
|
|
403,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial recognition of lease liabilities related to right of use
assets |
— |
|
|
5,310 |
|
|
Future consideration in connection with the acquisition of
land |
— |
|
|
16,000 |
|
__________
(1)Accrued
capital expenditures included in accounts payable, accrued expenses
and other liabilities at September 30, 2022 and 2021 were
$44.4 million and $45.8 million, respectively.
See accompanying notes to consolidated financial
statements.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(tabular dollar amounts in thousands, except per share and per unit
data)
(Unaudited)
1. Description of Business and Significant
Accounting Policies
Description of Business
Highwoods Properties, Inc. (the “Company”) is a fully integrated
office real estate investment trust (“REIT”) that owns, develops,
acquires, leases and manages properties primarily in the best
business districts of Atlanta, Charlotte, Dallas, Nashville,
Orlando, Raleigh, Richmond and Tampa. The Company conducts its
activities through Highwoods Realty Limited Partnership (the
“Operating Partnership”). At September 30, 2022, we owned or
had an interest in 28.1 million rentable square feet of in-service
properties, 1.4 million rentable square feet of office properties
under development and development land with approximately 5.0
million rentable square feet of potential office build
out.
Capital Structure
The Company is the sole general partner of the Operating
Partnership. At September 30, 2022, the Company owned all of
the Preferred Units and 104.8 million, or 97.8%, of the Common
Units in the Operating Partnership. Limited partners owned the
remaining 2.4 million Common Units. During the nine months ended
September 30, 2022, the Company redeemed 30,909 Common Units
for a like number of shares of Common Stock and 91,887 Common Units
for cash.
During 2020, we entered into separate equity distribution
agreements in which the Company may offer and sell up to $300.0
million in aggregate gross sales price of shares of Common Stock.
During the nine months ended September 30, 2022, the Company
issued 130,011 shares of Common Stock under its equity distribution
agreements at an average gross sales price of $46.50 per share and
received net proceeds, after sales commissions, of $6.0 million. As
a result of this activity and the redemptions discussed above, the
percentage of Common Units owned by the Company increased from
97.7% at December 31, 2021 to 97.8% at September 30,
2022.
Basis of Presentation
Our Consolidated Financial Statements are prepared in conformity
with accounting principles generally accepted in the United States
of America (“GAAP”).
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. We consolidate joint
venture investments, such as interests in partnerships and limited
liability companies, when we control the major operating and
financial policies of the investment through majority ownership, in
our capacity as a general partner or managing member or through
some other contractual right. In addition, we consolidate those
entities deemed to be variable interest entities in which we are
determined to be the primary beneficiary.
During the third quarter of 2022, we acquired an office building
using a special purpose entity owned by a qualified intermediary to
facilitate one or more potential Section 1031 reverse exchanges
under the Internal Revenue Code. To realize the tax deferrals
available under the Section 1031 exchanges, we must complete the
Section 1031 exchanges and take title to the to-be-exchanged
buildings within 180 days of the acquisition date. We have
determined that this entity is a variable interest entity of which
we are the primary beneficiary; and therefore, we consolidate this
entity. At September 30, 2022, we also have involvement with
four additional entities we determined to be variable interest
entities, one of which we are the primary beneficiary and is
consolidated and three of which we are not the primary beneficiary
and are not consolidated. (See Note 3).
All intercompany transactions and accounts have been
eliminated.
The unaudited interim consolidated financial statements and
accompanying unaudited consolidated financial information, in the
opinion of management, contain all adjustments (including normal
recurring accruals) necessary for a fair presentation of our
financial position, results of operations and cash flows. We have
condensed or omitted certain notes and other
information
from the interim Consolidated Financial Statements presented in
this Quarterly Report as permitted by SEC rules and regulations.
These Consolidated Financial Statements should be read in
conjunction with our 2021 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 our Consolidated Financial Statements and
accompanying notes. Actual results could differ from those
estimates.
Insurance
We are primarily self-insured for health care claims for
participating employees. We have stop-loss coverage to limit our
exposure to significant claims on a per claim and annual aggregate
basis. We determine our liabilities for claims, including incurred
but not reported losses, based on all relevant information,
including actuarial estimates of claim liabilities. At
September 30, 2022, a reserve of $0.6 million was recorded to
cover estimated reported and unreported claims.
Investment Activity
During the third quarter of 2022, we entered the Dallas market
through the formation of two joint ventures with Granite Properties
to develop the following Class AA assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project |
|
BBD |
|
Own % |
|
Rentable Square Feet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granite Park Six |
|
Frisco/Plano |
|
50% |
|
422,000 |
|
|
|
|
|
|
|
|
|
23Springs |
|
Uptown |
|
50% |
|
642,000 |
|
|
|
|
|
|
|
|
In connection with the formation, we agreed to contribute our 50.0%
share of the equity required to fund the development projects,
$55.7 million of which was funded on the formation date. We
determined that we have a variable interest in each of these
entities (see Note 3).
The Granite Park Six joint venture obtained a construction loan for
$115.0 million, with an interest rate of SOFR plus 394 basis points
and a maturity date of January 2026. In connection with this loan,
the Granite Park Six joint venture obtained an interest rate hedge
contract that effectively caps the underlying SOFR rate at 3.5%
with respect to $95.2 million of any outstanding amounts. The cap
expires in July 2024. No amounts were drawn on this loan as of
September 30, 2022. The 23Springs joint venture obtained a
construction loan for $265.0 million, with an interest rate of SOFR
plus 355 basis points and a maturity date of March 2026. In
connection with this loan, the 23Springs joint venture obtained an
interest rate hedge contract that effectively caps the underlying
SOFR rate at 3.5% with respect to $83.0 million of any outstanding
amounts. The cap expires in April 2024. No amounts were drawn on
this loan as of September 30, 2022.
We plan to fund our entry into the Dallas market, including our
share of the equity required to construct Granite Park Six and
23Springs, by exiting the Pittsburgh market (see Note 4). Our
Pittsburgh assets, which consist of 2,155,000 square feet of office
that was 90.3% occupied as of September 30, 2022, represent
approximately 6% of our overall net operating income.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (“FASB”) issued an
accounting standards update (“ASU”) that provides temporary
optional expedients and exceptions to the guidance on contract
modifications and hedge accounting to ease the financial reporting
burdens related to the expected market transition from LIBOR and
other interbank offered rates to alternative reference rates, such
as the Secured Overnight Financing Rate (“SOFR”). Entities can
elect not to apply certain modification accounting requirements to
contracts affected by reference rate reform, if certain criteria
are met. An entity that makes this election would not have to
remeasure the contracts at the modification date or reassess a
previous accounting determination. Entities can also elect various
optional expedients that would allow them to continue applying
hedge accounting for hedging relationships affected by reference
rate reform, if certain criteria are met. The guidance in this ASU
is optional and may be elected now through December 31, 2022
as reference rate reform activities occur. We will continue to
evaluate the impact of this ASU; however, we currently expect to
avail ourselves of such optional expedients and exceptions should
our modified contracts meet the required criteria.
2. Leases
Operating Leases
We generally lease our office properties to lessees in exchange for
fixed monthly payments that cover rent, property taxes, insurance
and certain cost recoveries, primarily common area maintenance.
Office properties owned by us that are under lease are primarily
located in Atlanta, Charlotte, Nashville, Orlando, Pittsburgh,
Raleigh, Richmond and Tampa and are leased to a wide variety of
lessees across many industries. Our leases are operating leases and
mostly range from
three to 10 years. We recognized rental and other revenues
related to operating lease payments of $203.9 million and $192.3
million during the three months ended September 30, 2022 and
2021, respectively, and $608.1 million and $554.6 million during
the nine months ended September 30, 2022 and 2021,
respectively. Included in these amounts are variable lease payments
of $16.9 million and $13.7 million during the three months ended
September 30, 2022 and 2021, respectively, and $51.9 million
and $42.7 million during the nine months ended September 30,
2022 and 2021, respectively.
3. Variable Interest Entities
The acquisition of SIX50 at Legacy Union in Charlotte was completed
in the third quarter of 2022 using a special purpose entity owned
by a qualified intermediary to facilitate one or more potential
Section 1031 reverse exchanges under the Internal Revenue Code. As
of September 30, 2022, this variable interest entity had total
assets, liabilities and cash flows of $200.6 million, $3.3 million,
and $0.5 million, respectively.
Consolidated Variable Interest Entity
In 2019, we and The Bromley Companies formed a joint venture to
construct Midtown West, a 150,000 square foot, multi-customer
office building located in the mixed-use Midtown Tampa project in
Tampa’s Westshore submarket. Midtown West has an anticipated total
investment of $71.3 million. Construction of Midtown West began in
the third quarter of 2019 and the building was placed in service in
the second quarter of 2021. At closing, we agreed to contribute
cash of $20.0 million, which has been fully funded, in exchange for
an 80.0% interest in the Midtown West joint venture and The Bromley
Companies contributed land valued at $5.0 million in exchange for
the remaining 20.0% interest. We also committed to provide a $46.3
million interest-only secured construction loan to the Midtown West
joint venture that is scheduled to mature in June 2023. The loan
bears interest at LIBOR plus 250 basis points. As of
September 30, 2022, $37.7 million under the loan has been
funded.
We determined that we have a variable interest in the Midtown West
joint venture primarily because the entity was designed to pass
along interest rate risk, equity price risk and operation risk to
us as both a debt and an equity holder and The Bromley Companies as
an equity holder. The Midtown West joint venture was further
determined to be a variable interest entity as it requires
additional subordinated financial support in the form of a loan
because the initial equity investment provided by us and The
Bromley Companies is not sufficient to finance its planned
investments and operations. We, as majority owner and managing
member and through our control rights as set forth in the joint
venture’s governance documents, were determined to be the primary
beneficiary as we have both the power to direct the activities that
most significantly affect the entity (primarily lease rates,
property operations and capital expenditures) and significant
economic exposure through our equity investment and loan
commitment. As such, the Midtown West joint venture is consolidated
and all intercompany transactions and accounts are eliminated. The
following table sets forth the assets and liabilities of the
Midtown West joint venture included on our Consolidated Balance
Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
|
|
|
|
Net real estate assets |
$ |
60,917 |
|
|
$ |
53,191 |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
1,246 |
|
|
$ |
389 |
|
|
Accounts receivable |
$ |
166 |
|
|
$ |
— |
|
|
Accrued straight-line rents receivable |
$ |
720 |
|
|
$ |
121 |
|
|
Deferred leasing costs, net |
$ |
2,251 |
|
|
$ |
1,519 |
|
|
Prepaid expenses and other assets, net |
$ |
160 |
|
|
$ |
163 |
|
|
Accounts payable, accrued expenses and other
liabilities |
$ |
1,476 |
|
|
$ |
646 |
|
The assets of the Midtown West joint venture can be used only to
settle obligations of the joint venture, and its creditors have no
recourse to our wholly owned assets.
Unconsolidated Variable Interest Entities
During the fourth quarter of 2021, we and Brand Properties, LLC
(“Brand”) formed a joint venture to construct 2827 Peachtree, a
135,000 square foot, multi-customer office building located in
Atlanta’s Buckhead submarket. 2827 Peachtree has an anticipated
total investment of $79.0 million. Construction of 2827
Peachtree began in the first quarter of 2022 with a scheduled
completion date in the third quarter of 2023. At closing, we agreed
to contribute cash of $13.3 million, which has been fully funded,
in exchange for a 50.0% interest in the 2827 Peachtree joint
venture and Brand contributed land valued at $7.7 million and cash
of $5.6 million in exchange for the remaining 50.0% interest. We
also committed to provide a $49.6 million interest-only secured
construction loan to the 2827 Peachtree joint venture that is
scheduled to mature in December 2024 with an option to extend for
one year. The loan bears interest at LIBOR plus 300 basis points.
As of September 30, 2022, no amounts under the loan have been
funded.
We determined that we have a variable interest in the 2827
Peachtree joint venture primarily because the entity was designed
to pass along interest rate risk, equity price risk and operation
risk to us as both a debt and equity holder and Brand as an equity
holder. The 2827 Peachtree joint venture was further determined to
be a variable interest entity as it requires additional
subordinated financial support in the form of a loan because the
initial equity investment provided by us and Brand is not
sufficient to finance its planned investments and operations. We
concluded we do not have the power to direct matters that most
significantly impact the activities of the entity and therefore do
not qualify as the primary beneficiary. Accordingly, the entity is
not consolidated. At September 30, 2022, our risk of loss with
respect to this arrangement was limited to the carrying value of
the investment balance of $13.7 million as no amounts were
outstanding under the loan. The assets of the 2827 Peachtree joint
venture can be used only to settle obligations of the joint venture
and its creditors have no recourse to our wholly owned
assets.
We also determined that we have a variable interest in both the
Granite Park Six and 23Springs joint ventures primarily because the
entities were designed to pass along interest rate risk, equity
price risk and operation risk to us and Granite Properties as
equity holders. The joint ventures were further determined to be
variable interest entities as they require additional subordinated
financial support in the form of loans because the initial equity
investments provided by us and Granite Properties are not
sufficient to finance the planned investments and operations. We
concluded we do not have the power to direct matters that most
significantly impact the activities of either entity and therefore
do not qualify as the primary beneficiary. Accordingly, the
entities are not consolidated. At September 30, 2022, our risk
of loss with respect to these arrangements was limited to the
carrying value of each investment balance as no amounts were
outstanding under the loans. Our investment balances were
$36.1 million and $37.9 million at September 30,
2022 for Granite Park Six and 23Springs, respectively. The assets
of the Granite Park Six and 23Springs joint ventures can be used
only to settle obligations of the respective joint venture and
their creditors have no recourse to our wholly owned
assets.
4. Real Estate Assets
Acquisitions
During the third quarter of 2022, we acquired SIX50 at Legacy
Union, a 367,000 square foot trophy office building in Charlotte’s
Uptown CBD submarket, for a net purchase price of
$198.0 million. The assets acquired and liabilities assumed
were recorded at relative fair value as determined by management,
with the assistance of third party specialists, based on
information available at the acquisition date and on current
assumptions as to future operations.
During the second quarter of 2022, we acquired land in Charlotte
for an aggregate purchase price, including capitalized acquisition
costs, of $27.0 million.
Dispositions
During the third quarter of 2022, we sold land in Richmond for a
sales price of $23.3 million and recorded a gain on disposition of
property of $9.4 million.
During the second quarter of 2022, we sold office buildings and
land in Atlanta, Greensboro and Tampa for an aggregate sales price
of $100.7 million (before closing credits to buyers of $1.1
million) and recorded aggregate gains on disposition of property of
$50.0 million.
During the first quarter of 2022, we sold land in Tampa for a sales
price of $9.6 million and recorded a gain on disposition of
property of $4.1 million.
Impairments
Because we classified all of our assets in Pittsburgh as non-core,
we recorded the following impairment charges in 2022:
•During
the third quarter of 2022, we recorded an impairment charge of
$1.5 million to lower the carrying amount of a land parcel in
Pittsburgh to its estimated fair value less costs to sell;
and
•During
the second quarter of 2022, we recorded an impairment charge of
$35.0 million to lower the carrying amount of EQT Plaza (including
accrued straight-line rents receivable and deferred leasing costs)
to its estimated fair value less costs to sell. EQT Plaza is a
616,000 square foot office building located in the heart of
Pittsburgh’s CBD. EQT Corporation’s lease of 317,000 square feet at
EQT Plaza is scheduled to expire in September 2024.
5. 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,
2022 |
|
December 31,
2021 |
|
Assets: |
|
|
|
|
Deferred leasing costs (including lease incentives and above market
lease and in-place lease acquisition-related intangible
assets) |
$ |
413,036 |
|
|
$ |
402,013 |
|
|
Less accumulated amortization |
(157,205) |
|
|
(143,111) |
|
|
|
$ |
255,831 |
|
|
$ |
258,902 |
|
|
Liabilities (in accounts payable, accrued expenses and other
liabilities): |
|
|
|
|
Acquisition-related below market lease liabilities |
$ |
55,371 |
|
|
$ |
57,703 |
|
|
Less accumulated amortization |
(28,633) |
|
|
(28,978) |
|
|
|
$ |
26,738 |
|
|
$ |
28,725 |
|
The following table sets forth amortization of intangible assets
and below market lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Amortization of deferred leasing costs and acquisition-related
intangible assets (in depreciation and amortization) |
$ |
11,425 |
|
|
$ |
10,070 |
|
|
$ |
33,603 |
|
|
$ |
27,267 |
|
|
Amortization of lease incentives (in rental and other
revenues) |
$ |
500 |
|
|
$ |
424 |
|
|
$ |
1,369 |
|
|
$ |
1,317 |
|
|
Amortization of acquisition-related intangible assets (in rental
and other revenues) |
$ |
797 |
|
|
$ |
636 |
|
|
$ |
2,448 |
|
|
$ |
1,154 |
|
|
|
|
|
|
|
|
|
|
Amortization of acquisition-related below market lease liabilities
(in rental and other revenues) |
$ |
(1,473) |
|
|
$ |
(1,391) |
|
|
$ |
(4,159) |
|
|
$ |
(4,241) |
|
The following table sets forth scheduled future amortization of
intangible assets and below market lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Deferred Leasing Costs and Acquisition-Related
Intangible Assets (in Depreciation and Amortization) |
|
Amortization of Lease Incentives (in Rental and Other
Revenues) |
|
Amortization of Acquisition-Related Intangible Assets (in Rental
and Other Revenues) |
|
|
|
Amortization of Acquisition-Related Below Market Lease Liabilities
(in Rental and Other Revenues) |
|
October 1 through December 31, 2022 |
|
|
|
$ |
11,068 |
|
|
$ |
488 |
|
|
$ |
865 |
|
|
|
|
$ |
(1,275) |
|
|
|