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, 20212022
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)
| | | | | | | | |
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,150 Fayetteville Street, Suite 6001400
Raleigh, NC 2760427601
(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:
| | | | | | | | |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
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 104,383,062105,197,658 shares of Common Stock outstanding as of October 19, 2021.18, 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 19, 2021,18, 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, 20212022 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, 20212022
TABLE OF CONTENTS
| | | | | |
| Page |
| |
PART I - FINANCIAL INFORMATION | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
PART II - OTHER INFORMATION | |
| |
| |
| |
| |
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)
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Assets: | Assets: | | | | Assets: | | | |
Real estate assets, at cost: | Real estate assets, at cost: | | Real estate assets, at cost: | |
Land | Land | $ | 552,314 | | | $ | 466,872 | | Land | $ | 548,720 | | | $ | 549,228 | |
Buildings and tenant improvements | Buildings and tenant improvements | 5,725,733 | | | 4,981,637 | | Buildings and tenant improvements | 5,867,137 | | | 5,718,169 | |
Development in-process | Development in-process | — | | | 259,681 | | Development in-process | 29,774 | | | 6,890 | |
Land held for development | Land held for development | 185,152 | | | 131,474 | | Land held for development | 231,911 | | | 215,257 | |
| | 6,463,199 | | | 5,839,664 | | | 6,677,542 | | | 6,489,544 | |
Less-accumulated depreciation | Less-accumulated depreciation | (1,444,510) | | | (1,418,379) | | Less-accumulated depreciation | (1,562,374) | | | (1,457,511) | |
Net real estate assets | Net real estate assets | 5,018,689 | | | 4,421,285 | | Net real estate assets | 5,115,168 | | | 5,032,033 | |
Real estate and other assets, net, held for sale | Real estate and other assets, net, held for sale | 69,806 | | | 11,360 | | Real estate and other assets, net, held for sale | — | | | 3,518 | |
Cash and cash equivalents | Cash and cash equivalents | 27,871 | | | 109,322 | | Cash and cash equivalents | 23,055 | | | 23,152 | |
Restricted cash | Restricted cash | 13,027 | | | 79,922 | | Restricted cash | 6,038 | | | 8,046 | |
Accounts receivable | Accounts receivable | 15,269 | | | 27,488 | | Accounts receivable | 24,589 | | | 14,002 | |
Mortgages and notes receivable | Mortgages and notes receivable | 1,247 | | | 1,341 | | Mortgages and notes receivable | 1,103 | | | 1,227 | |
Accrued straight-line rents receivable | Accrued straight-line rents receivable | 262,233 | | | 259,381 | | Accrued straight-line rents receivable | 284,515 | | | 268,324 | |
Investments in and advances to unconsolidated affiliates | Investments in and advances to unconsolidated affiliates | 1,071 | | | 27,104 | | Investments in and advances to unconsolidated affiliates | 88,974 | | | 7,383 | |
Deferred leasing costs, net of accumulated amortization of $139,175 and $151,698, respectively | 267,405 | | | 209,329 | | |
Prepaid expenses and other assets, net of accumulated depreciation of $20,891 and $21,154, respectively | 77,454 | | | 62,885 | | |
Deferred leasing costs, net of accumulated amortization of $157,205 and $143,111, respectively | | 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 | | Prepaid expenses and other assets, net of accumulated depreciation of $20,753 and $21,408, respectively | 71,278 | | | 78,551 | |
Total Assets | Total Assets | $ | 5,754,072 | | | $ | 5,209,417 | | Total Assets | $ | 5,870,551 | | | $ | 5,695,138 | |
Liabilities, Noncontrolling Interests in the Operating Partnership and Equity: | Liabilities, Noncontrolling Interests in the Operating Partnership and Equity: | | | | Liabilities, Noncontrolling Interests in the Operating Partnership and Equity: | | | |
Mortgages and notes payable, net | Mortgages and notes payable, net | $ | 2,942,902 | | | $ | 2,470,021 | | Mortgages and notes payable, net | $ | 2,973,369 | | | $ | 2,788,915 | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 284,952 | | | 268,727 | | Accounts payable, accrued expenses and other liabilities | 307,294 | | | 294,976 | |
| Total Liabilities | Total Liabilities | 3,227,854 | | | 2,738,748 | | Total Liabilities | 3,280,663 | | | 3,083,891 | |
Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | |
Noncontrolling interests in the Operating Partnership | Noncontrolling interests in the Operating Partnership | 124,233 | | | 112,499 | | Noncontrolling interests in the Operating Partnership | 64,219 | | | 111,689 | |
Equity: | Equity: | | Equity: | |
Preferred Stock, $.01 par value, 50,000,000 authorized shares; | Preferred Stock, $.01 par value, 50,000,000 authorized shares; | | Preferred Stock, $.01 par value, 50,000,000 authorized shares; | |
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,821 and 28,826 shares issued and outstanding, respectively | 28,821 | | | 28,826 | | |
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,821 shares issued and outstanding | | 8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,821 shares issued and outstanding | 28,821 | | | 28,821 | |
Common Stock, $.01 par value, 200,000,000 authorized shares; | Common Stock, $.01 par value, 200,000,000 authorized shares; | | Common Stock, $.01 par value, 200,000,000 authorized shares; | |
104,383,062 and 103,921,546 shares issued and outstanding, respectively | 1,044 | | | 1,039 | | |
105,197,658 and 104,892,780 shares issued and outstanding, respectively | | 105,197,658 and 104,892,780 shares issued and outstanding, respectively | 1,052 | | | 1,049 | |
Additional paid-in capital | Additional paid-in capital | 3,003,303 | | | 2,993,946 | | Additional paid-in capital | 3,083,229 | | | 3,027,861 | |
Distributions in excess of net income available for common stockholders | Distributions in excess of net income available for common stockholders | (652,254) | | | (686,225) | | Distributions in excess of net income available for common stockholders | (608,181) | | | (579,616) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,102) | | | (1,462) | | Accumulated other comprehensive loss | (1,137) | | | (973) | |
Total Stockholders’ Equity | Total Stockholders’ Equity | 2,379,812 | | | 2,336,124 | | Total Stockholders’ Equity | 2,503,784 | | | 2,477,142 | |
Noncontrolling interests in consolidated affiliates | Noncontrolling interests in consolidated affiliates | 22,173 | | | 22,046 | | Noncontrolling interests in consolidated affiliates | 21,885 | | | 22,416 | |
Total Equity | Total Equity | 2,401,985 | | | 2,358,170 | | Total Equity | 2,525,669 | | | 2,499,558 | |
Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity | Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity | $ | 5,754,072 | | | $ | 5,209,417 | | Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity | $ | 5,870,551 | | | $ | 5,695,138 | |
See accompanying notes to consolidated financial statements.
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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Rental and other revenues | Rental and other revenues | $ | 195,495 | | | $ | 181,043 | | | $ | 564,802 | | | $ | 556,996 | | Rental and other revenues | $ | 206,997 | | | $ | 195,495 | | | $ | 617,216 | | | $ | 564,802 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Rental property and other expenses | Rental property and other expenses | 60,567 | | | 56,892 | | | 172,982 | | | 174,213 | | Rental property and other expenses | 66,334 | | | 60,567 | | | 190,125 | | | 172,982 | |
Depreciation and amortization | Depreciation and amortization | 66,547 | | | 60,303 | | | 189,423 | | | 180,914 | | Depreciation and amortization | 73,057 | | | 66,547 | | | 212,466 | | | 189,423 | |
Impairments of real estate assets | Impairments of real estate assets | — | | | — | | | — | | | 1,778 | | Impairments of real estate assets | 1,515 | | | — | | | 36,515 | | | — | |
General and administrative | General and administrative | 10,350 | | | 9,155 | | | 30,409 | | | 30,169 | | General and administrative | 9,586 | | | 10,350 | | | 32,733 | | | 30,409 | |
Total operating expenses | Total operating expenses | 137,464 | | | 126,350 | | | 392,814 | | | 387,074 | | Total operating expenses | 150,492 | | | 137,464 | | | 471,839 | | | 392,814 | |
| Interest expense | Interest expense | 21,986 | | | 19,886 | | | 60,755 | | | 61,003 | | Interest expense | 26,392 | | | 21,986 | | | 75,812 | | | 60,755 | |
| Other income/(loss) | 424 | | | (3,311) | | | 1,068 | | | (2,654) | | |
Other income | | Other income | 138 | | | 424 | | | 621 | | | 1,068 | |
| Gains on disposition of property | Gains on disposition of property | 38,572 | | | 10,012 | | | 80,371 | | | 163,397 | | Gains on disposition of property | 9,402 | | | 38,572 | | | 63,546 | | | 80,371 | |
| Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | 546 | | | 823 | | | 1,614 | | | 2,965 | | Equity in earnings of unconsolidated affiliates | 457 | | | 546 | | | 1,083 | | | 1,614 | |
| Net income | Net income | 75,587 | | | 42,331 | | | 194,286 | | | 272,627 | | Net income | 40,110 | | | 75,587 | | | 134,815 | | | 194,286 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | Net (income) attributable to noncontrolling interests in the Operating Partnership | (1,967) | | | (1,107) | | | (5,084) | | | (7,084) | | Net (income) attributable to noncontrolling interests in the Operating Partnership | (881) | | | (1,967) | | | (3,049) | | | (5,084) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Dividends on Preferred Stock | Dividends on Preferred Stock | (621) | | | (622) | | | (1,864) | | | (1,866) | | Dividends on Preferred Stock | (621) | | | (621) | | | (1,864) | | | (1,864) | |
| Net income available for common stockholders | Net income available for common stockholders | $ | 72,105 | | | $ | 40,304 | | | $ | 185,869 | | | $ | 262,805 | | Net income available for common stockholders | $ | 38,251 | | | $ | 72,105 | | | $ | 129,022 | | | $ | 185,869 | |
Earnings per Common Share – basic: | Earnings per Common Share – basic: | | | | | | | | Earnings per Common Share – basic: | | | | | | | |
| Net income available for common stockholders | Net income available for common stockholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.53 | | Net income available for common stockholders | $ | 0.36 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
Weighted average Common Shares outstanding – basic | Weighted average Common Shares outstanding – basic | 104,277 | | | 103,896 | | | 104,117 | | | 103,865 | | Weighted average Common Shares outstanding – basic | 105,184 | | | 104,277 | | | 105,094 | | | 104,117 | |
Earnings per Common Share – diluted: | Earnings per Common Share – diluted: | | | | | | | | Earnings per Common Share – diluted: | | | | | | | |
| Net income available for common stockholders | Net income available for common stockholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.53 | | Net income available for common stockholders | $ | 0.36 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
Weighted average Common Shares outstanding – diluted | Weighted average Common Shares outstanding – diluted | 107,139 | | | 106,740 | | | 106,972 | | | 106,702 | | Weighted average Common Shares outstanding – diluted | 107,601 | | | 107,139 | | | 107,570 | | | 106,972 | |
|
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Comprehensive income: | Comprehensive income: | | | | | | | | Comprehensive income: | | | | | | | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Other comprehensive income/(loss): | Other comprehensive income/(loss): | | Other comprehensive income/(loss): | |
| Unrealized gains/(losses) on cash flow hedges | (6) | | | 5 | | | (17) | | | (1,231) | | |
Unrealized losses on cash flow hedges | | Unrealized losses on cash flow hedges | — | | | (6) | | | — | | | (17) | |
Amortization of cash flow hedges | Amortization of cash flow hedges | 129 | | | 122 | | | 377 | | | 125 | | Amortization of cash flow hedges | (75) | | | 129 | | | (164) | | | 377 | |
Total other comprehensive income/(loss) | Total other comprehensive income/(loss) | 123 | | | 127 | | | 360 | | | (1,106) | | Total other comprehensive income/(loss) | (75) | | | 123 | | | (164) | | | 360 | |
Total comprehensive income | Total comprehensive income | 75,710 | | | 42,458 | | | 194,646 | | | 271,521 | | Total comprehensive income | 40,035 | | | 75,710 | | | 134,651 | | | 194,646 | |
Less-comprehensive (income) attributable to noncontrolling interests | Less-comprehensive (income) attributable to noncontrolling interests | (2,861) | | | (1,405) | | | (6,553) | | | (7,956) | | Less-comprehensive (income) attributable to noncontrolling interests | (1,238) | | | (2,861) | | | (3,929) | | | (6,553) | |
Comprehensive income attributable to common stockholders | Comprehensive income attributable to common stockholders | $ | 72,849 | | | $ | 41,053 | | | $ | 188,093 | | | $ | 263,565 | | Comprehensive income attributable to common stockholders | $ | 38,797 | | | $ | 72,849 | | | $ | 130,722 | | | $ | 188,093 | |
See accompanying notes to consolidated financial statements.
HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity
(Unaudited and in thousands, except share amounts)
| | | Three Months Ended September 30, 2021 | | Three 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 | | 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 | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | 105,184,854 | | | $ | 1,052 | | | $ | 28,821 | | | $ | 3,065,208 | | | $ | (1,062) | | | $ | 21,528 | | | $ | (593,846) | | | $ | 2,521,701 | |
Issuances of Common Stock, net of issuance costs and tax withholdings | Issuances of Common Stock, net of issuance costs and tax withholdings | 168,311 | | | 2 | | | — | | | 7,506 | | | — | | | — | | | — | | | 7,508 | | Issuances of Common Stock, net of issuance costs and tax withholdings | 13,583 | | | — | | | — | | | 362 | | | — | | | — | | | — | | | 362 | |
Conversions of Common Units to Common Stock | 5,238 | | | — | | | — | | | 234 | | | — | | | — | | | — | | | 234 | | |
| Dividends on Common Stock ($0.50 per share) | Dividends on Common Stock ($0.50 per share) | | — | | | — | | | — | | | — | | | — | | | (52,120) | | | (52,120) | | Dividends on Common Stock ($0.50 per share) | | — | | | — | | | — | | | — | | | — | | | (52,586) | | | (52,586) | |
Dividends on Preferred Stock ($21.5625 per share) | Dividends on Preferred Stock ($21.5625 per share) | | — | | | — | | | — | | | — | | | — | | | (621) | | | (621) | | Dividends on Preferred Stock ($21.5625 per share) | | — | | | — | | | — | | | — | | | — | | | (621) | | | (621) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | 4,262 | | | — | | | — | | | — | | | 4,262 | | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | 16,952 | | | — | | | — | | | — | | | 16,952 | |
Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (560) | | | — | | | (560) | | |
| | Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | — | | | — | | | — | | | 1,896 | | | — | | | — | | | — | | | 1,896 | | Share-based compensation expense, net of forfeitures | (779) | | | — | | | — | | | 707 | | | — | | | — | | | — | | | 707 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (1,967) | | | (1,967) | | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (881) | | | (881) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 894 | | | (894) | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 357 | | | (357) | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | 75,587 | | | 75,587 | | Net income | | — | | | — | | | — | | | — | | | — | | | 40,110 | | | 40,110 | |
Other comprehensive income | | — | | | — | | | — | | | 123 | | | — | | | — | | | 123 | | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | (75) | | | — | | | — | | | (75) | |
Total comprehensive income | Total comprehensive income | | 75,710 | | Total comprehensive income | | 40,035 | |
Balance at September 30, 2021 | 104,383,062 | | | $ | 1,044 | | | $ | 28,821 | | | $ | 3,003,303 | | | $ | (1,102) | | | $ | 22,173 | | | $ | (652,254) | | | $ | 2,401,985 | | |
Balance at September 30, 2022 | | Balance at September 30, 2022 | 105,197,658 | | | $ | 1,052 | | | $ | 28,821 | | | $ | 3,083,229 | | | $ | (1,137) | | | $ | 21,885 | | | $ | (608,181) | | | $ | 2,525,669 | |
| | | Nine Months Ended September 30, 2021 | | 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 | | 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 | | |
Balance at December 31, 2021 | | 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 | Issuances of Common Stock, net of issuance costs and tax withholdings | 277,441 | | | 3 | | | — | | | 13,402 | | | — | | | — | | | — | | | 13,405 | | 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 | Conversions of Common Units to Common Stock | 6,238 | | | — | | | — | | | 278 | | | — | | | — | | | — | | | 278 | | Conversions of Common Units to Common Stock | 30,909 | | | 1,251 | | | 1,251 | |
Dividends on Common Stock ($1.46 per share) | | — | | | — | | | — | | | — | | | — | | | (151,898) | | | (151,898) | | |
Dividends on Preferred Stock ($64.688 per share) | | — | | | — | | | — | | | — | | | — | | | (1,864) | | | (1,864) | | |
Dividends on Common Stock ($1.50 per share) | | Dividends on Common Stock ($1.50 per share) | | — | | | — | | | — | | | — | | | — | | | (157,587) | | | (157,587) | |
Dividends on Preferred Stock ($64.6875 per share) | | Dividends on Preferred Stock ($64.6875 per share) | | — | | | — | | | — | | | — | | | — | | | (1,864) | | | (1,864) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | (11,072) | | | — | | | — | | | — | | | (11,072) | | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | 42,480 | | | — | | | — | | | — | | | 42,480 | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (1,342) | | | — | | | (1,342) | | Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (1,411) | | | — | | | (1,411) | |
| Issuances of restricted stock | Issuances of restricted stock | 184,584 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Issuances of restricted stock | 181,807 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Redemptions/repurchases of Preferred Stock | | — | | | (5) | | | — | | | — | | | — | | | — | | | (5) | | |
| Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | (6,747) | | | 2 | | | — | | | 6,749 | | | — | | | — | | | — | | | 6,751 | | Share-based compensation expense, net of forfeitures | (779) | | | 2 | | | — | | | 6,841 | | | — | | | — | | | — | | | 6,843 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (5,084) | | | (5,084) | | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (3,049) | | | (3,049) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 1,469 | | | (1,469) | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 880 | | | (880) | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | 194,286 | | | 194,286 | | Net income | | — | | | — | | | — | | | — | | | — | | | 134,815 | | | 134,815 | |
Other comprehensive income | | — | | | — | | | — | | | 360 | | | — | | | — | | | 360 | | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | (164) | | | — | | | — | | | (164) | |
Total comprehensive income | Total comprehensive income | | 194,646 | | Total comprehensive income | | 134,651 | |
Balance at September 30, 2021 | 104,383,062 | | | $ | 1,044 | | | $ | 28,821 | | | $ | 3,003,303 | | | $ | (1,102) | | | $ | 22,173 | | | $ | (652,254) | | | $ | 2,401,985 | | |
Balance at September 30, 2022 | | 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, 2020 | | 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 | | 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, 2020 | 103,896,936 | | | $ | 1,039 | | | $ | 28,843 | | | $ | 2,996,442 | | | $ | (1,704) | | | $ | 21,755 | | | $ | (708,903) | | | $ | 2,337,472 | | |
Balance at June 30, 2021 | | 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 | Issuances of Common Stock, net of issuance costs and tax withholdings | 11,293 | | | — | | | — | | | 387 | | | — | | | — | | | — | | | 387 | | Issuances of Common Stock, net of issuance costs and tax withholdings | 168,311 | | | 2 | | | — | | | 7,506 | | | — | | | — | | | — | | | 7,508 | |
| Dividends on Common Stock ($0.48 per share) | | — | | | — | | | — | | | — | | | — | | | (49,866) | | | (49,866) | | |
Conversions of Common Units to Common Stock | | Conversions of Common Units to Common Stock | 5,238 | | | — | | | — | | | 234 | | | — | | | — | | | — | | | 234 | |
Dividends on Common Stock ($0.50 per share) | | Dividends on Common Stock ($0.50 per share) | | — | | | — | | | — | | | — | | | — | | | (52,120) | | | (52,120) | |
Dividends on Preferred Stock ($21.5625 per share) | Dividends on Preferred Stock ($21.5625 per share) | | — | | | — | | | — | | | — | | | — | | | (622) | | | (622) | | Dividends on Preferred Stock ($21.5625 per share) | | — | | | — | | | — | | | — | | | — | | | (621) | | | (621) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | 10,430 | | | — | | | — | | | — | | | 10,430 | | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | 4,262 | | | — | | | — | | | — | | | 4,262 | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (295) | | | — | | | (295) | | Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (560) | | | — | | | (560) | |
| Redemptions/repurchases of Preferred Stock | | — | | | (17) | | | — | | | — | | | — | | | — | | | (17) | | |
| Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | — | | | — | | | — | | | 1,242 | | | — | | | — | | | — | | | 1,242 | | Share-based compensation expense, net of forfeitures | — | | | — | | | — | | | 1,896 | | | — | | | — | | | — | | | 1,896 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (1,107) | | | (1,107) | | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (1,967) | | | (1,967) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 298 | | | (298) | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 894 | | | (894) | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | 42,331 | | | 42,331 | | Net income | | — | | | — | | | — | | | — | | | — | | | 75,587 | | | 75,587 | |
Other comprehensive income | Other comprehensive income | | — | | | — | | | — | | | 127 | | | — | | | — | | | 127 | | Other comprehensive income | | — | | | — | | | — | | | 123 | | | — | | | — | | | 123 | |
Total comprehensive income | Total comprehensive income | | 42,458 | | Total comprehensive income | | 75,710 | |
Balance at September 30, 2020 | 103,908,229 | | | $ | 1,039 | | | $ | 28,826 | | | $ | 3,008,501 | | | $ | (1,577) | | | $ | 21,758 | | | $ | (718,465) | | | $ | 2,340,082 | | |
Balance at September 30, 2021 | | 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, 2020 | | 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 | | 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, 2019 | 103,756,046 | | | $ | 1,038 | | | $ | 28,859 | | | $ | 2,954,779 | | | $ | (471) | | | $ | 22,010 | | | $ | (831,808) | | | $ | 2,174,407 | | |
Balance at December 31, 2020 | | 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 | Issuances of Common Stock, net of issuance costs and tax withholdings | 9,045 | | | — | | | — | | | 1,788 | | | — | | | — | | | — | | | 1,788 | | Issuances of Common Stock, net of issuance costs and tax withholdings | 277,441 | | | 3 | | | — | | | 13,402 | | | — | | | — | | | — | | | 13,405 | |
| Dividends on Common Stock ($1.44 per share) | | — | | | — | | | — | | | — | | | — | | | (149,462) | | | (149,462) | | |
Conversions of Common Units to Common Stock | | Conversions of Common Units to Common Stock | 6,238 | | | — | | | — | | | 278 | | | — | | | — | | | — | | | 278 | |
Dividends on Common Stock ($1.46 per share) | | Dividends on Common Stock ($1.46 per share) | | — | | | — | | | — | | | — | | | — | | | (151,898) | | | (151,898) | |
Dividends on Preferred Stock ($64.6875 per share) | Dividends on Preferred Stock ($64.6875 per share) | | — | | | — | | | — | | | — | | | — | | | (1,866) | | | (1,866) | | Dividends on Preferred Stock ($64.6875 per share) | | — | | | — | | | — | | | — | | | — | | | (1,864) | | | (1,864) | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | 46,955 | | | — | | | — | | | — | | | 46,955 | | Adjustment of noncontrolling interests in the Operating Partnership to fair value | | — | | | — | | | (11,072) | | | — | | | — | | | — | | | (11,072) | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (1,124) | | | — | | | (1,124) | | Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | (1,342) | | | — | | | (1,342) | |
| Issuances of restricted stock | Issuances of restricted stock | 149,304 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Issuances of restricted stock | 184,584 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Redemptions/repurchases of Preferred Stock | Redemptions/repurchases of Preferred Stock | | — | | | (33) | | | — | | | — | | | — | | | — | | | (33) | | Redemptions/repurchases of Preferred Stock | | — | | | (5) | | | — | | | — | | | — | | | — | | | (5) | |
Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | (6,166) | | | 1 | | | — | | | 4,979 | | | — | | | — | | | — | | | 4,980 | | Share-based compensation expense, net of forfeitures | (6,747) | | | 2 | | | — | | | 6,749 | | | — | | | — | | | — | | | 6,751 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (7,084) | | | (7,084) | | Net (income) attributable to noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | — | | | — | | | (5,084) | | | (5,084) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 872 | | | (872) | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | — | | | 1,469 | | | (1,469) | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | 272,627 | | | 272,627 | | Net income | | — | | | — | | | — | | | — | | | — | | | 194,286 | | | 194,286 | |
Other comprehensive loss | | — | | | — | | | — | | | (1,106) | | | — | | | — | | | (1,106) | | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 360 | | | — | | | — | | | 360 | |
Total comprehensive income | Total comprehensive income | | 271,521 | | Total comprehensive income | | 194,646 | |
Balance at September 30, 2020 | 103,908,229 | | | $ | 1,039 | | | $ | 28,826 | | | $ | 3,008,501 | | | $ | (1,577) | | | $ | 21,758 | | | $ | (718,465) | | | $ | 2,340,082 | | |
Balance at September 30, 2021 | | 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Operating activities: | Operating activities: | | | | Operating activities: | | | |
Net income | Net income | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 134,815 | | | $ | 194,286 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 189,423 | | | 180,914 | | Depreciation and amortization | 212,466 | | | 189,423 | |
Amortization of lease incentives and acquisition-related intangible assets and liabilities | Amortization of lease incentives and acquisition-related intangible assets and liabilities | (1,770) | | | (1,867) | | Amortization of lease incentives and acquisition-related intangible assets and liabilities | (342) | | | (1,770) | |
Share-based compensation expense | Share-based compensation expense | 6,751 | | | 4,980 | | Share-based compensation expense | 6,843 | | | 6,751 | |
| Net credit losses/(reversals) on operating lease receivables | Net credit losses/(reversals) on operating lease receivables | (60) | | | 4,387 | | Net credit losses/(reversals) on operating lease receivables | 3,167 | | | (60) | |
| Accrued interest on mortgages and notes receivable | Accrued interest on mortgages and notes receivable | (79) | | | (91) | | Accrued interest on mortgages and notes receivable | (67) | | | (79) | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 2,963 | | | 2,312 | | Amortization of debt issuance costs | 3,096 | | | 2,963 | |
Amortization of cash flow hedges | Amortization of cash flow hedges | 377 | | | 125 | | Amortization of cash flow hedges | (164) | | | 377 | |
Amortization of mortgages and notes payable fair value adjustments | Amortization of mortgages and notes payable fair value adjustments | 882 | | | 1,270 | | Amortization of mortgages and notes payable fair value adjustments | (60) | | | 882 | |
Impairments of real estate assets | Impairments of real estate assets | — | | | 1,778 | | Impairments of real estate assets | 36,515 | | | — | |
| Losses on debt extinguishment | Losses on debt extinguishment | 134 | | | 3,671 | | Losses on debt extinguishment | — | | | 134 | |
Net gains on disposition of property | Net gains on disposition of property | (80,371) | | | (163,397) | | Net gains on disposition of property | (63,546) | | | (80,371) | |
| Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | (1,614) | | | (2,965) | | Equity in earnings of unconsolidated affiliates | (1,083) | | | (1,614) | |
| Distributions of earnings from unconsolidated affiliates | Distributions of earnings from unconsolidated affiliates | 1,410 | | | 952 | | Distributions of earnings from unconsolidated affiliates | 606 | | | 1,410 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | 5,753 | | | (206) | | Accounts receivable | (11,454) | | | 5,753 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (1,210) | | | (3,684) | | Prepaid expenses and other assets | (2,150) | | | (1,210) | |
Accrued straight-line rents receivable | Accrued straight-line rents receivable | (13,734) | | | (30,187) | | Accrued straight-line rents receivable | (20,558) | | | (13,734) | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 6,077 | | | 4,840 | | Accounts payable, accrued expenses and other liabilities | 21,795 | | | 6,077 | |
Net cash provided by operating activities | Net cash provided by operating activities | 309,218 | | | 275,459 | | Net cash provided by operating activities | 319,879 | | | 309,218 | |
Investing activities: | Investing activities: | | | | Investing activities: | | | |
Investments in acquired real estate and related intangible assets, net of cash acquired | Investments in acquired real estate and related intangible assets, net of cash acquired | (270,160) | | | (2,363) | | Investments in acquired real estate and related intangible assets, net of cash acquired | (224,934) | | | (270,160) | |
Investments in development in-process | Investments in development in-process | (65,333) | | | (116,839) | | Investments in development in-process | (26,220) | | | (65,333) | |
Investments in tenant improvements and deferred leasing costs | Investments in tenant improvements and deferred leasing costs | (68,197) | | | (106,843) | | Investments in tenant improvements and deferred leasing costs | (90,910) | | | (68,197) | |
Investments in building improvements | Investments in building improvements | (34,452) | | | (44,088) | | Investments in building improvements | (45,289) | | | (34,452) | |
Investment in acquired controlling interest in unconsolidated affiliate | Investment in acquired controlling interest in unconsolidated affiliate | (127,339) | | | — | | Investment in acquired controlling interest in unconsolidated affiliate | — | | | (127,339) | |
Net proceeds from disposition of real estate assets | Net proceeds from disposition of real estate assets | 187,964 | | | 356,644 | | Net proceeds from disposition of real estate assets | 130,038 | | | 187,964 | |
| Distributions of capital from unconsolidated affiliates | — | | | 72 | | |
| Investments in mortgages and notes receivable | Investments in mortgages and notes receivable | (56) | | | (32) | | Investments in mortgages and notes receivable | (24) | | | (56) | |
Repayments of mortgages and notes receivable | Repayments of mortgages and notes receivable | 229 | | | 234 | | Repayments of mortgages and notes receivable | 215 | | | 229 | |
Investments in and advances to unconsolidated affiliates | | Investments in and advances to unconsolidated affiliates | (81,693) | | | — | |
| Payments of earnest money deposits | | Payments of earnest money deposits | (3,000) | | | — | |
Changes in other investing activities | Changes in other investing activities | 4,119 | | | (6,416) | | Changes in other investing activities | 224 | | | 4,119 | |
Net cash provided by/(used in) investing activities | (373,225) | | | 80,369 | | |
Net cash used in investing activities | | Net cash used in investing activities | (341,593) | | | (373,225) | |
Financing activities: | Financing activities: | | | | Financing activities: | | | |
Dividends on Common Stock | Dividends on Common Stock | (151,898) | | | (149,462) | | Dividends on Common Stock | (157,587) | | | (151,898) | |
| Redemptions/repurchases of Preferred Stock | Redemptions/repurchases of Preferred Stock | (5) | | | (33) | | Redemptions/repurchases of Preferred Stock | — | | | (5) | |
| Redemptions of Common Units | | Redemptions of Common Units | (3,101) | | | — | |
Dividends on Preferred Stock | Dividends on Preferred Stock | (1,864) | | | (1,866) | | Dividends on Preferred Stock | (1,864) | | | (1,864) | |
Distributions to noncontrolling interests in the Operating Partnership | Distributions to noncontrolling interests in the Operating Partnership | (4,144) | | | (4,092) | | Distributions to noncontrolling interests in the Operating Partnership | (3,687) | | | (4,144) | |
| Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | (1,342) | | | (1,124) | | Distributions to noncontrolling interests in consolidated affiliates | (1,411) | | | (1,342) | |
Proceeds from the issuance of Common Stock | Proceeds from the issuance of Common Stock | 15,453 | | | 3,163 | | Proceeds from the issuance of Common Stock | 7,200 | | | 15,453 | |
Costs paid for the issuance of Common Stock | Costs paid for the issuance of Common Stock | (355) | | | (215) | | Costs paid for the issuance of Common Stock | (247) | | | (355) | |
Repurchase of shares related to tax withholdings | Repurchase of shares related to tax withholdings | (1,693) | | | (1,160) | | Repurchase of shares related to tax withholdings | (2,156) | | | (1,693) | |
Borrowings on revolving credit facility | Borrowings on revolving credit facility | 310,000 | | | 129,000 | | Borrowings on revolving credit facility | 275,000 | | | 310,000 | |
Repayments of revolving credit facility | Repayments of revolving credit facility | (175,000) | | | (350,000) | | Repayments of revolving credit facility | (235,000) | | | (175,000) | |
Borrowings on mortgages and notes payable | Borrowings on mortgages and notes payable | 200,000 | | | 398,364 | | Borrowings on mortgages and notes payable | 350,000 | | | 200,000 | |
Repayments of mortgages and notes payable | Repayments of mortgages and notes payable | (264,212) | | | (251,457) | | Repayments of mortgages and notes payable | (204,807) | | | (264,212) | |
| Payments of debt extinguishment costs | — | | | (3,108) | | |
| | Changes in debt issuance costs and other financing activities | Changes in debt issuance costs and other financing activities | (9,279) | | | (10,309) | | Changes in debt issuance costs and other financing activities | (2,731) | | | (9,279) | |
Net cash used in financing activities | (84,339) | | | (242,299) | | |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | (148,346) | | | $ | 113,529 | | |
Net cash provided by/(used in) financing activities | | Net cash provided by/(used in) financing activities | 19,609 | | | (84,339) | |
Net decrease in cash and cash equivalents and restricted cash | | 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | (148,346) | | | $ | 113,529 | | |
Net decrease in cash and cash equivalents and restricted cash | | 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 | Cash and cash equivalents and restricted cash at beginning of the period | 189,244 | | | 14,742 | | 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 | Cash and cash equivalents and restricted cash at end of the period | $ | 40,898 | | | $ | 128,271 | | 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash and cash equivalents at end of the period | Cash and cash equivalents at end of the period | $ | 27,871 | | | $ | 118,705 | | Cash and cash equivalents at end of the period | $ | 23,055 | | | $ | 27,871 | |
Restricted cash at end of the period | Restricted cash at end of the period | 13,027 | | | 9,566 | | Restricted cash at end of the period | 6,038 | | | 13,027 | |
Cash and cash equivalents and restricted cash at end of the period | Cash and cash equivalents and restricted cash at end of the period | $ | 40,898 | | | $ | 128,271 | | 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, |
| 2021 | | 2020 |
Cash paid for interest, net of amounts capitalized | $ | 66,457 | | | $ | 63,064 | |
| | | | | | | | | | | |
| 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Unrealized losses on cash flow hedges | Unrealized losses on cash flow hedges | $ | (17) | | | $ | (1,231) | | Unrealized losses on cash flow hedges | $ | — | | | $ | (17) | |
Conversions of Common Units to Common Stock | Conversions of Common Units to Common Stock | 278 | | | — | | Conversions of Common Units to Common Stock | 1,251 | | | 278 | |
Changes in accrued capital expenditures (1) | Changes in accrued capital expenditures (1) | (20,150) | | | 16,318 | | Changes in accrued capital expenditures (1) | (10,180) | | | (20,150) | |
Write-off of fully depreciated real estate assets | Write-off of fully depreciated real estate assets | 52,158 | | | 31,526 | | Write-off of fully depreciated real estate assets | 42,817 | | | 52,158 | |
Write-off of fully amortized leasing costs | Write-off of fully amortized leasing costs | 37,045 | | | 15,184 | | Write-off of fully amortized leasing costs | 22,739 | | | 37,045 | |
Write-off of fully amortized debt issuance costs | Write-off of fully amortized debt issuance costs | 4,158 | | | 1,438 | | Write-off of fully amortized debt issuance costs | 1,216 | | | 4,158 | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | Adjustment of noncontrolling interests in the Operating Partnership to fair value | 11,072 | | | (46,955) | | 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 | Assumption of mortgages and notes payable related to acquisition activities | 403,000 | | | — | | Assumption of mortgages and notes payable related to acquisition activities | — | | | 403,000 | |
| Issuances of Common Units to acquire real estate assets | — | | | 6,163 | | |
| | Initial recognition of lease liabilities related to right of use assets | Initial recognition of lease liabilities related to right of use assets | 5,310 | | | — | | Initial recognition of lease liabilities related to right of use assets | — | | | 5,310 | |
Future consideration in connection with the acquisition of land | Future consideration in connection with the acquisition of land | 16,000 | | | — | | 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 and 2020 were $45.8$44.4 million and $84.3$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, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Assets: | Assets: | | | | Assets: | | | |
Real estate assets, at cost: | Real estate assets, at cost: | | Real estate assets, at cost: | |
Land | Land | $ | 552,314 | | | $ | 466,872 | | Land | $ | 548,720 | | | $ | 549,228 | |
Buildings and tenant improvements | Buildings and tenant improvements | 5,725,733 | | | 4,981,637 | | Buildings and tenant improvements | 5,867,137 | | | 5,718,169 | |
Development in-process | Development in-process | — | | | 259,681 | | Development in-process | 29,774 | | | 6,890 | |
Land held for development | Land held for development | 185,152 | | | 131,474 | | Land held for development | 231,911 | | | 215,257 | |
| | 6,463,199 | | | 5,839,664 | | | 6,677,542 | | | 6,489,544 | |
Less-accumulated depreciation | Less-accumulated depreciation | (1,444,510) | | | (1,418,379) | | Less-accumulated depreciation | (1,562,374) | | | (1,457,511) | |
Net real estate assets | Net real estate assets | 5,018,689 | | | 4,421,285 | | Net real estate assets | 5,115,168 | | | 5,032,033 | |
Real estate and other assets, net, held for sale | Real estate and other assets, net, held for sale | 69,806 | | | 11,360 | | Real estate and other assets, net, held for sale | — | | | 3,518 | |
Cash and cash equivalents | Cash and cash equivalents | 27,871 | | | 109,322 | | Cash and cash equivalents | 23,055 | | | 23,152 | |
Restricted cash | Restricted cash | 13,027 | | | 79,922 | | Restricted cash | 6,038 | | | 8,046 | |
Accounts receivable | Accounts receivable | 15,269 | | | 27,488 | | Accounts receivable | 24,589 | | | 14,002 | |
Mortgages and notes receivable | Mortgages and notes receivable | 1,247 | | | 1,341 | | Mortgages and notes receivable | 1,103 | | | 1,227 | |
Accrued straight-line rents receivable | Accrued straight-line rents receivable | 262,233 | | | 259,381 | | Accrued straight-line rents receivable | 284,515 | | | 268,324 | |
Investments in and advances to unconsolidated affiliates | Investments in and advances to unconsolidated affiliates | 1,071 | | | 27,104 | | Investments in and advances to unconsolidated affiliates | 88,974 | | | 7,383 | |
Deferred leasing costs, net of accumulated amortization of $139,175 and $151,698, respectively | 267,405 | | | 209,329 | | |
Prepaid expenses and other assets, net of accumulated depreciation of $20,891 and $21,154, respectively | 77,454 | | | 62,885 | | |
Deferred leasing costs, net of accumulated amortization of $157,205 and $143,111, respectively | | 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 | | Prepaid expenses and other assets, net of accumulated depreciation of $20,753 and $21,408, respectively | 71,278 | | | 78,551 | |
Total Assets | Total Assets | $ | 5,754,072 | | | $ | 5,209,417 | | Total Assets | $ | 5,870,551 | | | $ | 5,695,138 | |
Liabilities, Redeemable Operating Partnership Units and Capital: | Liabilities, Redeemable Operating Partnership Units and Capital: | | | | Liabilities, Redeemable Operating Partnership Units and Capital: | | | |
Mortgages and notes payable, net | Mortgages and notes payable, net | $ | 2,942,902 | | | $ | 2,470,021 | | Mortgages and notes payable, net | $ | 2,973,369 | | | $ | 2,788,915 | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 284,952 | | | 268,727 | | Accounts payable, accrued expenses and other liabilities | 307,294 | | | 294,976 | |
| Total Liabilities | Total Liabilities | 3,227,854 | | | 2,738,748 | | Total Liabilities | 3,280,663 | | | 3,083,891 | |
Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | |
Redeemable Operating Partnership Units: | Redeemable Operating Partnership Units: | | Redeemable Operating Partnership Units: | |
Common Units, 2,832,487 and 2,838,725 outstanding, respectively | 124,233 | | | 112,499 | | |
Series A Preferred Units (liquidation preference $1,000 per unit), 28,821 and 28,826 units issued and outstanding, respectively | 28,821 | | | 28,826 | | |
Common Units, 2,382,009 and 2,504,805 outstanding, respectively | | 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 | | 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 | Total Redeemable Operating Partnership Units | 153,054 | | | 141,325 | | Total Redeemable Operating Partnership Units | 93,040 | | | 140,510 | |
Capital: | Capital: | | Capital: | |
Common Units: | Common Units: | | Common Units: | |
General partner Common Units, 1,068,067 and 1,063,515 outstanding, respectively | 23,521 | | | 23,087 | | |
Limited partner Common Units, 102,906,186 and 102,449,222 outstanding, respectively | 2,328,572 | | | 2,285,673 | | |
General partner Common Units, 1,071,709 and 1,069,888 outstanding, respectively | | 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 | | Limited partner Common Units, 103,717,140 and 103,414,083 outstanding, respectively | 2,451,341 | | | 2,424,802 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,102) | | | (1,462) | | Accumulated other comprehensive loss | (1,137) | | | (973) | |
Noncontrolling interests in consolidated affiliates | Noncontrolling interests in consolidated affiliates | 22,173 | | | 22,046 | | Noncontrolling interests in consolidated affiliates | 21,885 | | | 22,416 | |
Total Capital | Total Capital | 2,373,164 | | | 2,329,344 | | Total Capital | 2,496,848 | | | 2,470,737 | |
Total Liabilities, Redeemable Operating Partnership Units and Capital | Total Liabilities, Redeemable Operating Partnership Units and Capital | $ | 5,754,072 | | | $ | 5,209,417 | | 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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Rental and other revenues | Rental and other revenues | $ | 195,495 | | | $ | 181,043 | | | $ | 564,802 | | | $ | 556,996 | | Rental and other revenues | $ | 206,997 | | | $ | 195,495 | | | $ | 617,216 | | | $ | 564,802 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Rental property and other expenses | Rental property and other expenses | 60,567 | | | 56,892 | | | 172,982 | | | 174,213 | | Rental property and other expenses | 66,334 | | | 60,567 | | | 190,125 | | | 172,982 | |
Depreciation and amortization | Depreciation and amortization | 66,547 | | | 60,303 | | | 189,423 | | | 180,914 | | Depreciation and amortization | 73,057 | | | 66,547 | | | 212,466 | | | 189,423 | |
Impairments of real estate assets | Impairments of real estate assets | — | | | — | | | — | | | 1,778 | | Impairments of real estate assets | 1,515 | | | — | | | 36,515 | | | — | |
General and administrative | General and administrative | 10,350 | | | 9,155 | | | 30,409 | | | 30,169 | | General and administrative | 9,586 | | | 10,350 | | | 32,733 | | | 30,409 | |
Total operating expenses | Total operating expenses | 137,464 | | | 126,350 | | | 392,814 | | | 387,074 | | Total operating expenses | 150,492 | | | 137,464 | | | 471,839 | | | 392,814 | |
| Interest expense | Interest expense | 21,986 | | | 19,886 | | | 60,755 | | | 61,003 | | Interest expense | 26,392 | | | 21,986 | | | 75,812 | | | 60,755 | |
| Other income/(loss) | 424 | | | (3,311) | | | 1,068 | | | (2,654) | | |
Other income | | Other income | 138 | | | 424 | | | 621 | | | 1,068 | |
| Gains on disposition of property | Gains on disposition of property | 38,572 | | | 10,012 | | | 80,371 | | | 163,397 | | Gains on disposition of property | 9,402 | | | 38,572 | | | 63,546 | | | 80,371 | |
| Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | 546 | | | 823 | | | 1,614 | | | 2,965 | | Equity in earnings of unconsolidated affiliates | 457 | | | 546 | | | 1,083 | | | 1,614 | |
| Net income | Net income | 75,587 | | | 42,331 | | | 194,286 | | | 272,627 | | Net income | 40,110 | | | 75,587 | | | 134,815 | | | 194,286 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Distributions on Preferred Units | Distributions on Preferred Units | (621) | | | (622) | | | (1,864) | | | (1,866) | | Distributions on Preferred Units | (621) | | | (621) | | | (1,864) | | | (1,864) | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 74,072 | | | $ | 41,411 | | | $ | 190,953 | | | $ | 269,889 | | Net income available for common unitholders | $ | 39,132 | | | $ | 74,072 | | | $ | 132,071 | | | $ | 190,953 | |
Earnings per Common Unit – basic: | Earnings per Common Unit – basic: | | | | | | | | Earnings per Common Unit – basic: | | | | | | | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.54 | | Net income available for common unitholders | $ | 0.37 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
Weighted average Common Units outstanding – basic | Weighted average Common Units outstanding – basic | 106,705 | | | 106,329 | | | 106,546 | | | 106,283 | | Weighted average Common Units outstanding – basic | 107,192 | | | 106,705 | | | 107,154 | | | 106,546 | |
Earnings per Common Unit – diluted: | Earnings per Common Unit – diluted: | | | | | | | | Earnings per Common Unit – diluted: | | | | | | | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.54 | | Net income available for common unitholders | $ | 0.37 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
Weighted average Common Units outstanding – diluted | Weighted average Common Units outstanding – diluted | 106,730 | | | 106,331 | | | 106,563 | | | 106,293 | | 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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Comprehensive income: | Comprehensive income: | | | | | | | | Comprehensive income: | | | | | | | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Other comprehensive income/(loss): | Other comprehensive income/(loss): | | Other comprehensive income/(loss): | |
| Unrealized gains/(losses) on cash flow hedges | (6) | | | 5 | | | (17) | | | (1,231) | | |
Unrealized losses on cash flow hedges | | Unrealized losses on cash flow hedges | — | | | (6) | | | — | | | (17) | |
Amortization of cash flow hedges | Amortization of cash flow hedges | 129 | | | 122 | | | 377 | | | 125 | | Amortization of cash flow hedges | (75) | | | 129 | | | (164) | | | 377 | |
Total other comprehensive income/(loss) | Total other comprehensive income/(loss) | 123 | | | 127 | | | 360 | | | (1,106) | | Total other comprehensive income/(loss) | (75) | | | 123 | | | (164) | | | 360 | |
Total comprehensive income | Total comprehensive income | 75,710 | | | 42,458 | | | 194,646 | | | 271,521 | | Total comprehensive income | 40,035 | | | 75,710 | | | 134,651 | | | 194,646 | |
Less-comprehensive (income) attributable to noncontrolling interests | Less-comprehensive (income) attributable to noncontrolling interests | (894) | | | (298) | | | (1,469) | | | (872) | | Less-comprehensive (income) attributable to noncontrolling interests | (357) | | | (894) | | | (880) | | | (1,469) | |
Comprehensive income attributable to common unitholders | Comprehensive income attributable to common unitholders | $ | 74,816 | | | $ | 42,160 | | | $ | 193,177 | | | $ | 270,649 | | 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, 2021 | | Three Months Ended September 30, 2022 |
| | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total | | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| | General Partners’ Capital | | Limited Partners’ Capital | | | General Partners’ Capital | | Limited Partners’ Capital | |
Balance at June 30, 2021 | $ | 23,182 | | | $ | 2,295,026 | | | $ | (1,225) | | | $ | 21,839 | | | $ | 2,338,822 | | |
Balance at June 30, 2022 | | 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 | Issuances of Common Units, net of issuance costs and tax withholdings | 75 | | | 7,433 | | | — | | | — | | | 7,508 | | Issuances of Common Units, net of issuance costs and tax withholdings | 4 | | | 358 | | | — | | | — | | | 362 | |
| Redemptions of Common Units | | Redemptions of Common Units | (31) | | | (3,070) | | | — | | | — | | | (3,101) | |
Distributions on Common Units ($0.50 per unit) | Distributions on Common Units ($0.50 per unit) | (533) | | | (52,800) | | | — | | | — | | | (53,333) | | Distributions on Common Units ($0.50 per unit) | (536) | | | (53,037) | | | — | | | — | | | (53,573) | |
Distributions on Preferred Units ($21.5625 per unit) | Distributions on Preferred Units ($21.5625 per unit) | (7) | | | (614) | | | — | | | — | | | (621) | | Distributions on Preferred Units ($21.5625 per unit) | (7) | | | (614) | | | — | | | — | | | (621) | |
Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | 19 | | | 1,877 | | | — | | | — | | | 1,896 | | Share-based compensation expense, net of forfeitures | 7 | | | 700 | | | — | | | — | | | 707 | |
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 | Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 38 | | | 3,704 | | | — | | | — | | | 3,742 | | 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 | Net (income) attributable to noncontrolling interests in consolidated affiliates | (9) | | | (885) | | | — | | | 894 | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (4) | | | (353) | | | — | | | 357 | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | 756 | | | 74,831 | | | — | | | — | | | 75,587 | | Net income | 401 | | | 39,709 | | | — | | | — | | | 40,110 | |
Other comprehensive income | — | | | — | | | 123 | | | — | | | 123 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | (75) | | | — | | | (75) | |
Total comprehensive income | Total comprehensive income | | 75,710 | | Total comprehensive income | | 40,035 | |
Balance at September 30, 2021 | $ | 23,521 | | | $ | 2,328,572 | | | $ | (1,102) | | | $ | 22,173 | | | $ | 2,373,164 | | |
Balance at September 30, 2022 | | Balance at September 30, 2022 | $ | 24,759 | | | $ | 2,451,341 | | | $ | (1,137) | | | $ | 21,885 | | | $ | 2,496,848 | |
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
| | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total | | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| | General Partners’ Capital | | Limited Partners’ Capital | | | General Partners’ Capital | | Limited Partners’ Capital | |
Balance at December 31, 2020 | $ | 23,087 | | | $ | 2,285,673 | | | $ | (1,462) | | | $ | 22,046 | | | $ | 2,329,344 | | |
Balance at December 31, 2021 | | 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 | Issuances of Common Units, net of issuance costs and tax withholdings | 134 | | | 13,271 | | | — | | | — | | | 13,405 | | Issuances of Common Units, net of issuance costs and tax withholdings | 48 | | | 4,749 | | | — | | | — | | | 4,797 | |
| Distributions on Common Units ($1.46 per unit) | (1,554) | | | (153,891) | | | — | | | — | | | (155,445) | | |
Distributions on Preferred Units ($64.688 per unit) | (19) | | | (1,845) | | | — | | | — | | | (1,864) | | |
Redemptions of Common Units | | Redemptions of Common Units | (31) | | | (3,070) | | | — | | | — | | | (3,101) | |
Distributions on Common Units ($1.50 per unit) | | Distributions on Common Units ($1.50 per unit) | (1,607) | | | (159,053) | | | — | | | — | | | (160,660) | |
Distributions on Preferred Units ($64.6875 per unit) | | Distributions on Preferred Units ($64.6875 per unit) | (19) | | | (1,845) | | | — | | | — | | | (1,864) | |
Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | 68 | | | 6,683 | | | — | | | — | | | 6,751 | | Share-based compensation expense, net of forfeitures | 68 | | | 6,775 | | | — | | | — | | | 6,843 | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | (1,342) | | | (1,342) | | 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 | Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | (123) | | | (12,208) | | | — | | | — | | | (12,331) | | 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 | Net (income) attributable to noncontrolling interests in consolidated affiliates | (15) | | | (1,454) | | | 1,469 | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (9) | | | (871) | | | — | | | 880 | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | 1,943 | | | 192,343 | | | — | | | — | | | 194,286 | | Net income | 1,348 | | | 133,467 | | | — | | | — | | | 134,815 | |
Other comprehensive income | — | | | — | | | 360 | | | — | | | 360 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | (164) | | | — | | | (164) | |
Total comprehensive income | Total comprehensive income | | 194,646 | | Total comprehensive income | | 134,651 | |
Balance at September 30, 2021 | $ | 23,521 | | | $ | 2,328,572 | | | $ | (1,102) | | | $ | 22,173 | | | $ | 2,373,164 | | |
Balance at September 30, 2022 | | 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, 2020 | | Three Months Ended September 30, 2021 |
| | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total | | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| | General Partners’ Capital | | Limited Partners’ Capital | | | General Partners’ Capital | | Limited Partners’ Capital | |
Balance at June 30, 2020 | $ | 22,886 | | | $ | 2,265,692 | | | $ | (1,704) | | | $ | 21,755 | | | $ | 2,308,629 | | |
Balance at June 30, 2021 | | 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 | Issuances of Common Units, net of issuance costs and tax withholdings | 4 | | | 383 | | | — | | | — | | | 387 | | Issuances of Common Units, net of issuance costs and tax withholdings | 75 | | | 7,433 | | | — | | | — | | | 7,508 | |
| Distributions on Common Units ($0.48 per unit) | (511) | | | (50,523) | | | — | | | — | | | (51,034) | | |
Distributions on Common Units ($0.50 per unit) | | Distributions on Common Units ($0.50 per unit) | (533) | | | (52,800) | | | — | | | — | | | (53,333) | |
Distributions on Preferred Units ($21.5625 per unit) | Distributions on Preferred Units ($21.5625 per unit) | (7) | | | (615) | | | — | | | — | | | (622) | | Distributions on Preferred Units ($21.5625 per unit) | (7) | | | (614) | | | — | | | — | | | (621) | |
Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | 13 | | | 1,229 | | | — | | | — | | | 1,242 | | Share-based compensation expense, net of forfeitures | 19 | | | 1,877 | | | — | | | — | | | 1,896 | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | (295) | | | (295) | | 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 | Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 105 | | | 10,386 | | | — | | | — | | | 10,491 | | 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 | Net (income) attributable to noncontrolling interests in consolidated affiliates | (3) | | | (295) | | | — | | | 298 | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (9) | | | (885) | | | — | | | 894 | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | 423 | | | 41,908 | | | — | | | — | | | 42,331 | | Net income | 756 | | | 74,831 | | | — | | | — | | | 75,587 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | 127 | | | — | | | 127 | | Other comprehensive income | — | | | — | | | 123 | | | — | | | 123 | |
Total comprehensive income | Total comprehensive income | | 42,458 | | Total comprehensive income | | 75,710 | |
Balance at September 30, 2020 | $ | 22,910 | | | $ | 2,268,165 | | | $ | (1,577) | | | $ | 21,758 | | | $ | 2,311,256 | | |
Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | 23,521 | | | $ | 2,328,572 | | | $ | (1,102) | | | $ | 22,173 | | | $ | 2,373,164 | |
| | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2021 |
| | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total | | Common Units | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests in Consolidated Affiliates | | Total |
| | General Partners’ Capital | | Limited Partners’ Capital | | | General Partners’ Capital | | Limited Partners’ Capital | |
Balance at December 31, 2019 | $ | 21,240 | | | $ | 2,102,769 | | | $ | (471) | | | $ | 22,010 | | | $ | 2,145,548 | | |
Balance at December 31, 2020 | | 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 | Issuances of Common Units, net of issuance costs and tax withholdings | 80 | | | 7,871 | | | — | | | — | | | 7,951 | | Issuances of Common Units, net of issuance costs and tax withholdings | 134 | | | 13,271 | | | — | | | — | | | 13,405 | |
| Distributions on Common Units ($1.44 per unit) | (1,530) | | | (151,435) | | | — | | | — | | | (152,965) | | |
Distributions on Common Units ($1.46 per unit) | | Distributions on Common Units ($1.46 per unit) | (1,554) | | | (153,891) | | | — | | | — | | | (155,445) | |
Distributions on Preferred Units ($64.6875 per unit) | Distributions on Preferred Units ($64.6875 per unit) | (19) | | | (1,847) | | | — | | | — | | | (1,866) | | Distributions on Preferred Units ($64.6875 per unit) | (19) | | | (1,845) | | | — | | | — | | | (1,864) | |
Share-based compensation expense, net of forfeitures | Share-based compensation expense, net of forfeitures | 50 | | | 4,930 | | | — | | | — | | | 4,980 | | Share-based compensation expense, net of forfeitures | 68 | | | 6,683 | | | — | | | — | | | 6,751 | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | (1,124) | | | (1,124) | | 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 | Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner | 372 | | | 36,839 | | | — | | | — | | | 37,211 | | 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 | Net (income) attributable to noncontrolling interests in consolidated affiliates | (9) | | | (863) | | | — | | | 872 | | | — | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (15) | | | (1,454) | | | 1,469 | | | — | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | 2,726 | | | 269,901 | | | — | | | — | | | 272,627 | | Net income | 1,943 | | | 192,343 | | | — | | | — | | | 194,286 | |
Other comprehensive loss | — | | | — | | | (1,106) | | | — | | | (1,106) | | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | 360 | | | — | | | 360 | |
Total comprehensive income | Total comprehensive income | | 271,521 | | Total comprehensive income | | 194,646 | |
Balance at September 30, 2020 | $ | 22,910 | | | $ | 2,268,165 | | | $ | (1,577) | | | $ | 21,758 | | | $ | 2,311,256 | | |
Balance at September 30, 2021 | | 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Operating activities: | Operating activities: | | | | Operating activities: | | | |
Net income | Net income | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 134,815 | | | $ | 194,286 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 189,423 | | | 180,914 | | Depreciation and amortization | 212,466 | | | 189,423 | |
Amortization of lease incentives and acquisition-related intangible assets and liabilities | Amortization of lease incentives and acquisition-related intangible assets and liabilities | (1,770) | | | (1,867) | | Amortization of lease incentives and acquisition-related intangible assets and liabilities | (342) | | | (1,770) | |
Share-based compensation expense | Share-based compensation expense | 6,751 | | | 4,980 | | Share-based compensation expense | 6,843 | | | 6,751 | |
| Net credit losses/(reversals) on operating lease receivables | Net credit losses/(reversals) on operating lease receivables | (60) | | | 4,387 | | Net credit losses/(reversals) on operating lease receivables | 3,167 | | | (60) | |
| Accrued interest on mortgages and notes receivable | Accrued interest on mortgages and notes receivable | (79) | | | (91) | | Accrued interest on mortgages and notes receivable | (67) | | | (79) | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 2,963 | | | 2,312 | | Amortization of debt issuance costs | 3,096 | | | 2,963 | |
Amortization of cash flow hedges | Amortization of cash flow hedges | 377 | | | 125 | | Amortization of cash flow hedges | (164) | | | 377 | |
Amortization of mortgages and notes payable fair value adjustments | Amortization of mortgages and notes payable fair value adjustments | 882 | | | 1,270 | | Amortization of mortgages and notes payable fair value adjustments | (60) | | | 882 | |
Impairments of real estate assets | Impairments of real estate assets | — | | | 1,778 | | Impairments of real estate assets | 36,515 | | | — | |
| Losses on debt extinguishment | Losses on debt extinguishment | 134 | | | 3,671 | | Losses on debt extinguishment | — | | | 134 | |
Net gains on disposition of property | Net gains on disposition of property | (80,371) | | | (163,397) | | Net gains on disposition of property | (63,546) | | | (80,371) | |
| Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | (1,614) | | | (2,965) | | Equity in earnings of unconsolidated affiliates | (1,083) | | | (1,614) | |
| Distributions of earnings from unconsolidated affiliates | Distributions of earnings from unconsolidated affiliates | 1,410 | | | 952 | | Distributions of earnings from unconsolidated affiliates | 606 | | | 1,410 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | 5,753 | | | (206) | | Accounts receivable | (11,454) | | | 5,753 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (1,210) | | | (3,684) | | Prepaid expenses and other assets | (2,150) | | | (1,210) | |
Accrued straight-line rents receivable | Accrued straight-line rents receivable | (13,734) | | | (30,187) | | Accrued straight-line rents receivable | (20,558) | | | (13,734) | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 6,077 | | | 4,840 | | Accounts payable, accrued expenses and other liabilities | 21,795 | | | 6,077 | |
Net cash provided by operating activities | Net cash provided by operating activities | 309,218 | | | 275,459 | | Net cash provided by operating activities | 319,879 | | | 309,218 | |
Investing activities: | Investing activities: | | | | Investing activities: | | | |
Investments in acquired real estate and related intangible assets, net of cash acquired | Investments in acquired real estate and related intangible assets, net of cash acquired | (270,160) | | | (2,363) | | Investments in acquired real estate and related intangible assets, net of cash acquired | (224,934) | | | (270,160) | |
Investments in development in-process | Investments in development in-process | (65,333) | | | (116,839) | | Investments in development in-process | (26,220) | | | (65,333) | |
Investments in tenant improvements and deferred leasing costs | Investments in tenant improvements and deferred leasing costs | (68,197) | | | (106,843) | | Investments in tenant improvements and deferred leasing costs | (90,910) | | | (68,197) | |
Investments in building improvements | Investments in building improvements | (34,452) | | | (44,088) | | Investments in building improvements | (45,289) | | | (34,452) | |
Investment in acquired controlling interest in unconsolidated affiliate | Investment in acquired controlling interest in unconsolidated affiliate | (127,339) | | | — | | Investment in acquired controlling interest in unconsolidated affiliate | — | | | (127,339) | |
Net proceeds from disposition of real estate assets | Net proceeds from disposition of real estate assets | 187,964 | | | 356,644 | | Net proceeds from disposition of real estate assets | 130,038 | | | 187,964 | |
| Distributions of capital from unconsolidated affiliates | — | | | 72 | | |
| Investments in mortgages and notes receivable | Investments in mortgages and notes receivable | (56) | | | (32) | | Investments in mortgages and notes receivable | (24) | | | (56) | |
Repayments of mortgages and notes receivable | Repayments of mortgages and notes receivable | 229 | | | 234 | | Repayments of mortgages and notes receivable | 215 | | | 229 | |
Investments in and advances to unconsolidated affiliates | | Investments in and advances to unconsolidated affiliates | (81,693) | | | — | |
| Payments of earnest money deposits | | Payments of earnest money deposits | (3,000) | | | — | |
Changes in other investing activities | Changes in other investing activities | 4,119 | | | (6,416) | | Changes in other investing activities | 224 | | | 4,119 | |
Net cash provided by/(used in) investing activities | (373,225) | | | 80,369 | | |
Net cash used in investing activities | | Net cash used in investing activities | (341,593) | | | (373,225) | |
Financing activities: | Financing activities: | | | | Financing activities: | | | |
Distributions on Common Units | Distributions on Common Units | (155,445) | | | (152,965) | | Distributions on Common Units | (160,660) | | | (155,445) | |
| Redemptions/repurchases of Preferred Units | Redemptions/repurchases of Preferred Units | (5) | | | (33) | | Redemptions/repurchases of Preferred Units | — | | | (5) | |
| Redemptions of Common Units | | Redemptions of Common Units | (3,101) | | | — | |
Distributions on Preferred Units | Distributions on Preferred Units | (1,864) | | | (1,866) | | Distributions on Preferred Units | (1,864) | | | (1,864) | |
Distributions to noncontrolling interests in consolidated affiliates | Distributions to noncontrolling interests in consolidated affiliates | (1,342) | | | (1,124) | | Distributions to noncontrolling interests in consolidated affiliates | (1,411) | | | (1,342) | |
Proceeds from the issuance of Common Units | Proceeds from the issuance of Common Units | 15,453 | | | 3,163 | | Proceeds from the issuance of Common Units | 7,200 | | | 15,453 | |
Costs paid for the issuance of Common Units | Costs paid for the issuance of Common Units | (355) | | | (215) | | Costs paid for the issuance of Common Units | (247) | | | (355) | |
Repurchase of units related to tax withholdings | Repurchase of units related to tax withholdings | (1,693) | | | (1,160) | | Repurchase of units related to tax withholdings | (2,156) | | | (1,693) | |
Borrowings on revolving credit facility | Borrowings on revolving credit facility | 310,000 | | | 129,000 | | Borrowings on revolving credit facility | 275,000 | | | 310,000 | |
Repayments of revolving credit facility | Repayments of revolving credit facility | (175,000) | | | (350,000) | | Repayments of revolving credit facility | (235,000) | | | (175,000) | |
Borrowings on mortgages and notes payable | Borrowings on mortgages and notes payable | 200,000 | | | 398,364 | | Borrowings on mortgages and notes payable | 350,000 | | | 200,000 | |
Repayments of mortgages and notes payable | Repayments of mortgages and notes payable | (264,212) | | | (251,457) | | Repayments of mortgages and notes payable | (204,807) | | | (264,212) | |
| Payments of debt extinguishment costs | — | | | (3,108) | | |
| | Changes in debt issuance costs and other financing activities | Changes in debt issuance costs and other financing activities | (9,876) | | | (10,898) | | Changes in debt issuance costs and other financing activities | (3,345) | | | (9,876) | |
Net cash used in financing activities | (84,339) | | | (242,299) | | |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | (148,346) | | | $ | 113,529 | | |
Net cash provided by/(used in) financing activities | | Net cash provided by/(used in) financing activities | 19,609 | | | (84,339) | |
Net decrease in cash and cash equivalents and restricted cash | | 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Net increase/(decrease) in cash and cash equivalents and restricted cash | $ | (148,346) | | | $ | 113,529 | | |
Net decrease in cash and cash equivalents and restricted cash | | 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 | Cash and cash equivalents and restricted cash at beginning of the period | 189,244 | | | 14,742 | | 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 | Cash and cash equivalents and restricted cash at end of the period | $ | 40,898 | | | $ | 128,271 | | 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash and cash equivalents at end of the period | Cash and cash equivalents at end of the period | $ | 27,871 | | | $ | 118,705 | | Cash and cash equivalents at end of the period | $ | 23,055 | | | $ | 27,871 | |
Restricted cash at end of the period | Restricted cash at end of the period | 13,027 | | | 9,566 | | Restricted cash at end of the period | 6,038 | | | 13,027 | |
Cash and cash equivalents and restricted cash at end of the period | Cash and cash equivalents and restricted cash at end of the period | $ | 40,898 | | | $ | 128,271 | | 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, |
| 2021 | | 2020 |
Cash paid for interest, net of amounts capitalized | $ | 66,457 | | | $ | 63,064 | |
| | | | | | | | | | | |
| 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, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Unrealized losses on cash flow hedges | Unrealized losses on cash flow hedges | $ | (17) | | | $ | (1,231) | | Unrealized losses on cash flow hedges | $ | — | | | $ | (17) | |
Changes in accrued capital expenditures (1) | Changes in accrued capital expenditures (1) | (20,150) | | | 16,318 | | Changes in accrued capital expenditures (1) | (10,180) | | | (20,150) | |
Write-off of fully depreciated real estate assets | Write-off of fully depreciated real estate assets | 52,158 | | | 31,526 | | Write-off of fully depreciated real estate assets | 42,817 | | | 52,158 | |
Write-off of fully amortized leasing costs | Write-off of fully amortized leasing costs | 37,045 | | | 15,184 | | Write-off of fully amortized leasing costs | 22,739 | | | 37,045 | |
Write-off of fully amortized debt issuance costs | Write-off of fully amortized debt issuance costs | 4,158 | | | 1,438 | | Write-off of fully amortized debt issuance costs | 1,216 | | | 4,158 | |
| Adjustment of Redeemable Common Units to fair value | Adjustment of Redeemable Common Units to fair value | 11,734 | | | (43,963) | | Adjustment of Redeemable Common Units to fair value | (47,470) | | | 11,734 | |
| Assumption of mortgages and notes payable related to acquisition activities | Assumption of mortgages and notes payable related to acquisition activities | 403,000 | | | — | | Assumption of mortgages and notes payable related to acquisition activities | — | | | 403,000 | |
| Issuances of Common Units to acquire real estate assets | — | | | 6,163 | | |
| | Initial recognition of lease liabilities related to right of use assets | Initial recognition of lease liabilities related to right of use assets | 5,310 | | | — | | Initial recognition of lease liabilities related to right of use assets | — | | | 5,310 | |
Future consideration in connection with the acquisition of land | Future consideration in connection with the acquisition of land | 16,000 | | | — | | 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 and 2020 were $45.8$44.4 million and $84.3$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, 20212022
(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 provides leasing, management, development, constructionowns, develops, acquires, leases and other customer-related services for itsmanages properties primarily in the best business districts of Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and for third parties.Tampa. The Company conducts its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At September 30, 2021,2022, we owned or had an interest in 29.028.1 million rentable square feet of in-service properties, 1.4 million rentable square feet of office properties under development and development land with approximately 300 acres5.0 million rentable square feet of development land.potential office build out.
Capital Structure
The Company is the sole general partner of the Operating Partnership. At September 30, 2021,2022, the Company owned all of the Preferred Units and 104.0104.8 million, or 97.4%97.8%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.82.4 million Common Units. During the nine months ended September 30, 2021,2022, the Company redeemed 6,23830,909 Common Units for a like number of shares of Common Stock.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, 2021,2022, the Company issued 299,360130,011 shares of Common Stock under its equity distribution agreements at an average gross sales price of $45.96$46.50 per share and received net proceeds, after sales commissions, of $13.6$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 97.3%97.7% at December 31, 20202021 to 97.4%97.8% at September 30, 2021.2022.
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 2021,2022, we acquired an office building using a portfolio of real estate assets from Preferred Apartment Communities, Inc. (NYSE:APTS) (“PAC”) using special purpose entitiesentity owned by a qualified intermediary to facilitate 1one 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 these entities arethis entity is a variable interest entitiesentity of which we are the primary beneficiary; and therefore, we consolidate these entities.this entity. At September 30, 2021,2022, we also have involvement with andfour additional entities we determined to be variable interest entities, one of which we are the primary beneficiary in, an entity thatand is consolidated and three of which we concluded to be a variable interest entity.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 20202021 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, 2021,2022, a reserve of $0.5$0.6 million was recorded to cover estimated reported and unreported claims.
Investment ActivitiesActivity
During the third quarter of 2021,2022, we closedentered the acquisitionDallas market through the formation of a portfolio of real estate assets from PAC. The portfolio consists oftwo joint ventures with Granite Properties to develop the following Class AA assets:
| | | | | | | | | | | | | | | | | | | | |
Asset | | Market | | Submarket/BBD | | Square Footage |
150 Fayetteville | | Raleigh | | CBD | | 560,000 |
CAPTRUST Towers | | Raleigh | | North Hills | | 300,000 |
Capitol Towers | | Charlotte | | SouthPark | | 479,000 |
Morrocroft Centre | | Charlotte | | SouthPark | | 291,000 |
Galleria 75 Redevelopment Site | | Atlanta | | Cumberland/Galleria | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Project | | BBD | | Own % | | Rentable Square Feet | | | | | | | | |
| | | | | | | | | | | | | | |
Granite Park Six | | Frisco/Plano | | 50% | | 422,000 | | | | | | | | |
23Springs | | Uptown | | 50% | | 642,000 | | | | | | | | |
Our total purchase price, netIn connection with the formation, we agreed to contribute our 50.0% share of closing credits and cash acquired, was $653.6 million, including $4.5the equity required to fund the development projects, $55.7 million of capitalized acquisition costs. which was funded on the formation date. We determined that we have a variable interest in each of these entities (see Note 3).
The acquisition included the assumption of 4 secured loans recorded at fair value of $403Granite Park Six joint venture obtained a construction loan for $115.0 million, in the aggregate, with a weighted average effectivean interest rate of 3.54%SOFR plus 394 basis points and a weighted average maturity date of 10.7 years (see Note 6). We incurred $3.5January 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 debt issuance costs relatedany 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 these assumptions, which will be amortized over the remaining terms$83.0 million of the loans.any outstanding amounts. The assets acquired and liabilities assumedcap expires in April 2024. No amounts were recorded at relative fair valuedrawn on this loan 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.September 30, 2022.
With respectWe plan to non-corefund 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, we had previously agreed to acquire from PAC, the mezzanine loan related to a recently constructedwhich consist of 2,155,000 square feet of office building in Atlantathat was paid off in full by the third party borrower and PAC sold Armour Yards, a multi-building creative office project in Atlanta, to a third party.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.
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, lessors may provide rent deferrals and other lease concessions to lessees. In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a
lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows us, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We have elected the practical expedient and will not apply lease modification accounting on a lease by lease basis where applicable. As a result, $1.2 million of deferred rent is included in accounts receivable on our Consolidated Balance Sheets at September 30, 2021.
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 $192.3$203.9 million and $178.9$192.3 million during the three months ended September 30, 20212022 and 2020,2021, respectively, and $554.6$608.1 million and $549.5$554.6 million during the nine months ended September 30, 20212022 and 2020,2021, respectively. Included in these amounts are variable lease payments of $13.7$16.9 million and $12.8$13.7 million during the three months ended September 30, 2022 and 2021, respectively, and 2020, respectively,$51.9 million and $42.7 million during each of the nine months ended September 30, 2022 and 2021, and 2020.respectively.
Acquired Finance Lease
In conjunction with the acquisition of real estate assets from PAC, we assumed the ground leasehold interest to land underneath a parking garage. Under the ground lease, we have an obligation to acquire fee simple title to the land at our discretion any time, but no later than October 31, 2029. We determined this lease to be a finance lease. As such, we recognized a lease liability (in accounts payable, accrued expenses and other liabilities) and a corresponding right of use asset (in prepaid expenses and other assets) of $5.3 million on our Consolidated Balance Sheet on the date of acquisition equal to the present value of the minimum lease payments required under the ground lease. Through October 31, 2029, the expected date at which we estimate we will satisfy the obligation and acquire fee simple title to the land, we will recognize interest expense equal to the lease liability times our incremental borrowing rate, which reflects the fixed rate at which we could borrow a similar amount for the same term and with similar collateral. We determined this rate to be approximately 2.6%. We also recorded an additional $3.1 million right of use asset (in prepaid expenses and other assets) to reflect favorable terms of the ground lease when compared with market terms. No amortization will be recorded for the right of use assets because they are comprised of land.
3. Consolidated Variable Interest Entities
The acquisition of real estate assets from PACSIX50 at Legacy Union in Charlotte was completed in the third quarter of 2022 using a special purpose entitiesentity owned by a qualified intermediary to facilitate one or more potential Section 1031 reverse exchanges under the Internal Revenue Code. As of September 30, 2021, these2022, this variable interest entitiesentity had total assets, liabilities and cash flows of $669.6$200.6 million, $418.1$3.3 million, and $5.1$0.5 million, respectively.
Consolidated Variable Interest Entity
In 2019, we and The Bromley Companies formed a joint venture (the “Midtown One 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 OneWest 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 OneWest joint venture that is scheduled to mature on the second anniversary of completion.in June 2023. The loan bears interest at LIBOR plus 250 basis points. As of September 30, 2021, $25.92022, $37.7 million under the loan has been funded.
We determined that we have a variable interest in the Midtown OneWest 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 OneWest 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 OneWest joint venture is consolidated and all intercompany transactions and accounts are eliminated. The following table sets forth the assets and liabilities of the Midtown OneWest joint venture included on our Consolidated Balance Sheets:
| | | | | |
| September 30, 2021 |
| |
| |
Net real estate assets | $ | 52,790 | |
| |
Deferred leasing costs, net | $ | 1,934 | |
Prepaid expenses and other assets, net | $ | 170 | |
Accounts payable, accrued expenses and other liabilities | $ | 1,771 | |
| | | | | | | | | | | |
| 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 OneWest 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
As previously described, the acquisition of real estate assets from PAC was completed during the third quarter of 2021. The following table sets forth a summary of the relative fair value of the material assets acquired and liabilities assumed relating to this acquisition:
| | | | | | | | |
| | Amount Recorded at Acquisition |
Real estate assets | | $ | 593,039 | |
Acquisition-related intangible assets (in deferred financing and leasing costs) | | $ | 61,126 | |
Right of use asset (in prepaid expenses and other assets) | | $ | 8,440 | |
Mortgages and notes payable, net | | $ | (399,527) | |
Acquisition-related intangible liabilities (in accounts payable, accrued expenses and other liabilities) | | $ | (7,174) | |
Lease liability (in accounts payable, accrued expenses and other liabilities) | | $ | (5,310) | |
During the third quarter of 2021,2022, we also acquired development landSIX50 at Legacy Union, a 367,000 square foot trophy office building in NashvilleCharlotte’s Uptown CBD submarket, for a purchase price, including capitalized acquisition costs, of $22.9 million.
During the second quarter of 2021, we acquired development land in Nashville for a purchase price, including capitalized acquisition costs, of $16.1 million, which is expected to be paid within two years.
During the first quarter of 2021, we acquired our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture (the “Forum”), which owned 5 buildings in Raleigh encompassing 636,000 rentable square feet, for anet purchase price of $131.3$198.0 million. We previously accounted for our 25.0% interest in this joint venture using the equity method of accounting. The assets and liabilities of the joint venture are now wholly owned and we have determined the acquisition constitutes an asset purchase. As such, because the Forum is not a variable interest entity, we allocated our previously held equity interest at historical cost along with the consideration paid and acquisition costs to the assets acquired and liabilities assumed. 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 2021,2022, we sold 2land 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 RichmondAtlanta, Greensboro and MemphisTampa for an aggregate salesales price of $119.7$100.7 million (before closing credits to buyerbuyers of $4.4$1.1 million) and recorded aggregate gains on disposition of property of $37.3 million.
We have a 50.0% ownership interest in Highwoods-Markel Associates, LLC (“Markel”), a consolidated joint venture. During the third quarter of 2021, Markel sold land in Richmond for a sale price of $3.0 million and recorded gain on disposition of property of $1.3 million.
During the second quarter of 2021, we sold an office building in Tampa for a sale price of $43.0 million (before closing credits to buyer of $0.9 million) and recorded a gain on disposition of property of $22.9$50.0 million.
During the first quarter of 2021,2022, we sold an office buildingland in AtlantaTampa for a salesales price of $30.7$9.6 million and recorded a gain on disposition of property of $18.9$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, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Assets: | Assets: | | | | Assets: | | | |
Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets) | Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets) | $ | 406,580 | | | $ | 361,027 | | 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 | Less accumulated amortization | (139,175) | | | (151,698) | | Less accumulated amortization | (157,205) | | | (143,111) | |
| | $ | 267,405 | | | $ | 209,329 | | | $ | 255,831 | | | $ | 258,902 | |
Liabilities (in accounts payable, accrued expenses and other liabilities): | Liabilities (in accounts payable, accrued expenses and other liabilities): | | | | Liabilities (in accounts payable, accrued expenses and other liabilities): | | | |
Acquisition-related below market lease liabilities | Acquisition-related below market lease liabilities | $ | 60,802 | | | $ | 63,748 | | Acquisition-related below market lease liabilities | $ | 55,371 | | | $ | 57,703 | |
Less accumulated amortization | Less accumulated amortization | (30,598) | | | (37,838) | | Less accumulated amortization | (28,633) | | | (28,978) | |
| | $ | 30,204 | | | $ | 25,910 | | | $ | 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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization) | Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization) | $ | 10,070 | | | $ | 8,466 | | | $ | 27,267 | | | $ | 25,830 | | 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) | Amortization of lease incentives (in rental and other revenues) | $ | 424 | | | $ | 477 | | | $ | 1,317 | | | $ | 1,396 | | 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) | Amortization of acquisition-related intangible assets (in rental and other revenues) | $ | 636 | | | $ | 273 | | | $ | 1,154 | | | $ | 882 | | Amortization of acquisition-related intangible assets (in rental and other revenues) | $ | 797 | | | $ | 636 | | | $ | 2,448 | | | $ | 1,154 | |
Amortization of acquisition-related intangible assets (in rental property and other expenses) | $ | — | | | $ | 140 | | | $ | — | | | $ | 417 | | |
| Amortization of acquisition-related below market lease liabilities (in rental and other revenues) | Amortization of acquisition-related below market lease liabilities (in rental and other revenues) | $ | (1,391) | | | $ | (1,479) | | | $ | (4,241) | | | $ | (4,562) | | 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) | | | | 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, 2021 | | | $ | 11,669 | | | $ | 381 | | | $ | 777 | | | | $ | (1,420) | | |
2022 | | | 42,867 | | | 1,484 | | | 2,986 | | | | (5,290) | | |
October 1 through December 31, 2022 | | October 1 through December 31, 2022 | | | $ | 11,068 | | | $ | 488 | | | $ | 865 | | | | $ | (1,275) | |
2023 | 2023 | | | 38,076 | | | 1,414 | | | 2,829 | | | | (4,868) | | 2023 | | | 40,696 | | | 1,623 | | | 3,279 | | | | (4,918) | |
2024 | 2024 | | | 33,874 | | | 1,269 | | | 2,573 | | | | (4,129) | | 2024 | | | 35,514 | | | 1,554 | | | 3,065 | | | | (4,278) | |
2025 | 2025 | | | 26,988 | | | 1,195 | | | 1,667 | | | | (2,594) | | 2025 | | | 28,586 | | | 1,478 | | | 2,202 | | | | (2,764) | |
2026 | | 2026 | | | 24,614 | | | 1,279 | | | 1,868 | | | | (2,464) | |
Thereafter | Thereafter | | | 86,170 | | | 5,056 | | | 6,130 | | | | (11,903) | | Thereafter | | | 86,384 | | | 4,089 | | | 7,179 | | | | (11,039) | |
| | | | $ | 239,644 | | | $ | 10,799 | | | $ | 16,962 | | | | $ | (30,204) | | | | | $ | 226,862 | | | $ | 10,511 | | | $ | 18,458 | | | | $ | (26,738) | |
Weighted average remaining amortization periods as of September 30, 2021 (in years) | | | 7.8 | | 8.8 | | 7.8 | | | 8.4 | |
Weighted average remaining amortization periods as of September 30, 2022 (in years) | | Weighted average remaining amortization periods as of September 30, 2022 (in years) | | | 7.9 | | 7.9 | | 7.7 | | | 8.4 |
The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of the acquisition of real estate assets from PAC and our joint venture partner's 75.0% interestSIX50 at Legacy Union in the Forum:Charlotte:
| | | | | Acquisition-Related Intangible Assets (amortized in Rental and Other Revenues) | | Acquisition-Related Intangible Assets (amortized in Depreciation and Amortization) | | Acquisition-Related Below Market Lease Liabilities (amortized in Rental and Other Revenues) | | | | Acquisition-Related Intangible Assets (amortized in Rental and Other Revenues) | | Acquisition-Related Intangible Assets (amortized in Depreciation and Amortization) | | Acquisition-Related Below Market Lease Liabilities (amortized in Rental and Other Revenues) |
Amount recorded at acquisition | Amount recorded at acquisition | | | $ | 13,824 | | | $ | 84,298 | | | $ | (8,535) | | Amount recorded at acquisition | | | $ | 4,722 | | | $ | 12,606 | | | $ | (2,172) | |
Weighted average remaining amortization periods as of September 30, 2021 (in years) | | | 7.3 | | 7.2 | | 8.2 | |
Weighted average remaining amortization periods as of September 30, 2022 (in years) | | Weighted average remaining amortization periods as of September 30, 2022 (in years) | | | 9.1 | | 9.8 | | 12.7 |
6. Mortgages and Notes Payable
The following table sets forth our mortgages and notes payable:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Secured indebtedness | Secured indebtedness | $ | 493,887 | | | $ | 93,350 | | Secured indebtedness | $ | 486,003 | | | $ | 491,942 | |
Unsecured indebtedness | Unsecured indebtedness | 2,464,823 | | | 2,390,652 | | Unsecured indebtedness | 2,503,252 | | | 2,312,180 | |
Less-unamortized debt issuance costs | Less-unamortized debt issuance costs | (15,808) | | | (13,981) | | Less-unamortized debt issuance costs | (15,886) | | | (15,207) | |
Total mortgages and notes payable, net | Total mortgages and notes payable, net | $ | 2,942,902 | | | $ | 2,470,021 | | Total mortgages and notes payable, net | $ | 2,973,369 | | | $ | 2,788,915 | |
At September 30, 2021,2022, our secured mortgage loans were collateralized by real estate assets with an undepreciated book value of $721.0$742.1 million.
During the first quarter of 2021, we entered into a newOur $750.0 million unsecured revolving credit facility which replaced our previously existing $600.0 million revolving credit facilityis scheduled to mature in March 2025 and includes an accordion feature that allows for an additional $550.0$400.0 million of borrowing capacity subject to additional lender commitments. Our new revolving credit facility is scheduled to mature in March 2025. Assuming no defaults have occurred, we have an option to extend the maturity for 2two additional six-month periods. The currentDuring the second quarter of 2022, in connection with the modification of our $200.0 million term loan as discussed below, the interest rate on the newour revolving credit facility at our existing credit ratings iswas converted from LIBOR plus 90 basis points to SOFR plus a related spread adjustment of 10 basis points and thea borrowing spread of 85 basis points, based on current credit ratings. The annual facility fee is 20 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. The financial and other covenants underWe may be entitled to a temporary reduction in the new facility are substantially similarinterest rate of one basis point provided we meet certain sustainability goals with respect to our previous credit facility. We incurred $4.8 millionthe ongoing reduction of debt issuance costs, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of our new revolving credit facility. We recorded $0.1 million of loss on debt extinguishment.greenhouse gas emissions. There was $135.0$110.0 million and $155.0$170.0 million outstanding under our new revolving credit facility at September 30, 20212022 and October 19, 2021,18, 2022, respectively. At both September 30, 20212022 and October 19, 2021,18, 2022, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at September 30, 20212022 and October 19, 202118, 2022 was $614.9$639.9 million and $594.9$579.9 million, respectively.
During the thirdsecond quarter of 2021,2022, we modified our $200.0 million unsecured bank term loan to extend the maturity date from November 2022 to May 2026. As part of this modification, we also obtained a $150.0 million delayed-draw term loan, which was drawn in conjunction with the acquisition of real estate assets from PAC, we assumed 4 secured mortgage loans which were recorded at fair market value as of the acquisition date. The following table sets forth the balances of these assumed mortgages and related unamortized debt issuance costs includedits entirety in mortgages and notes payable, net on our Consolidated Balance Sheets as of September 30, 2021:
| | | | | |
| Balance at September 30, 2021 |
4.27% (3.61% effective rate) mortgage loan due 08/2028 | $ | 116,374 | |
3.61% (3.19% effective rate) mortgage loan due 08/2029 | 85,049 | |
3.40% (3.50% effective rate) mortgage loan due 04/2033 | 69,409 | |
4.60% (3.73% effective rate) mortgage loan due 01/2037 | 131,221 | |
Less-unamortized debt issuance costs | (3,410) | |
Total | $ | 398,643 | |
During the third quarter of 2021, we also obtained a $200.0 million, six-month unsecured bridge facility. The bridge facility2022, that is originally scheduled to mature in January 2022 and can be extended at our option for an additional six-month period.May 2027. The bridge facility bears interest at LIBORrate, based on current credit ratings, is SOFR plus 85 basis points, has a commitment feerelated spread adjustment of 2010 basis points and contains financial and other covenants that are similar to the covenants under our $750.0 million unsecured revolving credit facility.a borrowing spread of 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. There was $88.0 million outstanding under our bridge facility at both September 30, 2021 and October 19, 2021.We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. We incurred $1.0$2.7 million of debt issuance costs, related to this bridge facility which are being amortized along with certain existing unamortized debt issuance costs over the six-month term.remaining term of our modified term loan.
During the second quarterSee Note 15 for a discussion of 2021, we prepaid without penalty the remaining $150.0 million principal amount of 3.20% unsecured notes that was scheduledfinancing activities subsequent to mature in June 2021. We recorded $0.1 million of loss on debt extinguishment related to this prepayment.September 30, 2022.
We are currently in compliance with financial covenants with respect to our consolidated debt.
We have considered our short-term liquidity needs within one year from October 25, 2022 (the date of issuance of the quarterly financial statements) and the adequacy of our estimated cash flows from operating activities and other available financing sources to meet these needs. We intend tohave concluded it is probable we will meet these short-term liquidity requirements through a combination of the following:
•available cash and cash equivalents;
•cash flows from operating activities;
•issuance of debt securities by the Operating Partnership;
•issuance of secured debt;
•bank term loans;
•borrowings under our revolving credit facility;
•issuance of equity securities by the Company or the Operating Partnership; and
•the disposition of non-core assets.
7. Derivative Financial Instruments
The counterparties under ourWe previously entered into floating-to-fixed interest rate swaps are major financial institutions. The swap agreements containthrough January 2022 with respect to an aggregate of $50.0 million LIBOR-based borrowings. These swaps effectively fixed the underlying one month LIBOR rate at a provision whereby if we default on certainweighted average rate of our indebtedness and which default results in repayment1.693%. During the first quarter of such indebtedness being, or becoming capable of being, accelerated by the lender, then we could also be declared in default on our swaps.2022, these interest rate swaps expired.
Our interest rate swaps have beenwere designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income/(loss) each reporting period. We havehad no collateral requirements related to our interest rate swaps.
Amounts reported in accumulated other comprehensive income/(loss) related to derivatives will beare reclassified to interest expense as interest payments are made on our debt. During the period from October 1, 20212022 through September 30, 2022,2023, we estimate that less than $0.1$0.3 million will be reclassified as a net decrease to interest expense.
The following table sets forth the fair value of our derivatives:
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Derivatives: | | | |
| | | |
| | | |
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities: | | | |
Interest rate swaps | $ | 263 | | | $ | 846 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Derivatives: | | | |
| | | |
| | | |
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities: | | | |
Interest rate swaps | $ | — | | | $ | 60 | |
The following table sets forth the effect of our cash flow hedges on accumulated other comprehensive loss and interest expense:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Derivatives Designated as Cash Flow Hedges: | Derivatives Designated as Cash Flow Hedges: | | | | | | | | Derivatives Designated as Cash Flow Hedges: | | | | | | | |
Amount of unrealized gains/(losses) recognized in accumulated other comprehensive loss on derivatives: | | |
Amount of unrealized losses recognized in accumulated other comprehensive loss on derivatives: | | Amount of unrealized losses recognized in accumulated other comprehensive loss on derivatives: | |
Interest rate swaps | Interest rate swaps | $ | (6) | | | $ | 5 | | | $ | (17) | | | $ | (1,231) | | Interest rate swaps | $ | — | | | $ | (6) | | | $ | — | | | $ | (17) | |
Amount of losses reclassified out of accumulated other comprehensive loss into interest expense: | | | | | | | | |
Amount of (gains)/losses reclassified out of accumulated other comprehensive loss into interest expense: | | Amount of (gains)/losses reclassified out of accumulated other comprehensive loss into interest expense: | | | | | | | |
Interest rate swaps | Interest rate swaps | $ | 129 | | | $ | 122 | | | $ | 377 | | | $ | 125 | | Interest rate swaps | $ | (75) | | | $ | 129 | | | $ | (164) | | | $ | 377 | |
8. Noncontrolling Interests
Noncontrolling Interests in Consolidated Affiliates
At September 30, 2021,2022, our noncontrolling interests in consolidated affiliates relate to our joint venture partners’ 50.0% interest in office properties in Richmond and 20.0% interest in the Midtown OneWest joint venture. See Note 3. Our joint venture partners are unrelated third parties.
Noncontrolling Interests in the Operating Partnership
The following table sets forth the Company’s noncontrolling interests in the Operating Partnership:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Beginning noncontrolling interests in the Operating Partnership | Beginning noncontrolling interests in the Operating Partnership | $ | 128,180 | | | $ | 106,103 | | | $ | 112,499 | | | $ | 133,216 | | Beginning noncontrolling interests in the Operating Partnership | $ | 84,583 | | | $ | 128,180 | | | $ | 111,689 | | | $ | 112,499 | |
Adjustment of noncontrolling interests in the Operating Partnership to fair value | Adjustment of noncontrolling interests in the Operating Partnership to fair value | (4,262) | | | (10,430) | | | 11,072 | | | (46,955) | | Adjustment of noncontrolling interests in the Operating Partnership to fair value | (16,952) | | | (4,262) | | | (42,480) | | | 11,072 | |
Issuances of Common Units | — | | | — | | | — | | | 6,163 | | |
| Conversions of Common Units to Common Stock | Conversions of Common Units to Common Stock | (234) | | | — | | | (278) | | | — | | Conversions of Common Units to Common Stock | — | | | (234) | | | (1,251) | | | (278) | |
| Redemptions of Common Units | | Redemptions of Common Units | (3,101) | | | — | | | (3,101) | | | — | |
Net income attributable to noncontrolling interests in the Operating Partnership | Net income attributable to noncontrolling interests in the Operating Partnership | 1,967 | | | 1,107 | | | 5,084 | | | 7,084 | | Net income attributable to noncontrolling interests in the Operating Partnership | 881 | | | 1,967 | | | 3,049 | | | 5,084 | |
Distributions to noncontrolling interests in the Operating Partnership | Distributions to noncontrolling interests in the Operating Partnership | (1,418) | | | (1,364) | | | (4,144) | | | (4,092) | | Distributions to noncontrolling interests in the Operating Partnership | (1,192) | | | (1,418) | | | (3,687) | | | (4,144) | |
Total noncontrolling interests in the Operating Partnership | Total noncontrolling interests in the Operating Partnership | $ | 124,233 | | | $ | 95,416 | | | $ | 124,233 | | | $ | 95,416 | | Total noncontrolling interests in the Operating Partnership | $ | 64,219 | | | $ | 124,233 | | | $ | 64,219 | | | $ | 124,233 | |
The following table sets forth net income available for common stockholders and transfers from the Company’s noncontrolling interests in the Operating Partnership:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net income available for common stockholders | Net income available for common stockholders | $ | 72,105 | | | $ | 40,304 | | | $ | 185,869 | | | $ | 262,805 | | Net income available for common stockholders | $ | 38,251 | | | $ | 72,105 | | | $ | 129,022 | | | $ | 185,869 | |
Increase in additional paid in capital from conversions of Common Units to Common Stock | Increase in additional paid in capital from conversions of Common Units to Common Stock | 234 | | | — | | | 278 | | | — | | Increase in additional paid in capital from conversions of Common Units to Common Stock | — | | | 234 | | | 1,251 | | | 278 | |
Issuances of Common Units | — | | | — | | | — | | | (6,163) | | |
| Change from net income available for common stockholders and transfers from noncontrolling interests | Change from net income available for common stockholders and transfers from noncontrolling interests | $ | 72,339 | | | $ | 40,304 | | | $ | 186,147 | | | $ | 256,642 | | Change from net income available for common stockholders and transfers from noncontrolling interests | $ | 38,251 | | | $ | 72,339 | | | $ | 130,273 | | | $ | 186,147 | |
9. Disclosure About Fair Value of Financial Instruments
The following summarizes the levels of inputs that we use to measure fair value.
Level 1. Quoted prices in active markets for identical assets or liabilities.
Our Level 1 asset is our investment in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 liability is our non-qualified deferred compensation obligation. The Company’s Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company.
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.
Our Level 2 assets include the fair value of our mortgages and notes receivable. Our Level 2 liabilities include the fair value of our mortgages and notes payable and any interest rate swaps.
The fair value of mortgages and notes receivable and mortgages and notes payable is estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. The fair value of any interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of interest rate swaps are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are considered in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.
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 include any real estate assets recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which are valued using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or the terms of definitive sales contracts. Significant increases or decreases in any valuation inputs in isolation would result in a significantly lower or higher fair value measurement.
The following table sets forth our assets and liabilities and the Company’s noncontrolling interests in the Operating Partnership that are measured or disclosed at fair value within the fair value hierarchy:
| | | Level 1 | | Level 2 | | | Level 1 | | Level 2 | | Level 3 |
| | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | Significant Unobservable Inputs |
Fair Value at September 30, 2021: | | | | | | | | |
Fair Value at September 30, 2022: | | Fair Value at September 30, 2022: | | | | | | | | |
Assets: | Assets: | | | Assets: | |
Mortgages and notes receivable, at fair value (1) | Mortgages and notes receivable, at fair value (1) | | $ | 1,247 | | | $ | — | | | $ | 1,247 | | | Mortgages and notes receivable, at fair value (1) | | $ | 1,103 | | | $ | — | | | $ | 1,103 | | | $ | — | |
| Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,796 | | | 2,796 | | | — | | | Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,364 | | | 2,364 | | | — | | | — | |
| Impaired real estate assets | | Impaired real estate assets | | 1,665 | | | — | | | — | | | 1,665 | |
| Total Assets | Total Assets | | $ | 4,043 | | | $ | 2,796 | | | $ | 1,247 | | | Total Assets | | $ | 5,132 | | | $ | 2,364 | | | $ | 1,103 | | | $ | 1,665 | |
Noncontrolling Interests in the Operating Partnership | Noncontrolling Interests in the Operating Partnership | | $ | 124,233 | | | $ | 124,233 | | | $ | — | | | Noncontrolling Interests in the Operating Partnership | | $ | 64,219 | | | $ | 64,219 | | | $ | — | | | $ | — | |
Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | Mortgages and notes payable, net, at fair value (1) | | $ | 3,089,765 | | | $ | — | | | $ | 3,089,765 | | | Mortgages and notes payable, net, at fair value (1) | | $ | 2,630,788 | | | $ | — | | | $ | 2,630,788 | | | $ | — | |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | | 263 | | | — | | | 263 | | | |
| Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,796 | | | 2,796 | | | — | | | Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,364 | | | 2,364 | | | — | | | — | |
| Total Liabilities | Total Liabilities | | $ | 3,092,824 | | | $ | 2,796 | | | $ | 3,090,028 | | | Total Liabilities | | $ | 2,633,152 | | | $ | 2,364 | | | $ | 2,630,788 | | | $ | — | |
| Fair Value at December 31, 2020: | | | |
Fair Value at December 31, 2021: | | Fair Value at December 31, 2021: | |
Assets: | Assets: | | | Assets: | |
Mortgages and notes receivable, at fair value (1) | Mortgages and notes receivable, at fair value (1) | | $ | 1,341 | | | $ | — | | | $ | 1,341 | | | Mortgages and notes receivable, at fair value (1) | | $ | 1,227 | | | $ | — | | | $ | 1,227 | | | $ | — | |
| Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,573 | | | 2,573 | | | — | | | Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | | 2,866 | | | 2,866 | | | — | | | — | |
| Total Assets | Total Assets | | $ | 3,914 | | | $ | 2,573 | | | $ | 1,341 | | | Total Assets | | $ | 4,093 | | | $ | 2,866 | | | $ | 1,227 | | | $ | — | |
Noncontrolling Interests in the Operating Partnership | Noncontrolling Interests in the Operating Partnership | | $ | 112,499 | | | $ | 112,499 | | | $ | — | | | Noncontrolling Interests in the Operating Partnership | | $ | 111,689 | | | $ | 111,689 | | | $ | — | | | $ | — | |
Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | Mortgages and notes payable, net, at fair value (1) | | $ | 2,639,163 | | | $ | — | | | $ | 2,639,163 | | | Mortgages and notes payable, net, at fair value (1) | | $ | 2,907,492 | | | $ | — | | | $ | 2,907,492 | | | $ | — | |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | | 846 | | | — | | | 846 | | | Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | | 60 | | | — | | | 60 | | | — | |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,573 | | | 2,573 | | | — | | | Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | | 2,866 | | | 2,866 | | | — | | | — | |
| Total Liabilities | Total Liabilities | | $ | 2,642,582 | | | $ | 2,573 | | | $ | 2,640,009 | | | Total Liabilities | | $ | 2,910,418 | | | $ | 2,866 | | | $ | 2,907,552 | | | $ | — | |
__________
(1) Amounts are not recorded at fair value on our Consolidated Balance Sheets at September 30, 20212022 and December 31, 2020.2021.
The Level 3 impaired real estate assets measured at a fair value of $1.7 million in the third quarter of 2022 included a land parcel in Pittsburgh. This impairment resulted from the changes in our assumptions about the use of the asset as a result of our plan to exit the Pittsburgh market and was calculated using broker opinions of value, as observable inputs were not available.
In the second quarter of 2022, Level 3 impaired real estate assets, which measured at a fair value of $57.4 million, resulted from the shortened hold period assumptions for EQT Plaza as a result of our plan to exit the Pittsburgh market. The estimated fair value was calculated using broker opinions of value, which incorporate an income approach, as observable inputs were not available. Key assumptions used in the impairment calculation were estimated selling costs of 3.5% (including seller’s share of anticipated transfer taxes), the high end of an estimated discount rate ranging from 13.2% to 16.2% and an estimated terminal capitalization rate of 8.0%.
10. Share-Based Payments
During the nine months ended September 30, 2021,2022, the Company granted 103,12099,975 shares of time-based restricted stock and 81,46481,832 shares of total return-based restricted stock with weighted average grant date fair values per share of $39.99$43.58 and $36.41,$41.94, respectively. We recorded share-based compensation expense of $1.9$0.7 million and $1.2$1.9 million during the three months ended September 30, 20212022 and 2020, respectively,2021, and $6.8 million and $5.0 million during each of the nine months ended September 30, 20212022 and 2020, respectively.2021. At September 30, 2021,2022, there was $5.3$4.3 million of total unrecognized share-based compensation costs, which will be recognized over a weighted average remaining contractual term of 1.92.0 years.
11. Accumulated Other Comprehensive Loss
The following table sets forth the components of accumulated other comprehensive loss:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Cash flow hedges: | Cash flow hedges: | | | | | | | | Cash flow hedges: | | | | | | | |
Beginning balance | Beginning balance | $ | (1,225) | | | $ | (1,704) | | | $ | (1,462) | | | $ | (471) | | Beginning balance | $ | (1,062) | | | $ | (1,225) | | | $ | (973) | | | $ | (1,462) | |
Unrealized gains/(losses) on cash flow hedges | (6) | | | 5 | | | (17) | | | (1,231) | | |
Unrealized losses on cash flow hedges | | Unrealized losses on cash flow hedges | — | | | (6) | | | — | | | (17) | |
Amortization of cash flow hedges (1) | Amortization of cash flow hedges (1) | 129 | | | 122 | | | 377 | | | 125 | | Amortization of cash flow hedges (1) | (75) | | | 129 | | | (164) | | | 377 | |
Total accumulated other comprehensive loss | Total accumulated other comprehensive loss | $ | (1,102) | | | $ | (1,577) | | | $ | (1,102) | | | $ | (1,577) | | Total accumulated other comprehensive loss | $ | (1,137) | | | $ | (1,102) | | | $ | (1,137) | | | $ | (1,102) | |
__________
(1) Amounts reclassified out of accumulated other comprehensive loss into interest expense.
12. Real Estate and Other Assets Held For Sale
The following table sets forth the assets held for sale at September 30, 20212022 and December 31, 2020,2021, which are considered non-core:
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Assets: | | | |
Land | $ | 6,723 | | | $ | 2,612 | |
Buildings and tenant improvements | 102,285 | | | 12,238 | |
| | | |
Land held for development | 3,482 | | | — | |
Less-accumulated depreciation | (53,121) | | | (3,577) | |
Net real estate assets | 59,369 | | | 11,273 | |
Accrued straight-line rents receivable | 7,037 | | | — | |
Deferred leasing costs, net | 3,285 | | | 87 | |
Prepaid expenses and other assets, net | 115 | | | — | |
Real estate and other assets, net, held for sale | $ | 69,806 | | | $ | 11,360 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets: | | | |
| | | |
| | | |
| | | |
Land held for development | — | | | $ | 3,482 | |
| | | |
Net real estate assets | — | | | 3,482 | |
| | | |
| | | |
Prepaid expenses and other assets, net | — | | | 36 | |
Real estate and other assets, net, held for sale | $ | — | | | $ | 3,518 | |
| | | |
| | | |
| | | |
| | | |
| | | |
13. Earnings Per Share and Per Unit
The following table sets forth the computation of basic and diluted earnings per share of the Company:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Earnings per Common Share - basic: | Earnings per Common Share - basic: | | | | | | | | Earnings per Common Share - basic: | | | | | | | |
Numerator: | Numerator: | | Numerator: | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Net (income) attributable to noncontrolling interests in the Operating Partnership | Net (income) attributable to noncontrolling interests in the Operating Partnership | (1,967) | | | (1,107) | | | (5,084) | | | (7,084) | | Net (income) attributable to noncontrolling interests in the Operating Partnership | (881) | | | (1,967) | | | (3,049) | | | (5,084) | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Dividends on Preferred Stock | Dividends on Preferred Stock | (621) | | | (622) | | | (1,864) | | | (1,866) | | Dividends on Preferred Stock | (621) | | | (621) | | | (1,864) | | | (1,864) | |
Net income available for common stockholders | Net income available for common stockholders | $ | 72,105 | | | $ | 40,304 | | | $ | 185,869 | | | $ | 262,805 | | Net income available for common stockholders | $ | 38,251 | | | $ | 72,105 | | | $ | 129,022 | | | $ | 185,869 | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Denominator for basic earnings per Common Share – weighted average shares (1) | Denominator for basic earnings per Common Share – weighted average shares (1) | 104,277 | | | 103,896 | | | 104,117 | | | 103,865 | | Denominator for basic earnings per Common Share – weighted average shares (1) | 105,184 | | | 104,277 | | | 105,094 | | | 104,117 | |
Net income available for common stockholders | Net income available for common stockholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.53 | | Net income available for common stockholders | $ | 0.36 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
Earnings per Common Share - diluted: | Earnings per Common Share - diluted: | | | | | | | | Earnings per Common Share - diluted: | | | | | | | |
Numerator: | Numerator: | | Numerator: | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Dividends on Preferred Stock | Dividends on Preferred Stock | (621) | | | (622) | | | (1,864) | | | (1,866) | | Dividends on Preferred Stock | (621) | | | (621) | | | (1,864) | | | (1,864) | |
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | $ | 74,072 | | | $ | 41,411 | | | $ | 190,953 | | | $ | 269,889 | | Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | $ | 39,132 | | | $ | 74,072 | | | $ | 132,071 | | | $ | 190,953 | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Denominator for basic earnings per Common Share – weighted average shares (1) | Denominator for basic earnings per Common Share – weighted average shares (1) | 104,277 | | | 103,896 | | | 104,117 | | | 103,865 | | Denominator for basic earnings per Common Share – weighted average shares (1) | 105,184 | | | 104,277 | | | 105,094 | | | 104,117 | |
Add: | Add: | | Add: | |
Stock options using the treasury method | Stock options using the treasury method | 25 | | | 2 | | | 17 | | | 10 | | Stock options using the treasury method | — | | | 25 | | | 7 | | | 17 | |
Noncontrolling interests Common Units | Noncontrolling interests Common Units | 2,837 | | | 2,842 | | | 2,838 | | | 2,827 | | Noncontrolling interests Common Units | 2,417 | | | 2,837 | | | 2,469 | | | 2,838 | |
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions | Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions | 107,139 | | | 106,740 | | | 106,972 | | | 106,702 | | Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions | 107,601 | | | 107,139 | | | 107,570 | | | 106,972 | |
Net income available for common stockholders | Net income available for common stockholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.53 | | Net income available for common stockholders | $ | 0.36 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
__________
(1)Includes all unvested restricted stock where dividends on such restricted stock are non-forfeitable.
The following table sets forth the computation of basic and diluted earnings per unit of the Operating Partnership:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Earnings per Common Unit - basic: | Earnings per Common Unit - basic: | | | | | | | | Earnings per Common Unit - basic: | | | | | | | |
Numerator: | Numerator: | | Numerator: | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Distributions on Preferred Units | Distributions on Preferred Units | (621) | | | (622) | | | (1,864) | | | (1,866) | | Distributions on Preferred Units | (621) | | | (621) | | | (1,864) | | | (1,864) | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 74,072 | | | $ | 41,411 | | | $ | 190,953 | | | $ | 269,889 | | Net income available for common unitholders | $ | 39,132 | | | $ | 74,072 | | | $ | 132,071 | | | $ | 190,953 | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Denominator for basic earnings per Common Unit – weighted average units (1) | Denominator for basic earnings per Common Unit – weighted average units (1) | 106,705 | | | 106,329 | | | 106,546 | | | 106,283 | | Denominator for basic earnings per Common Unit – weighted average units (1) | 107,192 | | | 106,705 | | | 107,154 | | | 106,546 | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.54 | | Net income available for common unitholders | $ | 0.37 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
Earnings per Common Unit - diluted: | Earnings per Common Unit - diluted: | | | | | | | | Earnings per Common Unit - diluted: | | | | | | | |
Numerator: | Numerator: | | Numerator: | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Distributions on Preferred Units | Distributions on Preferred Units | (621) | | | (622) | | | (1,864) | | | (1,866) | | Distributions on Preferred Units | (621) | | | (621) | | | (1,864) | | | (1,864) | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 74,072 | | | $ | 41,411 | | | $ | 190,953 | | | $ | 269,889 | | Net income available for common unitholders | $ | 39,132 | | | $ | 74,072 | | | $ | 132,071 | | | $ | 190,953 | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Denominator for basic earnings per Common Unit – weighted average units (1) | Denominator for basic earnings per Common Unit – weighted average units (1) | 106,705 | | | 106,329 | | | 106,546 | | | 106,283 | | Denominator for basic earnings per Common Unit – weighted average units (1) | 107,192 | | | 106,705 | | | 107,154 | | | 106,546 | |
Add: | Add: | | Add: | |
Stock options using the treasury method | Stock options using the treasury method | 25 | | | 2 | | | 17 | | | 10 | | Stock options using the treasury method | — | | | 25 | | | 7 | | | 17 | |
Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions | Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions | 106,730 | | | 106,331 | | | 106,563 | | | 106,293 | | Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions | 107,192 | | | 106,730 | | | 107,161 | | | 106,563 | |
| Net income available for common unitholders | Net income available for common unitholders | $ | 0.69 | | | $ | 0.39 | | | $ | 1.79 | | | $ | 2.54 | | Net income available for common unitholders | $ | 0.37 | | | $ | 0.69 | | | $ | 1.23 | | | $ | 1.79 | |
__________
(1)Includes all unvested restricted stock where distributions on such restricted stock are non-forfeitable.
14. Segment Information
The following tables summarize the rental and other revenues and net operating income, the primary industry property-level performance metric used by our chief operating decision maker and which is defined as rental and other revenues less rental property and other expenses, for each of our reportable segments. Our segment information for the three and nine months ended September 30, 2021 has been retrospectively revised from previously reported amounts to reflect a change in our reportable segments as a result of our plan to exit the Pittsburgh market.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Rental and Other Revenues: | Rental and Other Revenues: | | | | | | | | Rental and Other Revenues: | | | | | | | |
Office: | Office: | | Office: | |
Atlanta | Atlanta | $ | 36,672 | | | $ | 36,022 | | | $ | 108,385 | | | $ | 110,518 | | Atlanta | $ | 35,804 | | | $ | 36,672 | | | $ | 106,805 | | | $ | 108,385 | |
Charlotte | Charlotte | 14,313 | | | 8,858 | | | 32,364 | | | 26,801 | | Charlotte | 18,825 | | | 14,313 | | | 52,643 | | | 32,364 | |
Nashville | Nashville | 36,136 | | | 34,661 | | | 106,873 | | | 103,780 | | Nashville | 44,587 | | | 36,136 | | | 130,640 | | | 106,873 | |
Orlando | Orlando | 12,852 | | | 11,518 | | | 38,141 | | | 36,844 | | Orlando | 13,634 | | | 12,852 | | | 40,298 | | | 38,141 | |
Pittsburgh | 14,220 | | | 14,430 | | | 42,787 | | | 44,054 | | |
| Raleigh | Raleigh | 42,471 | | | 32,037 | | | 117,168 | | | 95,792 | | Raleigh | 45,220 | | | 42,471 | | | 137,051 | | | 117,168 | |
Richmond | Richmond | 12,050 | | | 11,878 | | | 35,263 | | | 35,972 | | Richmond | 10,872 | | | 12,050 | | | 31,837 | | | 35,263 | |
Tampa | Tampa | 23,856 | | | 24,575 | | | 74,166 | | | 75,177 | | Tampa | 23,590 | | | 23,856 | | | 71,169 | | | 74,166 | |
Total Office Segment | Total Office Segment | 192,570 | | | 173,979 | | | 555,147 | | | 528,938 | | Total Office Segment | 192,532 | | | 178,350 | | | 570,443 | | | 512,360 | |
Other | Other | 2,925 | | | 7,064 | | | 9,655 | | | 28,058 | | Other | 14,465 | | | 17,145 | | | 46,773 | | | 52,442 | |
Total Rental and Other Revenues | Total Rental and Other Revenues | $ | 195,495 | | | $ | 181,043 | | | $ | 564,802 | | | $ | 556,996 | | Total Rental and Other Revenues | $ | 206,997 | | | $ | 195,495 | | | $ | 617,216 | | | $ | 564,802 | |
| Net Operating Income: | Net Operating Income: | | Net Operating Income: | |
Office: | Office: | | Office: | |
Atlanta | Atlanta | $ | 24,157 | | | $ | 23,303 | | | $ | 71,779 | | | $ | 72,387 | | Atlanta | $ | 22,524 | | | $ | 24,157 | | | $ | 69,472 | | | $ | 71,779 | |
Charlotte | Charlotte | 11,159 | | | 6,973 | | | 25,446 | | | 21,298 | | Charlotte | 14,275 | | | 11,159 | | | 40,132 | | | 25,446 | |
Nashville | Nashville | 27,355 | | | 25,022 | | | 78,172 | | | 74,907 | | Nashville | 33,154 | | | 27,355 | | | 97,093 | | | 78,172 | |
Orlando | Orlando | 7,920 | | | 6,505 | | | 23,414 | | | 22,260 | | Orlando | 7,865 | | | 7,920 | | | 24,264 | | | 23,414 | |
Pittsburgh | 8,291 | | | 8,934 | | | 25,591 | | | 26,954 | | |
| Raleigh | Raleigh | 31,425 | | | 24,037 | | | 88,005 | | | 71,670 | | Raleigh | 32,822 | | | 31,425 | | | 101,557 | | | 88,005 | |
Richmond | Richmond | 7,805 | | | 8,204 | | | 24,092 | | | 25,403 | | Richmond | 7,112 | | | 7,805 | | | 21,700 | | | 24,092 | |
Tampa | Tampa | 15,143 | | | 16,829 | | | 49,640 | | | 51,025 | | Tampa | 14,351 | | | 15,143 | | | 44,912 | | | 49,640 | |
Total Office Segment | Total Office Segment | 133,255 | | | 119,807 | | | 386,139 | | | 365,904 | | Total Office Segment | 132,103 | | | 124,964 | | | 399,130 | | | 360,548 | |
Other | Other | 1,673 | | | 4,344 | | | 5,681 | | | 16,879 | | Other | 8,560 | | | 9,964 | | | 27,961 | | | 31,272 | |
Total Net Operating Income | Total Net Operating Income | 134,928 | | | 124,151 | | | 391,820 | | | 382,783 | | Total Net Operating Income | 140,663 | | | 134,928 | | | 427,091 | | | 391,820 | |
Reconciliation to net income: | Reconciliation to net income: | | Reconciliation to net income: | |
Depreciation and amortization | Depreciation and amortization | (66,547) | | | (60,303) | | | (189,423) | | | (180,914) | | Depreciation and amortization | (73,057) | | | (66,547) | | | (212,466) | | | (189,423) | |
Impairments of real estate assets | Impairments of real estate assets | — | | | — | | | — | | | (1,778) | | Impairments of real estate assets | (1,515) | | | — | | | (36,515) | | | — | |
General and administrative expenses | General and administrative expenses | (10,350) | | | (9,155) | | | (30,409) | | | (30,169) | | General and administrative expenses | (9,586) | | | (10,350) | | | (32,733) | | | (30,409) | |
Interest expense | Interest expense | (21,986) | | | (19,886) | | | (60,755) | | | (61,003) | | Interest expense | (26,392) | | | (21,986) | | | (75,812) | | | (60,755) | |
Other income/(loss) | 424 | | | (3,311) | | | 1,068 | | | (2,654) | | |
Other income | | Other income | 138 | | | 424 | | | 621 | | | 1,068 | |
Gains on disposition of property | Gains on disposition of property | 38,572 | | | 10,012 | | | 80,371 | | | 163,397 | | Gains on disposition of property | 9,402 | | | 38,572 | | | 63,546 | | | 80,371 | |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | 546 | | | 823 | | | 1,614 | | | 2,965 | | Equity in earnings of unconsolidated affiliates | 457 | | | 546 | | | 1,083 | | | 1,614 | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Total Assets: | | | |
Office: | | | |
Atlanta | $ | 999,319 | | | $ | 1,011,807 | |
Charlotte | 775,852 | | | 443,051 | |
Nashville | 1,264,025 | | | 1,191,219 | |
Orlando | 284,361 | | | 289,129 | |
Pittsburgh | 312,304 | | | 313,783 | |
Raleigh | 1,276,356 | | | 839,831 | |
Richmond | 211,263 | | | 240,976 | |
Tampa | 533,400 | | | 556,951 | |
Total Office Segment | 5,656,880 | | | 4,886,747 | |
Other | 97,192 | | | 322,670 | |
Total Assets | $ | 5,754,072 | | | $ | 5,209,417 | |
15. Contingencies
Since early March 2020, efforts to slow the spread of the COVID-19 virus have had a significant impact on the U.S. economy. We continue to follow the policies described in Notes 1 and 2 to our Consolidated Financial Statements contained in our 2020 Annual Report on Form 10-K, including those related to impairments of real estate assets and investments in unconsolidated affiliates, leases and estimates of credit losses on operating lease receivables. While the results of our current analyses did not result in any material adjustments to amounts as of and during the three and nine months ended September 30, 2021, circumstances related to the COVID-19 pandemic may result in recording impairments, lease modifications and credit losses in future periods.
16. Subsequent Events
On October 4, 2021,11, 2022, we acquired development landobtained a $200.0 million, two-year unsecured bank term loan that is scheduled to mature in NashvilleOctober 2024 and reduces the existing accordion feature on our $750.0 million unsecured revolving credit facility from $400.0 million to $200.0 million. Assuming no defaults have occurred, we have an option to extend the maturity for one additional year. The interest rate, based on current credit ratings, is SOFR plus a purchase price, including capitalized acquisition costs,related spread adjustment of $35.1 million.10 basis points and a borrowing spread of 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.
On October 17, 2022, we used the additional $200.0 million of borrowings, together with available cash and borrowings under our revolving credit facility, to prepay without penalty $250.0 million principal amount of 3.625% unsecured notes that were scheduled to mature in January 2023.
On October 20, 2022, the Company declared a cash dividend of $0.50 per share of Common Stock, which is payable on December 13, 2022 to stockholders of record as of November 21, 2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 (BBDs) of Atlanta, Charlotte, Dallas, Nashville, Orlando, Pittsburgh, Raleigh, Richmond and Tampa. The Company conducts its activities through the Operating Partnership. The Operating Partnership is managed by the Company, its sole general partner. Additional information about us can be found on our website at www.highwoods.com. Information on our website is not part of this Quarterly Report.
You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained elsewhere in this Quarterly Report.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Quarterly Report may contain forward-looking statements. Such statements include, in particular, statements about our plans, strategies and prospects under this section. You can identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. When considering such forward-looking statements, you should keep in mind important factors that could cause our actual results to differ materially from those contained in any forward-looking statement, including the following:
•buyers may not be available and pricing may not be adequate with respect to planned dispositions of non-core assets;
•comparable sales data on which we based our expectations with respect to the sales price of non-core assets may not reflect current market trends;
•the extent to which the ongoing COVID-19 pandemic impacts our financial condition, results of operations and cash flows depends on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its impact on the U.S. economy and potential changes in customer behavior that could adversely affect the use of and demand for office space;
•the financial condition of our customers could deteriorate or further worsen, which could be further exacerbated by the COVID-19 pandemic;
•our assumptions regarding potential losses related to customer financial difficulties due to the COVID-19 pandemic or otherwise could prove incorrect;
•counterparties under our debt instruments, particularly our revolving credit facility, may attempt to avoid their obligations thereunder, which, if successful, would reduce our available liquidity;
•we may not be able to lease or re-lease second generation space, defined as previously occupied space that becomes available for lease, quickly or on as favorable terms as old leases;
•we may not be able to lease newly constructed buildings as quickly or on as favorable terms as originally anticipated;
•we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated;
•development activity in our existing markets could result in an excessive supply relative to customer demand;
•our markets may suffer declines in economic and/or office employment growth;
•unanticipated increases in interest rates could increase our debt service costs;
•unanticipated increases in operating expenses could negatively impact our operating results;
•natural disasters and climate change could have an adverse impact on our cash flow and operating results;
•we may not be able to meet our liquidity requirements or obtain capital on favorable terms to fund our working capital needs and growth initiatives or repay or refinance outstanding debt upon maturity; and
•the Company could lose key executive officers.
This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary statements we make in “Item 1A. Risk Factors” set forth in our 20202021 Annual Report on Form 10-K. Given these uncertainties, you should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.
Executive Summary
Highwoods isWe are in the work-placemaking business. We believe that in creating environments and experiences where the best and brightest can achieve together what they cannot apart, Highwoods deliverswe deliver greater value to our customers, their teammates and, in turn, our stockholders. Our simple and straight-forward strategy is to own and manage high-quality workplaces in the BBDs within our footprint, maintain a strong balance sheet to be opportunistic throughout economic cycles, employ a talented and dedicated team and communicate transparently with all stakeholders. We focus on owning and managing buildings in the most dynamic and vibrant BBDs. BBDs are highly-energized and amenitized workplace locations that enhance our customers’ ability to attract and retain talent. They are both urban and suburban. Providing the most talent-supportive workplace options in these environments is core to the Highwoodsour work-placemaking strategy.
COVID-19
The COVID-19 pandemic has obviously hadOur investment strategy is to generate attractive and sustainable returns over the long term for our stockholders by developing, acquiring and owning a significant impact onportfolio of high-quality, differentiated office buildings in the U.S. economy since March 2020. It is very difficult to predict when, if and to what extent economic activity will return to pre-COVID-19 levels. The COVID-19 pandemic did have somewhat of an impact on our third quarter of 2021 financial results. Our financial results for the remainder of 2021 and future leasing activity could be adversely affected by the COVID-19 pandemic. Factors that could cause actual results to differ materially from our current expectations are set forth under “Disclosure Regarding Forward-Looking Statements.”
While all buildings and parking facilities have remained open for business, the usageBBDs of our assets has continuedcore markets. A core component of this strategy is to remain significantly lower than pre-pandemic levels. As a result, compared to pre-pandemic levels, parkingcontinuously strengthen the financial and parking-related revenues have continued to be low, largely offsetting reduced operating expenses, netoperational performance, resiliency and long-term growth prospects of expense recoveries. Until usage increases, which will depend on the duration of the COVID-19 pandemic, which is difficult to estimate, we expectour existing in-service portfolio and recycle those properties that reduced usage will continue to result in reduced parking revenues, which will be partially offset by reduced operating expenses. We currently do not expect usage will meaningfully increase until at least the first quarter of 2022.
Revenuesno longer meet our criteria.
Our operating results depend heavily on successfully leasing and operating the office space in our portfolio. Economic growth and office employment levels in our core markets are important factors, among others, in predicting our future operating results. Since March 2020, the COVID-19 pandemic has also had a significant impact on the U.S. economy. While all buildings and parking facilities have remained open for business, the usage of our assets has continued to remain lower than pre-pandemic levels. As a result, compared to pre-pandemic levels, parking and parking-related revenues have continued to be low, largely offsetting reduced operating expenses, net of expense recoveries. Although difficult to estimate, we currently expect usage will gradually increase throughout the remainder of 2022. Factors that could cause actual results to differ materially from our current expectations are set forth under “Disclosure Regarding Forward-Looking Statements.”
Revenues
The key components affecting our rental and other revenues are average occupancy, rental rates, cost recovery income, new developments placed in service, acquisitions and dispositions. Average occupancy generally increases during times of improving economic growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases. Average occupancy generally declines during times of slower or negative economic growth, when new vacancies tend to outpace our ability to lease space. Average occupancy could also be negatively impacted by potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, resulting from the COVID-19 pandemic, which could materially and negatively impact the future demand for office space, resulting in slower overall leasing. Asset acquisitions, dispositions and new developments placed in service also directly impact our rental revenues and could impact our average occupancy, depending upon the occupancy rate of the properties that are acquired, sold or placed in service. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also concentrate our leasing efforts on renewing existing leases prior to expiration. For more information regarding our lease expirations, see “Properties - Lease Expirations” in our 20202021 Annual Report on Form 10-K. Occupancy in our office portfolio increaseddecreased from 90.3%91.2% at December 31, 20202021 to 90.4%90.7% at September 30, 2021.2022. We expect average occupancy for our office portfolio to be approximately 90%90.5% to 91%91.0% for the remainder of 2021. However, average occupancy in the remainder of 2021 will be lower, perhaps significantly lower, if the COVID-19 pandemic causes vacancies and move-outs due to customers that default on their leases, file bankruptcy or otherwise experience significant financial difficulty. Potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home2022.
arrangements, could also materially and negatively impact the future demand for office space, resulting in slower overall leasing and negatively impacting our revenues.
Whether or not our rental revenue tracks average occupancy proportionally depends upon whether GAAP rents under signed new and renewal leases are higher or lower than the GAAP rents under expiring leases. Annualized rental revenues from second generation leases expiring during any particular year are typically less than 15% of our total annual rental revenues. The following table sets forth information regarding second generation office leases signed during the third quarter of 20212022 (we define second generation office leases as leases with new customers and renewals of existing customers in office space that has been previously occupied under our ownership and leases with respect to vacant space in acquired buildings):
| | | | New | | Renewal | | All Office | | New | | Renewal | | All Office |
Leased space (in rentable square feet) | Leased space (in rentable square feet) | 245,199 | | | 427,148 | | | 672,347 | | Leased space (in rentable square feet) | 518,438 | | | 516,871 | | | 1,035,309 | |
Average term (in years - rentable square foot weighted) | Average term (in years - rentable square foot weighted) | 5.8 | | | 6.3 | | | 6.1 | | Average term (in years - rentable square foot weighted) | 9.5 | | | 4.8 | | | 7.2 | |
Base rents (per rentable square foot) (1) | Base rents (per rentable square foot) (1) | $ | 28.94 | | | $ | 33.48 | | | $ | 31.82 | | Base rents (per rentable square foot) (1) | $ | 37.45 | | | $ | 34.82 | | | $ | 36.14 | |
Rent concessions (per rentable square foot) (1) | Rent concessions (per rentable square foot) (1) | (1.67) | | | (1.28) | | | (1.42) | | Rent concessions (per rentable square foot) (1) | (2.30) | | | (1.06) | | | (1.68) | |
GAAP rents (per rentable square foot) (1) | GAAP rents (per rentable square foot) (1) | $ | 27.27 | | | $ | 32.20 | | | $ | 30.40 | | GAAP rents (per rentable square foot) (1) | $ | 35.15 | | | $ | 33.76 | | | $ | 34.46 | |
Tenant improvements (per rentable square foot) (1) | Tenant improvements (per rentable square foot) (1) | $ | 5.65 | | | $ | 3.74 | | | $ | 4.44 | | Tenant improvements (per rentable square foot) (1) | $ | 4.86 | | | $ | 3.11 | | | $ | 3.99 | |
Leasing commissions (per rentable square foot) (1) | Leasing commissions (per rentable square foot) (1) | $ | 0.99 | | | $ | 1.08 | | | $ | 1.05 | | Leasing commissions (per rentable square foot) (1) | $ | 1.27 | | | $ | 0.83 | | | $ | 1.05 | |
__________
(1) Weighted average per rentable square foot on an annual basis over the lease term.
Annual combined GAAP rents for new and renewal leases signed in the third quarter were $30.40$34.46 per rentable square foot, 19.3%13.4% higher compared to previous leases in the same office spaces.
We strive to maintain a diverse, stable and creditworthy customer base. We have an internal guideline whereby customers that account for more than 3% of our annualized revenues are periodically reviewed with the Company’s Board of Directors. As of September 30, 2021, the Federal Government (3.7%) and2022, Bank of America (3.6%(3.8%) and Asurion (3.7%) accounted for more than 3% of our annualized cash revenues.
Expenses
Our expenses primarily consist of rental property expenses, depreciation and amortization, general and administrative expenses and interest expense. From time to time, expenses also include impairments of real estate assets. Rental property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy and usage levels, such as janitorial services and utilities, and expenses that do not vary based on occupancy, such as property taxes and insurance. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy, place in service or sell assets, since our properties and related building and tenant improvement assets are depreciated on a straight-line basis over fixed lives. General and administrative expenses consist primarily of management and employee salaries and benefits, corporate overhead and short and long-term incentive compensation.
Net Operating Income
Whether or not we record increasing net operating income (“NOI”) in our same property portfolio typically depends upon our ability to garner higher rental revenues, whether from higher average occupancy, higher GAAP rents per rentable square foot or higher cost recovery income, that exceed any corresponding growth in operating expenses. Same property NOI was $1.9$0.6 million, or 1.6%0.5%, higher in the third quarter of 20212022 as compared to 20202021 due to an increase of $2.5$7.1 million in same property revenues offset by an increase of $0.6$6.4 million in same property expenses. We expect same property NOI to be lower for the remainder of 2021 as compared to 2020 as an anticipated increase in same property expenses, mostly from the gradual increase in usage of our assets, is expected to more than offset higher anticipated same property revenues. We expect same property revenues to be higher due to higher average GAAP rents per rentable square foot and higher cost recovery and parking income, partially offset by an anticipated decrease in average occupancy. Same property NOI could be further negatively impacted if the COVID-19 pandemic causes losses related to customer difficulties.
In addition to the effect of same property NOI, whether or not NOI increases typically depends upon whether the NOI from our acquired properties and development properties placed in service exceeds the NOI from property dispositions. NOI was $10.8$5.7 million, or 8.7%4.3%, higher in the third quarter of 20212022 as compared to 20202021 primarily due to development properties placed in service, the acquisitionsacquisition of real estate
assets from Preferred Apartment Communities, Inc. (NYSE:APTS) (“PAC”) and our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture (the “Forum”), development properties placedthe third quarter of 2021, the acquisition of SIX50 at Legacy Union in servicethe third quarter of 2022 and higher same property NOI, partially offset by NOI lost from property dispositions. We expect NOI to be higher for the remainder of 2021 as compared to 2020 due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum and development properties placed in service, partially offset by NOI lost from property dispositions and lower same property NOI. Similar to same property NOI, NOI could be negatively impacted if the COVID-19 pandemic causes losses related to customer difficulties.
Cash Flows
In calculating net cash related to operating activities, depreciation and amortization, which are non-cash expenses, are added back to net income. We have historically generated a positive amount of cash from operating activities. From period to period, cash flow from operations depends primarily upon changes in our net income, as discussed more fully below under “Results of Operations,” changes in receivables and payables and net additions or decreases in our overall portfolio.
Net cash related to investing activities generally relates to capitalized costs incurred for leasing and major building improvements and our acquisition, development, disposition and joint venture activity. During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically consists of cash received upon the sale of properties and distributions from our joint ventures.
Net cash related to financing activities generally relates to distributions, incurrence and repayment of debt, and issuances, repurchases or redemptions of Common Stock, Common Units and Preferred Stock. We use a significant amount of our cash to fund distributions. Whether or not we have increases in the outstanding balances of debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We generally use our revolving credit facility for daily working capital purposes, which means that during any given period, in order to minimize interest expense, we may record significant repayments and borrowings under our revolving credit facility.
For a discussion regarding dividends and distributions, see “Liquidity and Capital Resources - Dividends and Distributions.”
Liquidity and Capital Resources
We continue to maintain a conservative and flexible balance sheet and believe we have ample liquidity to fund our operations and growth prospects. As of October 19, 2021,18, 2022, we had $155.0approximately $32.0 million of available cash and $170.0 million drawn on our $750.0 million revolving credit facility, which is scheduled to mature in March 2025. Assuming2026, assuming we are in compliance withexercise our covenants, we have an option to extend the maturity date for two additional six-month periods. At September 30, 2021,2022, our leverage ratio, as measured by the ratio of our mortgages and notes payable and outstanding preferred stock to the undepreciated book value of our assets, was 41.0%40.4%, and there were 107.2107.6 million diluted shares of Common Stock outstanding.
Rental and other revenues are our principal source of funds to meet our short-term liquidity requirements. Other sources of funds for short-term liquidity needs include available working capital and borrowings under our revolving credit facility.facility, which had $579.9 million of availability at October 18, 2022. Our short-term liquidity requirements primarily consist of operating expenses, interest and principal amortization on our debt, distributions and capital expenditures, including building improvement costs, tenant improvement costs and lease commissions. Building improvements are capital costs to maintain or enhance existing buildings not typically related to a specific customer. Tenant improvements are the costs required to customize space for the specific needs of customers. We anticipate that our available cash and cash equivalents and cash provided by operating activities and planned financing activities, including borrowings under our revolving credit facility, will be adequate to meet our short-term liquidity requirements. We use our revolving credit facility for working capital purposes and for the short-term funding of our development and acquisition activity and, in certain instances, the repayment of other debt. Continued ability to borrow under ourthe revolving credit facility allows us to quickly capitalize on strategic opportunities at short-term interest rates.
We generally believe existing cash and rental and other revenues will continue to be sufficient to fund short-term liquidity needs such as funding operating and general and administrative expenses, paying interest expense, maintaining our existing quarterly dividend and funding existing portfolio capital expenditures, including building improvement costs, tenant improvement costs and lease commissions.
Our long-term liquidity uses generally consist of the retirement or refinancing of debt upon maturity, funding of building improvements, new building developments and land infrastructure projects and funding acquisitions of buildings and
development land. Additionally, we may, from time to time, retire outstanding equity and/or debt securities through redemptions, open market repurchases, privately negotiated acquisitions or otherwise.
We expect to meet our long-term liquidity needs through a combination of:
•cash flowflows from operating activities;
•issuance of debt securities by the Operating Partnership;
•issuance of secured debt;
•bank term loans and loans;
•borrowings under our revolving credit facility;
•the issuance of unsecured debt;
•the issuance of secured debt;
•the issuance of equity securities by the Company or the Operating Partnership; and
•the disposition of non-core assets.
We have no material debt scheduled to mature untilprior to 2026 other than our recently obtained $200.0 million, two-year unsecured bank term loan that is scheduled to mature in October 2025, assuming we exercise our option to extend the fourth quarter of 2022.maturity date for one additional year. We generally believe we will be able to satisfy these obligations with existing cash, borrowings under our revolving credit facility, new bank term loans, issuance of other unsecured debt, mortgage debt and/or proceeds from the sale of additional non-core assets.
Investment Activity
AAs noted above, a key tenet of our strategic plan is to continuously upgrade the quality of our office portfolio through acquisitions, dispositions and development. We generally seek to acquire and develop office buildings that improve the average quality of our overall portfolio and deliver consistent and sustainable value for our stockholders over the long-term. Whether or not an asset acquisition or new development results in higher per share net income or funds from operations (“FFO”) in any given period depends upon a number of factors, including whether the NOI for any such period exceeds the actual cost of capital used to finance the acquisition or development. Additionally, given the length of construction cycles, development projects are not placed in service until, in some cases, several years after commencement. Sales of non-core assets could result in lower per share net income or FFO in any given period in the event the return on the resulting use of proceeds does not exceed the capitalization rate on the sold properties.
During the third quarter of 2021,2022, we closedentered the acquisitionDallas market through the formation of a portfolio of real estate assets from PAC. The portfolio consists oftwo joint ventures with Granite Properties to develop the following Class AA assets:
| | | | | | | | | | | | | | | | | | | | |
Asset | | Market | | Submarket/BBD | | Square Footage |
150 Fayetteville | | Raleigh | | CBD | | 560,000 |
CAPTRUST Towers | | Raleigh | | North Hills | | 300,000 |
Capitol Towers | | Charlotte | | SouthPark | | 479,000 |
Morrocroft Centre | | Charlotte | | SouthPark | | 291,000 |
Galleria 75 Redevelopment Site | | Atlanta | | Cumberland/Galleria | | |
| | | | | | | | | | | | | | | | | | | | |
Project | | BBD | | Own % | | Rentable Square Feet |
Granite Park Six | | Frisco/Plano | | 50% | | 422,000 |
23Springs | | Uptown | | 50% | | 642,000 |
Our total purchase price, netIn connection with the formation, we agreed to contribute our 50.0% share of closing credits and cash acquired, was $653.6 million, including $4.5the equity required to fund the development projects, $55.7 million of capitalized acquisition costs. which was funded on the formation date.
The acquisition included the assumption of four secured loans recorded at fair value of $403Granite Park Six joint venture obtained a construction loan for $115.0 million, in the aggregate, with a weighted average effectivean interest rate of 3.54%SOFR plus 394 basis points and a weighted average maturity date of 10.7 years. We incurred $3.5January 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 debt issuance costs relatedany 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 these assumptions.$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.
With respectWe plan to non-corefund 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. 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. We can provide no assurances, however, that we had previously agreedwill dispose of any of our assets in Pittsburgh on favorable terms, or at all, because the dispositions are subject to acquire from PAC, the mezzanine loan relatednegotiation and execution of definitive and binding purchase and sale agreements and would then be subject to a recently constructed office building in Atlanta was paid off in full by the third party borrowerbuyers’ completion of satisfactory due diligence and PAC sold Armour Yards, a multi-building creative office project in Atlanta, to a third party.other customary closing conditions. There is no pre-determined timetable for our Pittsburgh market exit.
Results of Operations
Three Months Ended September 30, 20212022 and 20202021
Rental and Other Revenues
Rental and other revenues were $14.5$11.5 million, or 8.0%5.9%, higher in the third quarter of 20212022 as compared to 20202021 primarily due to the acquisitionsdevelopment properties placed in service, higher same property revenues, the acquisition of real estate assets from PAC and our joint venture partner’s 75.0% interestthe acquisition of SIX50 at Legacy Union, which increased rental and other revenues by $7.2 million, $7.1 million and $6.4 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, cost recoveries, parking income and termination fees. These increases were partially offset by lost revenue of $9.3 million from property dispositions.
Operating Expenses
Rental property and other expenses were $5.8 million, or 9.5%, higher in the Forum,third quarter of 2022 as compared to 2021 primarily due to higher same property operating expenses, the acquisition of real estate assets from PAC and the acquisition of SIX50 at Legacy Union and development properties placed in service, which increased operating expenses by $6.4 million, $1.9 million and $1.2 million, respectively. Same property operating expenses were higher primarily due to higher property taxes, utilities, contract services and repairs and maintenance. These increases were partially offset by a $3.6 million decrease in operating expenses from property dispositions.
Depreciation and amortization was $6.5 million, or 9.8%, higher in the third quarter of 2022 as compared to 2021 primarily due to higher same property lease related depreciation and amortization, the acquisition of real estate assets from PAC and the acquisition of SIX50 at Legacy Union and development properties placed in service, partially offset by property dispositions.
Because we classified all of our assets in Pittsburgh as non-core, we recorded an impairment charge of $1.5 million on a land parcel in Pittsburgh in the third quarter of 2022. We recorded no such impairment in 2021.
General and administrative expenses were $0.8 million, or 7.4%, lower in the third quarter of 2022 as compared to 2021 primarily due to lower long-term equity incentive compensation, partially offset by higher salaries, benefits and office rent.
Interest Expense
Interest expense was $4.4 million, or 20.0%, higher in the third quarter of 2022 as compared to 2021 primarily due to higher average debt balances, higher average interest rates and lower capitalized interest.
Other Income
Other income was $0.3 million lower in the third quarter of 2022 as compared to 2021 primarily due to losses on deferred compensation plan investments (which is fully offset by a corresponding decrease in general and administrative expenses).
Gains on Disposition of Property
Gains on disposition of property were $29.2 million lower in the third quarter of 2022 as compared to 2021.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $0.1 million lower in the third quarter of 2022 as compared to 2021 primarily due to higher property taxes.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $0.33 lower in the third quarter of 2022 as compared to 2021 due to a decrease in net income for the reasons discussed above.
Nine Months Ended September 30, 2022 and 2021
Rental and Other Revenues
Rental and other revenues were $52.4 million, or 9.3%, higher in the nine months ended September 30, 2022 as compared to 2021 primarily due to the acquisition of real estate assets from PAC, the acquisition of SIX50 at Legacy Union, development properties placed in service and higher same property revenues, which increased rental and other revenues by $15.0$39.0 million, $2.7$23.5 million and $2.5$16.1 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot, higher average occupancy and higher cost recoveries, parking income and lower credit losses,termination fees, partially offset by a decrease in average occupancy.higher credit losses. These increases were partially offset by lost revenue of $6.0 million from property dispositions. We expect rental and other revenues to be higher for the remainder of 2021 as compared to 2020 for similar reasons. Rental and other revenues could be negatively impacted if the COVID-19 pandemic causes losses related to customer difficulties.
Operating Expenses
Rental property and other expenses were $3.7 million, or 6.5%, higher in the third quarter of 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, higher same property operating expenses and development properties placed in service, which increased operating expenses by $4.0 million, $0.6 million and $0.4 million, respectively. Same property operating expenses were higher primarily due to higher contract services, repairs and maintenance and utilities as a result of the gradual increase in the usage of our assets. These increases were partially offset by a $1.8 million decrease in operating expenses from property dispositions. We expect rental property and other expenses to be higher for the remainder of 2021 as compared to 2020 for similar reasons.
Depreciation and amortization was $6.2 million, or 10.4%, higher in the third quarter of 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, development properties placed in service and higher same property lease related depreciation and amortization, partially offset by fully amortized acquisition-related intangible assets and property dispositions. We expect depreciation and amortization to be higher for the remainder of 2021 as compared to 2020 for similar reasons.
General and administrative expenses were $1.2 million, or 13.1%, higher in the third quarter of 2021 as compared to 2020 due to higher incentive compensation, partially offset by lower salaries and benefits. We experienced lower salaries in 2021 as a result of the reduction in the number of employees throughout 2020 primarily due to our exiting of the Greensboro and Memphis markets and the subsequent closing of those division offices and the resulting synergies garnered from the ongoing simplification of our business. We expect general and administrative expenses to be relatively consistent for the remainder of 2021 as compared to 2020 due to higher incentive compensation offset by lower salaries, severance and early retirement costs.
Interest Expense
Interest expense was $2.1 million, or 10.6%, higher in the third quarter of 2021 as compared to 2020 primarily due to higher average debt balances, partially offset by higher capitalized interest and lower average interest rates. We expect interest expense to be higher for the remainder of 2021 as compared to 2020 due to higher average debt balances and lower capitalized interest.
Other Income/(Loss)
Other income/(loss) was income of $0.4 million in the third quarter of 2021 as compared to a loss of $3.3 million in the third quarter of 2020 primarily due to losses on debt extinguishment in 2020.
Gains on Disposition of Property
Gains on disposition of property were $28.6 million higher in the third quarter of 2021 as compared to 2020 due to the net effect of the disposition activity in such periods.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $0.3 million, or 33.7%, lower in the third quarter of 2021 as compared to 2020 primarily due to the acquisition of our joint venture partner’s 75.0% interest in the Forum. We expect equity in earnings of unconsolidated affiliates to be lower for the remainder of 2021 as compared to 2020 for the same reason. Equity in earnings of unconsolidated affiliates could be negatively impacted if the COVID-19 pandemic causes losses related to customer difficulties.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $0.30 higher in the third quarter of 2021 as compared to 2020 due to an increase in net income for the reasons discussed above.
Nine Months Ended September 30, 2021 and 2020
Rental and Other Revenues
Rental and other revenues were $7.8 million, or 1.4%, higher in the nine months ended September 30, 2021 as compared to 2020 primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum, development properties placed in service, the recognition of deferred leasing commission income that was received in connection with the Forum acquisition and higher same property revenues, which increased rental and other revenues by $22.6 million, $5.0 million, $1.5 million and $0.3 million, respectively. Same property rental and other revenues were higher primarily due to higher average GAAP rents per rentable square foot and lower credit losses, partially offset by a decrease in average occupancy. These increases were partially offset by lost revenue of $21.4$26.6 million from property dispositions.
Operating Expenses
Rental property and other expenses were $1.2$17.1 million, or 0.7%9.9%, lowerhigher in the nine months ended September 30, 20212022 as compared to 20202021 primarily due to property dispositions and lowerhigher same property operating expenses, which decreased operating expenses by $7.7 million and $0.5 million, respectively. Same property operating expenses were lower primarily due to lower utilities and contract services as a result of reduced usage of our assets because of the COVID-19 pandemic. These decreases were partially offset by the acquisitionsacquisition of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forumacquisition of SIX50 at Legacy Union and development properties placed in service, which increased operating expenses by $5.7$12.4 million, $10.5 million and $0.8$3.7 million, respectively. Same property operating expenses were higher primarily due to higher contract services, utilities, property taxes and repairs and maintenance. These increases were partially offset by a $9.6 million decrease in operating expenses from property dispositions.
Depreciation and amortization was $8.5$23.0 million, or 4.7%12.2%, higher in the nine months ended September 30, 20212022 as compared to 20202021 primarily due to the acquisition s of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum,acquisition of SIX50 at Legacy Union, development properties placed in service and higher same property lease related depreciation and amortization, partially offset by fully amortized acquisition-related intangible assets and property dispositions.
WeBecause we classified all of our assets in Pittsburgh as non-core, we recorded an impairment charge of real estate assets of $1.8$36.5 million in the nine months ended September 30, 2020, which resulted from2022, primarily to lower the carrying amount of EQT Plaza to its estimated fair value less costs to sell. EQT Plaza is a change616,000 square foot office building located in market-based inputs and our assumptions about the useheart of the assets.Pittsburgh’s CBD. EQT Corporation’s lease of 317,000 square feet at EQT Plaza is scheduled to expire in September 2024. There are no assurances that EQT Corporation will renew all or any of its space upon expiration of its current lease. We recorded no such impairment in 2021.
General and administrative expenses were $0.2$2.3 million, or 0.8%7.6%, higher in the nine months ended September 30, 20212022 as compared to 20202021 primarily due to higher incentive compensation, partially offset by lower salaries, benefits severance and early retirement costs. We experienced lower salaries and benefits in 2021 as a result of the reduction in the number of employees throughout 2020 primarily due to our exiting of the Greensboro and Memphis markets and the subsequent closing of those division offices and the resulting synergies garnered from the ongoing simplification of our business.office rent.
Interest Expense
Interest expense was $0.2$15.1 million, or 0.4%24.8%, higher in the nine months ended September 30, 2022 as compared to 2021 primarily due to higher average debt balances, higher average interest rates and lower capitalized interest.
Other Income
Other income was $0.4 million lower in the nine months ended September 30, 20212022 as compared to 2020 primarily due to higher capitalized interest and lower average interest rates, partially offset by higher average debt balances.
Other Income/(Loss)
Other income/(loss) was income of $1.1 million in the nine months ended September 30, 2021 as compared to a loss of $2.7 million in the nine months ended September 30, 2020 primarily due to losses on deferred compensation plan investments (which is fully offset by a corresponding decrease in general and administrative expenses), partially offset by losses on debt extinguishment in 2020.2021.
Gains on Disposition of Property
Gains on disposition of property were $83.0$16.8 million lower in the nine months ended September 30, 20212022 as compared to 2020 primarily due to our market rotation plan of exiting the Greensboro and Memphis markets in 2020.2021.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $1.4$0.5 million or 45.6%, lower in the nine months ended September 30, 20212022 as compared to 20202021 primarily due to the acquisition of our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture in the Forum.first quarter of 2021 and higher property taxes.
Earnings Per Common Share - Diluted
Diluted earnings per common share was $0.74$0.56 lower in the nine months ended September 30, 20212022 as compared to 20202021 due to a decrease in net income for the reasons discussed above.
Liquidity and Capital Resources
Statements of Cash Flows
We report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Company’s cash flows (in thousands):
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2021 | | 2020 | | Change | | 2022 | | 2021 | | Change |
Net Cash Provided By Operating Activities | Net Cash Provided By Operating Activities | $ | 309,218 | | | $ | 275,459 | | | $ | 33,759 | | Net Cash Provided By Operating Activities | $ | 319,879 | | | $ | 309,218 | | | $ | 10,661 | |
Net Cash Provided By/(Used In) Investing Activities | (373,225) | | | 80,369 | | | (453,594) | | |
Net Cash Used In Financing Activities | (84,339) | | | (242,299) | | | 157,960 | | |
Net Cash Used In Investing Activities | | Net Cash Used In Investing Activities | (341,593) | | | (373,225) | | | 31,632 | |
Net Cash Provided By/(Used In) Financing Activities | | Net Cash Provided By/(Used In) Financing Activities | 19,609 | | | (84,339) | | | 103,948 | |
Total Cash Flows | Total Cash Flows | $ | (148,346) | | | $ | 113,529 | | | $ | (261,875) | | Total Cash Flows | $ | (2,105) | | | $ | (148,346) | | | $ | 146,241 | |
The change in net cash provided by operating activities in the nine months ended September 30, 20212022 as compared to 20202021 was primarily due to higher net cash from the operations of acquired real estate assets from PAC, and our joint venture partner’s 75.0% interest in the Forum,acquisition of SIX50 at Legacy Union, same properties and development properties placed in service, and changes in operating assets, partially offset by property dispositions. We expect
The change in net cash related to operatingused in investing activities to be higher forin the remainder of 2021nine months ended September 30, 2022 as compared to 2020 for2021 was primarily due to lower acquisition activity and investments in development in-process in 2022, partially offset by investments in the same reasons.2827 Peachtree, Granite Park Six and 23Springs joint ventures in 2022, lower net proceeds from disposition activity in 2022 and higher investments in tenant and building improvements in 2022.
The change in net cash provided by/(used in) investing activities in the nine months ended September 30, 2021 as compared to 2020 was primarily due to the acquisitions of real estate assets from PAC and our joint venture partner’s 75.0% interest in the Forum and net proceeds from disposition activity in 2020, partially offset by higher investments in development in-process, tenant improvements and building improvements in 2020. We expect uses of cash for investing activities for the remainder of 2021 to be primarily driven by whether or not we acquire and/or commence development of additional office buildings. We expect these uses of cash for investing activities, if any, will be partially offset by proceeds from property dispositions for the remainder of 2021.
The change in net cash used in financing activities in the nine months ended September 30, 20212022 as compared to 20202021 was primarily due to higher net debt repaymentsborrowings in 2020. Assuming the net effect of our acquisition, disposition and development activity in the remainder of 2021 results in an increase to our assets, we would expect outstanding debt and/or Common Stock balances to increase.2022.
Capitalization
The following table sets forth the Company’s capitalization (in thousands, except per share amounts):
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| Mortgages and notes payable, net, at recorded book value | Mortgages and notes payable, net, at recorded book value | $ | 2,942,902 | | | $ | 2,470,021 | | Mortgages and notes payable, net, at recorded book value | $ | 2,973,369 | | | $ | 2,788,915 | |
| Preferred Stock, at liquidation value | Preferred Stock, at liquidation value | $ | 28,821 | | | $ | 28,826 | | Preferred Stock, at liquidation value | $ | 28,821 | | | $ | 28,821 | |
Common Stock outstanding | Common Stock outstanding | 104,383 | | | 103,922 | | Common Stock outstanding | 105,198 | | | 104,893 | |
Common Units outstanding (not owned by the Company) | Common Units outstanding (not owned by the Company) | 2,832 | | | 2,839 | | Common Units outstanding (not owned by the Company) | 2,382 | | | 2,505 | |
Per share stock price at period end | Per share stock price at period end | $ | 43.86 | | | $ | 39.63 | | Per share stock price at period end | $ | 26.96 | | | $ | 44.59 | |
Market value of Common Stock and Common Units | Market value of Common Stock and Common Units | $ | 4,702,450 | | | $ | 4,230,938 | | Market value of Common Stock and Common Units | $ | 2,900,357 | | | $ | 4,788,877 | |
Total capitalization | Total capitalization | $ | 7,674,173 | | | $ | 6,729,785 | | Total capitalization | $ | 5,902,547 | | | $ | 7,606,613 | |
At September 30, 2021,2022, our mortgages and notes payable and outstanding preferred stock represented 38.7%50.9% of our total capitalization and 41.0%40.4% of the undepreciated book value of our assets. See also “Executive Summary - Liquidity and Capital Resources.”
Our mortgages and notes payable as of September 30, 20212022 consisted of $493.9$486.0 million of secured indebtedness with a weighted average interest rate of 3.63%3.62% and $2,464.8$2,503.3 million of unsecured indebtedness with a weighted average interest rate of 3.20%3.67%. The secured indebtedness which includes four secured loans recorded at fair value of $403 million in the aggregate
assumed as part of the acquisition of real estate assets from PAC, was collateralized by real estate assets with an undepreciated book value of $721.0$742.1 million. As of September 30, 2021, $373.02022, $460.0 million of our debt does not bear interest at fixed rates or is not protected by interest rate hedge contracts.
Investment Activity
In the normal course of business, we regularly evaluate potential acquisitions. As a result, from time to time, we may have one or more potential acquisitions under consideration that are in varying stages of evaluation, negotiation or due diligence, including potential acquisitions that are subject to non-binding letters of intent or enforceable contracts. Consummation of any transaction is subject to a number of contingencies, including the satisfaction of customary closing conditions. No assurances can be provided that we will acquire any properties in the future. See “Item 1A. Risk Factors - Risks Related to our Capital Recycling Activity - Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates” in our 20202021 Annual Report on Form 10-K.
Acquisitions
As noted above under “Executive Summary,” the acquisition of real estate assets from PAC was completed duringDuring the third quarter of 2021. We funded the initial cash portion of the2022, 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 a combinationthe assistance of restricted cash held in escrow as the result of recent non-core asset sales and our $200.0 million, six-month unsecured bridge facility. Our plan is to ultimately fundthird party specialists, based on information available at the acquisition primarily by accelerating the sale of $500date and on current assumptions as to $600 million of non-core assets by mid-2022. We can provide no assurances, however, that we will dispose of any assets on favorable terms, or at all, because the dispositions are subject to the negotiation and execution of sale agreements and would then be subject to the buyers’ completion of satisfactory due diligence and other customary closing conditions. Approximately $250 million of the planned dispositions are expected to qualify for tax-deferred treatment under Section 1031 of the Internal Revenue Code.future operations.
During the third quarter of 2021,2022, we also acquired development land in Nashville for a purchase price, including capitalized acquisition costs, of $22.9 million.
On October 4, 2021, we acquired additional development land in Nashville for a purchase price, including capitalized acquisition costs, of $35.1 million.
Dispositions
During the third quarter of 2021, we sold two office buildings in Richmond and Memphis for an aggregate sale price of $119.7 million (before closing credits to buyer of $4.4 million) and recorded aggregate gains on disposition of property of $37.3 million.
We have a 50.0% ownership interest in Highwoods-Markel Associates, LLC (“Markel”), a consolidated joint venture. During the third quarter of 2021, Markel sold land in Richmond for a salesales price of $3.0$23.3 million and recorded a gain on disposition of property of $1.3$9.4 million.
As of September 30, 2022, we were developing 1.4 million rentable square feet of office properties. The following table summarizes these announced and in-process office developments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Market | | Own % | | Consolidated (Y/N) | | Rentable Square Feet | | Anticipated Total Investment (1) | | Investment As Of September 30, 2022 (1) | | Pre Leased % | | Estimated Completion | | Estimated Stabilization |
| | | | | | | | | | ($ in thousands) | | | | | | |
23Springs (2) | | Dallas | | 50.0 | % | | N | | 642,000 | | | $ | 460,000 | | | $ | 75,177 | | | 17.1 | % | | 1Q 25 | | 1Q 28 |
Granite Park Six (2) | | Dallas | | 50.0 | % | | N | | 422,000 | | | 200,000 | | | 71,777 | | | 12.4 | | | 4Q 23 | | 1Q 26 |
GlenLake III Office & Retail (3) | | Raleigh | | 100.0 | % | | Y | | 218,250 | | | 94,600 | | | 30,938 | | | 14.6 | | | 3Q 23 | | 1Q 26 |
2827 Peachtree | | Atlanta | | 50.0 | % | | N | | 135,300 | | | 79,000 | | | 28,151 | | | 72.0 | | | 3Q 23 | | 1Q 25 |
Four Morrocroft | | Charlotte | | 100.0 | % | | Y | | 18,000 | | | 12,000 | | | 656 | | | 100.0 | | | 2Q24 | | 2Q24 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | 1,435,550 | | | $ | 845,600 | | | $ | 206,699 | | | 21.6 | % | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
__________
(1)Includes deferred lease commissions which are classified in deferred leasing costs on our Consolidated Balance Sheet.
(2)Investment includes capitalized interest only on the construction loan portion of the project.
(3)Retail portion recorded on our Consolidated Balance Sheet as land held for development, not development in-process.
Financing Activity
During 2020, we entered into separate equity distribution agreements with each of Wells Fargo Securities, LLC, BofA Securities, Inc., BTIG, LLC, Capital One Securities, Inc., Fifth Third Securities, Inc., Jefferies LLC, J.P. Morgan Securities LLC, Regions Securities LLC and SunTrust Robinson Humphrey, Inc. Under the terms of the equity distribution agreements, the Company may offer and sell up to $300.0 million in aggregate gross sales price of shares of Common Stock from time to time through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the New York Stock Exchange (“NYSE”) or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades). During the third quarter of 2021, the Company issued 150,260There were no shares of Common Stock at an average gross sales price of $45.81 per share and received net proceeds, after sales commissions, of $6.8 million. We paid an aggregate of $0.1 million in sales commissions to BofA Securities, Inc.issued under these agreements during the third quarter of 2021.2022.
Our $750.0 million unsecured revolving credit facility which replaced our previously existing $600.0 million revolving credit facilityis scheduled to mature in March 2025 and includes an accordion feature that allows for an additional $550.0$400.0 million of borrowing capacity subject to additional lender commitments. Our new revolving credit facility is scheduled to mature in March 2025. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-
month periods. The current2022, in connection with the modification of our $200.0 million term loan as discussed below, the interest rate on the newour revolving credit facility at our existing credit ratings iswas converted from LIBOR plus 90 basis points to SOFR plus a related spread adjustment of 10 basis points and thea borrowing spread of 85 basis points, based on current credit ratings. The annual facility fee is 20 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. The financial and other covenants underWe may be entitled to a temporary reduction in the new facility are substantially similarinterest rate of one basis point provided we meet certain sustainability goals with respect to our previous credit facility. We incurred $4.8 millionthe ongoing reduction of debt issuance costs, which will be amortized along with certain existing unamortized debt issuance costs over the remaining term of our new revolving credit facility. We recorded $0.1 million of loss on debt extinguishment.greenhouse gas emissions. There was $135.0$110.0 million and $155.0$170.0 million outstanding under our new revolving credit facility at September 30, 20212022 and October 19, 2021,18, 2022, respectively. At both September 30, 20212022 and October 19, 2021,18, 2022, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at September 30, 20212022 and October 19, 202118, 2022 was $614.9$639.9 million and $594.9$579.9 million, respectively.
During the thirdsecond quarter of 2021,2022, we modified our $200.0 million unsecured bank term loan to extend the maturity date from November 2022 to May 2026. As part of this modification, we also obtained a $150.0 million delayed-draw term loan, which was drawn in conjunction with the acquisition of real estate assets from PAC, we assumed four secured mortgage loans recorded at fair value of $403 millionits entirety in the aggregate, with a weighted average effective interest rate of 3.54% and a weighted average maturity of 10.7 years. We incurred $3.5 million of debt issuance costs related to these assumptions, which will be amortized over the remaining terms of the loans.
During the third quarter of 2021, we also obtained a $200.0 million, six-month unsecured bridge facility. The bridge facility2022, that is originally scheduled to mature in January 2022 and can be extended at our option for an additional six-month period.May 2027. The bridge facility bears interest at LIBORrate, based on current credit ratings, is SOFR plus 85 basis points, has a commitment feerelated spread adjustment of 2010 basis points and contains financial and other covenants that are similar to the covenants under our $750 million unsecured revolving credit facility.a borrowing spread of 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. There was $88.0 million outstanding under our bridge facility at both September 30, 2021 and October 19, 2021.We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. We incurred $1.0$2.7 million of debt issuance costs, related to this bridge facility which are being amortized along with certain existing unamortized debt issuance costs over the six-month term.remaining term of our modified term loan.
On October 11, 2022, we obtained a $200.0 million, two-year unsecured bank term loan that is scheduled to mature in October 2024 and reduces the existing accordion feature on our $750.0 million unsecured revolving credit facility from $400.0 million to $200.0 million. Assuming no defaults have occurred, we have an option to extend the maturity for one additional year. The interest rate, based on current credit ratings, is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.
On October 17, 2022, we used the additional $200.0 million of borrowings, together with available cash and borrowings under our revolving credit facility, to prepay without penalty $250.0 million principal amount of 3.625% unsecured notes that were scheduled to mature in January 2023.
We are currently in compliance with financial covenants and other requirements with respect to our consolidated debt. Although we expect to remain in compliance with these covenants and ratios for at least the next year, depending upon our future operating performance, property and financing transactions and general economic conditions, we cannot assure you that we will continue to be in compliance.
Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on our revolving credit facility, the lenders having at least 51.0% of the total commitments under our revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations. In addition, certain of our unsecured debt agreements contain cross-default provisions giving the unsecured lenders the right to declare a default if we are in default under more than $35.0 million with respect to other loans in some circumstances.
The indenture that governs the Operating Partnership’s outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of any series of notes can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.
We may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration. If we refinance any refinancing is donedebt at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay distributions. Any such refinancing couldWe may also imposebe subject to tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions.
Dividends and Distributions
To maintain its qualification as a REIT, the Company must pay dividends to stockholders that are at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to distribute at least enough cash for the Company to be able to pay such dividends. The Company’s REIT taxable income, as determined by the federal tax laws, does not equal its net income under accounting principles generally accepted in the United States of America (“GAAP”). In addition, although capital gains are not required to be distributed to maintain REIT status, capital gains, if any, are subject to federal and state income tax unless such gains are distributed to stockholders.
Cash dividends and distributions reduce the amount of cash that would otherwise be available for other business purposes, including funding debt maturities, reducing debt or future growth initiatives. The amount of future distributions that will be made is at the discretion of the Company’s Board of Directors. For a discussion of the factors that will affect such cash flows
and, accordingly, influence the decisions of the Company’s Board of Directors regarding dividends and distributions, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends and Distributions” in our 20202021 Annual Report on Form 10-K.
On October 20, 2022, the Company declared a cash dividend of $0.50 per share of Common Stock, which is payable on December 13, 2022 to stockholders of record as of November 21, 2022.
During the third quarter of 2021,2022, the Company declared and paid a cash dividend of $0.50 per share of Common Stock.
Current and Future Cash Needs
We anticipate that our available cash and cash equivalents, cash flows from operating activities and other available financing sources, including the issuance of debt securities by the Operating Partnership, the issuance of secured debt, bank term loans, borrowings under our revolving credit facility, and the issuance of equity securities by the Company or the Operating Partnership and the disposition of non-core assets, will be adequate to meet our short-term liquidity requirements. We generally believe existing cash and rental and other revenues will continue to be sufficient to fund operating and general and administrative expenses, interest expense, our existing quarterly dividend and existing portfolio capital expenditures, including paying off the $88.0 million outstanding at October 19, 2021 under our $200.0 million, six-month unsecured bridge facility due in January 2022.building improvement costs, tenant improvement costs and lease commissions.
We had $23.1 million of cash and cash equivalents as of September 30, 2022. The unused capacity of our revolving credit facility at September 30, 20212022 and October 19, 202118, 2022 was $614.9$639.9 million and $594.9$579.9 million, respectively, excluding an accordion feature that allows for an additional $550.0$400.0 million and $200.0 million, respectively, of borrowing capacity subject to additional lender commitments.
We have a currently effective automatic shelf registration statement on Form S-3 with the SEC pursuant to which, at any time and from time to time, in one or more offerings on an as-needed basis, the Company may sell an indefinite amount of common stock, preferred stock and depositary shares and the Operating Partnership may sell an indefinite amount of debt securities, subject to our ability to effect offerings on satisfactory terms based on prevailing market conditions.
The Company from time to time enters into equity distribution agreements with a variety of firms pursuant to which the Company may offer and sell shares of common stock from time to time through such firms, acting as agents of the Company or as principals. Sales of the shares, if any, may be made by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices or as otherwise agreed with any of such firms (which may include block trades).
As noted above under “Investment Activity,” we previously announced a plan to sell $500 million to $600 million of non-core assets by mid-2022. Since our announcement, we have sold $163 million of non-core assets and expect to sell an additional $87 million to $137 million of properties no longer considered to be core assets due to location, age, quality and/or overall strategic fit in the remainder of 2021. We can make no assurance, however, that we will sell any non-core assets or, if we do, what the timing or terms of any such sale will be.
See also “Executive Summary - Liquidity and Capital Resources.”
Critical Accounting Estimates
There were no changes made by management to the critical accounting policies in the nine months ended September 30, 2021.2022. For a description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” in our 20202021 Annual Report on Form 10-K.
Non-GAAP Information
The Company believes that FFO, FFO available for common stockholders and FFO available for common stockholders per share are beneficial to management and investors and are important indicators of the performance of any equity REIT. Because these FFO calculations exclude such factors as depreciation, amortization and impairments of real estate assets and gains or losses from sales of operating real estate assets, which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful life estimates, they facilitate comparisons of operating performance between periods and between other REITs. Management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, management believes the use of FFO, FFO available for common stockholders and FFO available for common stockholders per share, together with the required GAAP presentations, provides a more complete understanding of the Company’s performance relative to its competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities.
FFO, FFO available for common stockholders and FFO available for common stockholders per share are non-GAAP financial measures and therefore do not represent net income or net income per share as defined by GAAP. Net income and net income per share as defined by GAAP are the most relevant measures in determining the Company’s operating performance because these FFO measures include adjustments that investors may deem subjective, such as adding back expenses such as depreciation, amortization and impairments. Furthermore, FFO available for common stockholders per share does not depict the amount that accrues directly to the stockholders’ benefit. Accordingly, FFO, FFO available for common stockholders and FFO available for common stockholders per share should never be considered as alternatives to net income, net income available for common stockholders, or net income available for common stockholders per share as indicators of the Company’s operating performance.
The Company’s presentation of FFO is consistent with FFO as defined by the National Association of Real Estate Investment Trusts, which is calculated as follows:
•Net income/(loss) computed in accordance with GAAP;
•Less net income attributable to noncontrolling interests in consolidated affiliates;
•Plus depreciation and amortization of depreciable operating properties;
•Less gains, or plus losses, from sales of depreciable operating properties, plus impairments on depreciable operating properties and excluding items that are classified as extraordinary items under GAAP;
•Plus or minus our share of adjustments, including depreciation and amortization of depreciable operating properties, for unconsolidated joint venture investments (to reflect funds from operations on the same basis); and
•Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales of depreciable operating properties, plus impairments on depreciable operating properties, and noncontrolling interests in consolidated affiliates related to discontinued operations.
In calculating FFO, the Company includes net income attributable to noncontrolling interests in the Operating Partnership, which the Company believes is consistent with standard industry practice for REITs that operate through an UPREIT structure. The Company believes that it is important to present FFO on an as-converted basis since all of the Common Units not owned by the Company are redeemable on a one-for-one basis for shares of its Common Stock.
The following table sets forth the Company’s FFO, FFO available for common stockholders and FFO available for common stockholders per share (in thousands, except per share amounts):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Funds from operations: | Funds from operations: | | | | | | | | Funds from operations: | | | | | | | |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Net (income) attributable to noncontrolling interests in consolidated affiliates | Net (income) attributable to noncontrolling interests in consolidated affiliates | (894) | | | (298) | | | (1,469) | | | (872) | | Net (income) attributable to noncontrolling interests in consolidated affiliates | (357) | | | (894) | | | (880) | | | (1,469) | |
Depreciation and amortization of real estate assets | Depreciation and amortization of real estate assets | 65,823 | | | 59,622 | | | 187,344 | | | 178,818 | | Depreciation and amortization of real estate assets | 72,323 | | | 65,823 | | | 210,362 | | | 187,344 | |
Impairments of depreciable properties | Impairments of depreciable properties | — | | | — | | | — | | | 1,778 | | Impairments of depreciable properties | — | | | — | | | 35,000 | | | — | |
(Gains) on disposition of depreciable properties | (Gains) on disposition of depreciable properties | (37,309) | | | (10,012) | | | (79,108) | | | (162,673) | | (Gains) on disposition of depreciable properties | — | | | (37,309) | | | (47,807) | | | (79,108) | |
| Unconsolidated affiliates: | Unconsolidated affiliates: | | Unconsolidated affiliates: | |
Depreciation and amortization of real estate assets | Depreciation and amortization of real estate assets | 185 | | | 653 | | | 584 | | | 1,803 | | Depreciation and amortization of real estate assets | 181 | | | 185 | | | 548 | | | 584 | |
| Funds from operations | Funds from operations | 103,392 | | | 92,296 | | | 301,637 | | | 291,481 | | Funds from operations | 112,257 | | | 103,392 | | | 332,038 | | | 301,637 | |
Dividends on Preferred Stock | Dividends on Preferred Stock | (621) | | | (622) | | | (1,864) | | | (1,866) | | Dividends on Preferred Stock | (621) | | | (621) | | | (1,864) | | | (1,864) | |
| Funds from operations available for common stockholders | Funds from operations available for common stockholders | $ | 102,771 | | | $ | 91,674 | | | $ | 299,773 | | | $ | 289,615 | | Funds from operations available for common stockholders | $ | 111,636 | | | $ | 102,771 | | | $ | 330,174 | | | $ | 299,773 | |
Funds from operations available for common stockholders per share | Funds from operations available for common stockholders per share | $ | 0.96 | | | $ | 0.86 | | | $ | 2.80 | | | $ | 2.71 | | Funds from operations available for common stockholders per share | $ | 1.04 | | | $ | 0.96 | | | $ | 3.07 | | | $ | 2.80 | |
Weighted average shares outstanding (1) | Weighted average shares outstanding (1) | 107,139 | | | 106,740 | | | 106,972 | | | 106,702 | | Weighted average shares outstanding (1) | 107,601 | | | 107,139 | | | 107,570 | | | 106,972 | |
__________
(1)Includes assumed conversion of all potentially dilutive Common Stock equivalents.
In addition, the Company believes NOI and same property NOI are useful supplemental measures of the Company’s property operating performance because such metrics provide a performance measure of the revenues and expenses directly involved in owning real estate assets and a perspective not immediately apparent from net income or FFO. The Company defines NOI as rental and other revenues less rental property and other expenses. The Company defines cash NOI as NOI less lease termination fees, straight-line rent, amortization of lease incentives and amortization of acquired above and below market leases. Other REITs may use different methodologies to calculate NOI, same property NOI and cash NOI.
As of September 30, 2021,2022, our same property portfolio consisted of 157 in-service properties encompassing 25.3 million rentable square feet that were wholly owned during the entirety of the periods presented (from January 1, 2020 to September 30, 2021). As of December 31, 2020, our same property portfolio consisted of 159148 in-service properties encompassing 24.4 million rentable square feet that were wholly owned during the entirety of the periods presented (from January 1, 20192021 to September 30, 2022). As of December 31, 2021, our same property portfolio consisted of 148 in-service properties encompassing 24.2 million rentable square feet that were wholly owned during the entirety of the periods presented (from January 1, 2020 to December 31, 2020)2021). The change in our same property portfolio was due to the addition of one propertyfive acquired properties encompassing 0.80.6 million rentable square feet, acquired during 2019 and three newly developed properties encompassing 0.7 million rentable square feet placed in service during 2019. These additions were offset by the removal of sixfive properties (four office buildings and two amenity retail properties) encompassing 0.70.4 million rentable square feet that were sold during 2021.2022.
Rental and other revenues related to properties not in our same property portfolio were $22.6$29.2 million and $10.6$24.8 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $44.7$88.4 million and $37.2$52.1 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Rental property and other expenses related to properties not in our same property portfolio were $6.3$7.2 million and $3.3$7.8 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $12.3$21.5 million and $13.0$16.8 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
The following table sets forth the Company’s NOI, same property NOI and same property cash NOI (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net income | Net income | $ | 75,587 | | | $ | 42,331 | | | $ | 194,286 | | | $ | 272,627 | | Net income | $ | 40,110 | | | $ | 75,587 | | | $ | 134,815 | | | $ | 194,286 | |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | (546) | | | (823) | | | (1,614) | | | (2,965) | | Equity in earnings of unconsolidated affiliates | (457) | | | (546) | | | (1,083) | | | (1,614) | |
Gains on disposition of property | Gains on disposition of property | (38,572) | | | (10,012) | | | (80,371) | | | (163,397) | | Gains on disposition of property | (9,402) | | | (38,572) | | | (63,546) | | | (80,371) | |
Other (income)/loss | (424) | | | 3,311 | | | (1,068) | | | 2,654 | | |
Other income | | Other income | (138) | | | (424) | | | (621) | | | (1,068) | |
Interest expense | Interest expense | 21,986 | | | 19,886 | | | 60,755 | | | 61,003 | | Interest expense | 26,392 | | | 21,986 | | | 75,812 | | | 60,755 | |
General and administrative expenses | General and administrative expenses | 10,350 | | | 9,155 | | | 30,409 | | | 30,169 | | General and administrative expenses | 9,586 | | | 10,350 | | | 32,733 | | | 30,409 | |
Impairments of real estate assets | Impairments of real estate assets | — | | | — | | | — | | | 1,778 | | Impairments of real estate assets | 1,515 | | | — | | | 36,515 | | | — | |
Depreciation and amortization | Depreciation and amortization | 66,547 | | | 60,303 | | | 189,423 | | | 180,914 | | Depreciation and amortization | 73,057 | | | 66,547 | | | 212,466 | | | 189,423 | |
Net operating income | Net operating income | 134,928 | | | 124,151 | | | 391,820 | | | 382,783 | | Net operating income | 140,663 | | | 134,928 | | | 427,091 | | | 391,820 | |
Non same property and other net operating income | Non same property and other net operating income | (16,210) | | | (7,299) | | | (32,371) | | | (24,229) | | Non same property and other net operating income | (22,018) | | | (16,925) | | | (66,899) | | | (35,293) | |
Same property net operating income | Same property net operating income | $ | 118,718 | | | $ | 116,852 | | | $ | 359,449 | | | $ | 358,554 | | Same property net operating income | $ | 118,645 | | | $ | 118,003 | | | $ | 360,192 | | | $ | 356,527 | |
| | Same property net operating income | Same property net operating income | $ | 118,718 | | | $ | 116,852 | | | $ | 359,449 | | | $ | 358,554 | | Same property net operating income | $ | 118,645 | | | $ | 118,003 | | | $ | 360,192 | | | $ | 356,527 | |
Lease termination fees, straight-line rent and other non-cash adjustments (1) | Lease termination fees, straight-line rent and other non-cash adjustments (1) | (3,189) | | | (8,286) | | | (9,456) | | | (34,353) | | Lease termination fees, straight-line rent and other non-cash adjustments (1) | (5,401) | | | (2,809) | | | (11,952) | | | (10,291) | |
Same property cash net operating income | Same property cash net operating income | $ | 115,529 | | | $ | 108,566 | | | $ | 349,993 | | | $ | 324,201 | | Same property cash net operating income | $ | 113,244 | | | $ | 115,194 | | | $ | 348,240 | | | $ | 346,236 | |
__________
(1) Includes $0.3 million and $0.1 million of temporary rent deferrals granted by the Company, net of repayments, during the three and nine months ended September 30, 2022, respectively. Includes $0.4 million and $2.4 million of repayments of temporary rent deferrals, net of additional temporary rent deferrals granted by the Company, during the three and nine months ended September 30, 2021, respectively. Includes $0.9 million and $5.9 million of temporary rent deferrals granted by the Company during the three and nine months ended September 30, 2020, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. Actual future results may differ materially from those presented. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings, typically bears interest at fixed rates. Our interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to existing and prospective debt instruments. We generally do not hold or issue these derivative contracts for trading or speculative purposes.
At September 30, 2021,2022, we had $2,535.7$2,529.3 million principal amount of fixed rate debt outstanding, a $251.7$4.9 million increasedecrease as compared to December 31, 2020,2021, excluding debt with a variable rate that is effectively fixed by related interest rate hedge contracts. The estimated aggregate fair market value of this debt was $2,682.0$2,187.1 million. If interest rates had been 100 basis points higher, the aggregate fair market value of our fixed rate debt would have been $164.5$111.4 million lower. If interest rates had been 100 basis points lower, the aggregate fair market value of our fixed rate debt would have been $178.5$119.7 million higher.
At September 30, 2021,2022, we had $373.0$460.0 million of variable rate debt outstanding, a $223.0$240.0 million increase as compared to December 31, 2020,2021, not protected by interest rate hedge contracts. If the weighted average interest rate on this variable rate debt had been 100 basis points higher or lower, the annual interest expense at September 30, 20212022 would increase or decrease by $3.7$4.6 million.
At September 30, 2021, we had $50.0 million of variable rate debt outstanding with $50.0 million of related floating-to-fixed interest rate swaps. These swaps effectively fix the underlying one-month LIBOR rate at a weighted average rate of 1.693%. If the underlying LIBOR interest rates increase or decrease by 100 basis points, the aggregate fair market value of the swaps at September 30, 2021 would increase or decrease by $0.1 million.
We are exposed to certain losses in the event of nonperformance by the counterparties, which are major financial institutions, under the swaps. We regularly evaluate the financial condition of our counterparties using publicly available information. Based on this review, we currently expect the counterparties to perform fully under the swaps. However, if a counterparty defaults on its obligations under a swap, we could be required to pay the full rates on the applicable debt, even if such rates were in excess of the rate in the contract.
ITEM 4. CONTROLS AND PROCEDURES
SEC rules require us to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow for timely decisions regarding required disclosure. The Company’s CEO and CFO have concluded that the disclosure controls and procedures of the Company and the Operating Partnership were each effective at the endas of the period covered by this Quarterly Report.September 30, 2022.
SEC rules also require us to establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in internal control over financial reporting during the three months ended September 30, 20212022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There were also no changes in internal control over financial reporting during the three months ended September 30, 20212022 that materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the third quarter of 2021, the Company issued an aggregate of 5,238 shares of Common Stock to holders of Common Units in the Operating Partnership upon the redemption of a like number of Common Units in private offerings exempt from the registration requirements pursuant to Section 4(2) of the Securities Act. Each of the holders of Common Units was an accredited investor under Rule 501 of the Securities Act. The resale of such shares was registered by the Company under the Securities Act.
ITEM 6. EXHIBITS
| | | | | |
Exhibit Number | Description |
10.1 | Credit Agreement, dated as of July 29, 2021, by and among the Company, the Operating Partnership, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender, Bank of America, N.A., as Co-Syndication Agent, PNC Bank, National Association, as Co-Syndication Agent, Wells Fargo Bank, National Association, as Co-Syndication Agent, and the Other Lenders named therein (filed as part of the Company’s Current Report on Form 8-K dated as of July 29, 2021) |
| |
| |
31.1 | |
31.2 | |
31.3 | |
31.4 | |
32.1 | |
32.2 | |
32.3 | |
32.4 | |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
Highwoods Properties, Inc. |
By: |
/s/ Mark F. MulhernBrendan C. Maiorana |
| Mark F. MulhernBrendan C. Maiorana |
| Executive Vice President and Chief Financial Officer |
| | | | | |
Highwoods Realty Limited Partnership |
By: | Highwoods Properties, Inc., its sole general partner |
By: |
/s/ Mark F. MulhernBrendan C. Maiorana |
| Mark F. MulhernBrendan C. Maiorana |
| Executive Vice President and Chief Financial Officer |
Date: October 26, 202125, 2022