FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-13100
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

Maryland 56-1871668
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

3100 Smoketree Court, Suite 600
Raleigh, N.C. 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:

Name of Each Exchange on
Title of Each Class Which Registered

Common stock, $.01 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
NONE
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. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
The aggregate market value of the shares of common stock held by
non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on March 14, 1997 was approximately $1,258,010,021. As of March 14,
1997, there were 35,857,950 shares of common stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its Annual
Meeting of Shareholders to be held April 29, 1997 are incorporated by reference
in Part III Items 10, 11, 12 and 13.

HIGHWOODS PROPERTIES, INC.
TABLE OF CONTENTS

Item No. Page No.

PART I
1. Business............................................................................... A-3
2. Properties............................................................................. A-8
3. Legal Proceedings...................................................................... A-21
4. Submission of Matters to a Vote of Security Holders.................................... A-21
X. Executive Officers of the Registrant................................................... A-21
PART II
5. Market for Registrant's Common Shares and Related Stockholder Matters.................. A-22
6. Selected Financial Data................................................................ A-23
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... A-24
8. Financial Statements and Supplementary Data............................................ A-32
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... A-32
PART III
10. Directors and Executive Officers of the Registrant..................................... A-33
11. Executive Compensation................................................................. A-33
12. Security Ownership of Certain Beneficial Owners and Management......................... A-33
13. Certain Relationships and Related Transactions......................................... A-33
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 10-K....................... A-34

PART I
ITEM 1. BUSINESS
General
Highwoods Properties, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") that began operations through
a predecessor in 1978. Originally founded to oversee the development, leasing
and management of the 201-acre Highwoods Office Center in Raleigh, North
Carolina, the Company has since evolved into one of the largest owners and
operators of suburban office and industrial properties in the southeastern
United States. Historically, the Company's real estate operations have been
focused in the Raleigh-Durham, North Carolina market, an area also known as the
Research Triangle, one of the nation's premier business centers. On June 14,
1994, the Company completed an initial public offering of 8,510,000 shares of
Common Stock in connection with the reorganization of the Company's predecessor,
whereby the Company succeeded to the ownership of 36 suburban office buildings,
four service center properties, one warehouse facility and 94 acres of
undeveloped land (the "Formation Transaction"). As of December 31, 1996, the
Company owned a portfolio of 292 in-service office and industrial properties
(the "Properties") and owned 238 acres (and had agreed to purchase an additional
311 acres) of undeveloped land suitable for future development (the "Development
Land"). An additional 14 properties (the "Development Projects"), which will
encompass approximately 1.0 million square feet, are currently under
development. The Properties consist of 181 suburban office properties and 111
industrial properties (including 74 service centers) located in 16 markets in
North Carolina, Florida, Tennessee, Georgia, Virginia, South Carolina and
Alabama.
The Company conducts substantially all of its activities through, and
substantially all of its properties are held directly or indirectly by,
Highwoods/Forsyth Limited Partnership (the "Operating Partnership"). The
Operating Partnership is controlled by the Company as its sole general partner
and, as of March 14, 1997, the Company owned approximately 84% of the limited
partnership interests (the "Units") in the Operating Partnership. The remaining
Units are owned by limited partners (including certain officers and directors of
the Company). Each Unit may be redeemed by the holder thereof for the cash value
of one share of Common Stock, or, at the Company's option, one share (subject to
certain adjustments) of Common Stock. With each such exchange, the number of
Units owned by the Company and, therefore, the Company's percentage interest in
the Operating Partnership, will increase.
In addition to owning the Properties, the Development Projects and the
Development Land, the Company provides leasing, property management, real estate
development, construction and miscellaneous tenant services for the Properties
as well as for third parties. The Company conducts its third-party fee-based
services through Highwoods Services, Inc. and Forsyth Properties Services, Inc.,
which are subsidiaries of the Operating Partnership. During the year, the
Company sold its third-party brokerage business in the Research Triangle and the
Piedmont Triad and currently provides such brokerage services only in Nashville,
Tennessee.
The Company was formed in North Carolina in 1994. The Company's executive
offices are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina
27604, and its telephone number is (919) 872-4924. The Company also maintains
regional offices in Winston-Salem and Charlotte, North Carolina; Richmond,
Virginia; Nashville and Memphis, Tennessee; Atlanta, Georgia; and Tampa and Boca
Raton, Florida.
Business Objectives and Strategy of the Company
The Company seeks to maximize the total return to its stockholders (i)
through contractual increases in rental rates from existing leases, (ii) by
renewing or re-leasing space with expiring leases at higher effective rental
rates, (iii) by increasing occupancy levels in properties, (iv) by acquiring new
properties, (v) by developing new properties, including properties on the
Development Land, and (vi) by providing a complete line of real estate services
to the Company's tenants and to third parties. The Company believes that its
in-house development, acquisition, construction management, leasing
3

and management services allow it to respond to the many demands of its existing
and potential tenant base, and enable it to provide its tenants cost-effective
services such as build-to-suit construction and space modification, including
tenant improvements and expansions. In addition, the breadth of the Company's
capabilities and resources provides it with market information not generally
available and gives the Company increased access to development, acquisition and
management opportunities. The Company believes that the operating efficiencies
achieved through its fully integrated organization also provide a competitive
advantage in setting its lease rates and pricing its other services.
The Company's strategy has been to focus its real estate activities in
markets where it believes its extensive local knowledge gives it a competitive
advantage over other real estate developers and operators. As the Company has
expanded into new markets, it has continued to maintain this localized approach
by combining with local real estate operators with many years of development and
management experience in their respective markets. Also, in making its
acquisitions, the Company has sought to employ those property-level managers who
are experienced with the real estate operations and the local market relating to
the acquired properties, resulting in 87% of the portfolio currently being
managed on a day-to-day basis by personnel that has had previous experience
managing, leasing and/or developing those properties for which they are
responsible.
The Company seeks to acquire suburban office and industrial properties at
prices below replacement cost that offer attractive returns, including
acquisitions of underperforming, high-quality assets in situations offering
opportunities for the Company to improve such assets' operating performance. In
evaluating potential acquisition opportunities, the Company will continue to
rely on the extensive experience of its management and its research capabilities
in considering a number of factors, including: (i) the location of the property,
(ii) the construction quality and condition of the property, (iii) the occupancy
and demand of properties of a similar type in the market and (iv) the ability of
the property to generate returns at or above levels of expected growth. (See
" -- Recent Developments" for a discussion of the Company's acquisition and
development activities during 1996.) The Company also believes that the 549
acres of Development Land should provide it with a competitive advantage in its
future development activities.
The Company may from time to time acquire properties from property owners
through the exchange of Units in the Operating Partnership for the property
owner's equity in the acquired property. As discussed above, each Unit received
by these property owners is redeemable for cash from the Operating Partnership
or, at the Company's option, shares of Common Stock. In connection with the
transactions, the Company may also assume outstanding indebtedness associated
with the acquired properties. The Company believes that this acquisition method
may permit it to acquire properties at attractive prices from property owners
wishing to enter into tax-deferred transactions. The Company has acquired 115
properties using the foregoing method since its inception, comprising 7.4
million rentable square feet.
The Company is also committed to maintaining a capital structure that will
allow it to grow through development and acquisition opportunities. As part of
this commitment, the Company intends to operate with a ratio of debt to total
market capitalization below 40%. At March 14, 1997, the ratio of debt to total
market capitalization (based on a Common Stock price of $35.50 per share) was
approximately 26%. The Company believes that this debt level improves its
ability to borrow funds at attractive rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
4

Recent Developments
Merger and Acquisition Activity
The following table summarizes the mergers and acquisitions completed
during the year ended December 31, 1996 (dollars in thousands):

Number of Rentable Initial
Property Location Properties Square Feet Cost

Eakin & Smith Nashville 7 856,000 $ 85,100(1)
Aetna Building Richmond 1 99,000 10,800
Westshore I & II Richmond 2 46,500 4,400
Century City I Nashville 1 56,000 4,500
Live Oak Charlotte 1 86,000 6,800
Crocker Southeast 70 5,700,000 545,000(2)
Ayers Portfolio Nashville 2 138,000 13,300
Harpeth III & IV Nashville 2 160,000 16,750
Cary Street Richmond 1 17,000 900
Atrium Memphis 2 84,000 7,750
Aerial Center Research Triangle 1 25,000 2,700
Liberty Mutual Richmond 1 58,000 6,000
Total 91 7,325,500 $ 704,000

(1) Excludes Highwoods Plaza One, which was then under development, development
land and contingent purchase price, which total $14,900,000.
(2) Net of approximately $21 million of cash held by Crocker.
A significant portion of the Company's growth during 1996 resulted from its
expansion into new markets. The Company entered 12 new markets and established
five divisional offices as a result of the Crocker and the Eakin & Smith
transactions (both transactions are described below).
Eakin & Smith Transaction
On April 1, 1996, the Company completed a merger with Eakin & Smith, Inc.
and its affiliates ("Eakin & Smith") combining their property portfolios,
management teams and business operations (the "Eakin & Smith Transaction").
Through the combination, the Company succeeded to the ownership of seven
suburban office buildings totaling 848,000 square feet, a 103,000-square-foot
suburban office development project, 18 acres of development land and Eakin &
Smith's brokerage and property management operations. All the properties and
development land are located in Nashville, Tennessee. The aggregate cost to the
Company of the Eakin & Smith Transaction, including the completion of the
in-process development project, was approximately $98.5 million payable through
the issuance of 537,138 Units and 489,421 shares of Common Stock, the assumption
of $37 million of indebtedness (with a weighted average fixed rate of 8.0%), and
cash payments of approximately $33 million. The cost excludes options to
purchase 105,000 shares of Common Stock at a price of $27.50 per share and
warrants to purchase 150,000 shares of Common Stock at a price of $28.00 per
share, as well as deferred payments of up to 54,056 shares of Common Stock,
which are attributable to Eakin & Smith's brokerage and property management
operation.
Crocker Transaction
On September 20, 1996, the Company completed its merger (the "Merger") with
Crocker Realty Trust, Inc. ("Crocker"). As a result of the Merger, the Company
acquired 58 suburban office properties and 12 service center properties (the
"Crocker Properties") located in 15 southeastern markets in Florida, North
Carolina, South Carolina, Tennessee, Georgia, Virginia and Alabama. The Crocker
Properties encompass 5.7 million rentable square feet. The total cost of the
acquisition of all the outstanding shares of Crocker Realty Trust, Inc. was
approximately $565.8 million, which included cash payments for stock and
outstanding options and warrants of $322.8 million and the assumption of
5

$243 million of debt with an average rate of 8.6%. This indebtedness included a
$140 million mortgage note with a fixed rate of 7.9% (the "7.9% Mortgage Note").
With the exception of the 7.9% Mortgage Note, the Company has repaid
substantially all of such assumed indebtedness. The Company believes that the
merger offered a unique investment opportunity for future growth by allowing the
Company to expand and diversify its operations to growth-oriented markets
throughout the Southeast. In addition, the merger enhanced the Company's
opportunities to engage in development projects and accretive acquisitions, such
as the 1997 Century Center and Anderson transactions (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments"), due to the inherent cost savings of
previously established local real estate management and infrastructure.
Development Activity
The following table summarizes the 12 development projects placed in
service during the year ended December 31, 1996 (dollars in thousands):
Completed

Rentable Initial
Property Location Square Feet Cost

Hewlett Packard Piedmont Triad 15,000 $ 1,700
Global Software Research Triangle 93,000 7,600
Regency One Piedmont Triad 128,000 3,300
Healthsource Research Triangle 180,000 14,400
Highwoods One Richmond 128,000 12,800
Situs One Research Triangle 58,000 5,100
Inacom Piedmont Triad 12,000 900
MSA Research Triangle 55,000 6,200
Highwoods Plaza I Nashville 103,000 11,500
Regency II Piedmont Triad 96,000 2,800
Centerpoint II Columbia 81,000 7,600
Parkway Plaza Six Charlotte 35,000 3,100
Total 984,000 $77,000

The Company had 12 suburban office properties and two industrial properties
under development totaling 1.0 million square feet of office and industrial
space at December 31, 1996. The following table summarizes these development
projects (dollars in thousands):
Development in process

Cost at
Rentable December 31, Pre-Leasing Estimated
Property Location Square Feet Budgeted Cost 1996 Percentage Completion

Office:
One Shockoe Plaza Richmond 118,000 $15,400 $ 13,388 100% 1Q97
Simplex Piedmont Triad 12,000 900 137 62 2Q97
Center Point V Columbia 19,000 1,700 727 34 2Q97
North Park Research Triangle 43,000 4,000 2,135 38 2Q97
Sycamore Research Triangle 70,000 6,400 2,331 32 2Q97
Two AirPark East Piedmont Triad 57,000 4,600 1,071 0 2Q97
Highwoods Plaza II Nashville 103,000 10,300 2,771 0 3Q97
Highwoods Two Richmond 74,000 7,000 922 11 3Q97
Grove Park I Richmond 20,000 1,600 897 0 3Q97
West Shore III Richmond 55,000 5,300 1,002 29 3Q97
Southwind III Memphis 69,000 7,000 -- 66 4Q97
ClinTrials Research Triangle 185,000 21,500 3,427 100 2Q98
825,000 $85,700 $ 28,808 52%
Industrial:
Highwoods Airport Ctr Richmond 145,000 $ 5,500 $ 1,668 0% 2Q97
R.F. Micro Devices Piedmont Triad 45,000 7,000 710 100 4Q97
190,000 $12,500 $ 2,378 24%
1,015,000 $98,200 $ 31,186 46%*

* Letters of intent improve the pre-leasing to 61%.
6

Financing Activity
In June 1996, the Company completed a 11,500,000-share public offering of
Common Stock (including 1,500,000 shares issued pursuant to the underwriters'
over allotment option). The net proceeds of the offering totaled $292.9 million
and were used primarily to fund the acquisition of Crocker.
In July 1996, the Company sold an additional 250,000 shares of Common Stock
to underwriters who participated in the Company's 11,500,000-share offering. The
net proceeds from this offering were approximately $6.8 million.
On September 27, 1996, the Company replaced a $140 million credit facility
with a $280 million unsecured revolving line of credit (the "Revolving Loan")
from a syndicate of lenders. The Revolving Loan requires monthly payments of
interest only with the balance of all principal and accrued but unpaid interest
due on October 31, 1999. The interest rate on the Revolving Loan at year end was
LIBOR plus 135 basis points and will adjust based on the Company's senior
unsecured credit rating within a range of LIBOR plus 100 basis points to LIBOR
plus 175 basis points.
On December 2, 1996, the Operating Partnership issued $100 million of
6 3/4% notes due December 1, 2003, and $110 million of 7% notes due December 1,
2006. The proceeds were used to reduce amounts outstanding on the Revolving
Loan, to repay mortgage debt and to settle an interest rate swap agreement.
In December 1996, the Company completed a public offering of 2,587,500
shares of Common Stock (including 337,500 shares issued pursuant to the
underwriters' over allotment option) and a concurrent non-underwritten public
offering of 1,093,577 shares of Common Stock with an institutional investor. The
net proceeds from the two offerings totaled approximately $96.7 million.
In connection with 1996 acquisitions, the Company issued 807,608 Units and
489,421 shares of restricted Common Stock valued at $35.6 million (based on the
agreed-upon valuation of a share of Common Stock at the time of the
acquisition).
Competition
The Properties compete for tenants with similar properties located in the
Company's markets primarily on the basis of location, rent charged, services
provided and the design and condition of the facilities. The Company also
competes with other REITs, financial institutions, pension funds, partnerships,
individual investors and others when attempting to acquire properties.
Employees
As of December 31, 1996, the Company employed 270 persons, as compared to
124 at December 31, 1995. The increase is primarily a result of the Company's
geographic expansion.
7

ITEM 2. PROPERTIES
General
The following table sets forth certain information about the Properties at
December 31, 1996 (dollars in thousands):

Percent
of Percent
Total of Total
Rentable Rentable Annualized Annualized
Office Industrial Total Square Square Rental Rental
Properties Properties (1) Properties Feet Feet Revenue (2) Revenue

Research
Triangle.............. 66 4 70 4,491,492 25.7% $ 59,532 31.2%
Piedmont
Triad................. 23 80 103 4,521,062 25.9 28,377 14.9
Nashville............... 13 3 16 1,640,855 9.4 22,032 11.6
Tampa................... 20 -- 20 1,155,483 6.6 14,953 7.8
Charlotte............... 14 16 30 1,380,173 7.9 12,765 6.7
Boca Raton.............. 3 -- 3 506,834 2.9 9,818 5.1
Richmond................ 16 1 17 826,905 4.7 9,077 4.8
Memphis................. 7 -- 7 466,354 2.7 8,631 4.5
Greenville.............. 5 2 7 687,322 3.9 7,651 4.0
Atlanta................. 2 3 5 706,479 4.1 5,088 2.7
Columbia................ 6 -- 6 403,363 2.3 5,068 2.7
Orlando................. 2 -- 2 200,796 1.2 2,107 1.1
Birmingham.............. 1 -- 1 114,539 0.7 1,692 0.9
Norfolk................. 1 1 2 178,827 1.0 1,583 0.8
Asheville............... 1 1 2 124,177 0.7 1,121 0.6
Jacksonville............ 1 -- 1 50,513 0.3 1,107 0.6
Total............ 181 111 292 17,455,174 100.0% $ 190,602 100.0%

Office Industrial Total or
Properties Properties (1) Average

Total Annualized Rental Revenue (2).............. $ 165,313 $ 25,289 $ 190,602
Total rentable square feet....................... 12,350,593 5,104,581 17,455,174
Percent leased................................... 93%(3) 90%(4) 92%
Average age (years).............................. 9.4 9.6(5) 9.5

(1) Includes 74 service center properties.
(2) Annualized Rental Revenue is December 1996 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 41 single-tenant properties comprising 2.6 million rentable square
feet and 144,767 rentable square feet leased but not occupied.
(4) Includes 26 single-tenant properties comprising 1.5 million rentable square
feet and 48,136 rentable square feet leased but not occupied.
(5) Excludes Ivy Distribution Center. Ivy is a 400,000-rentable square foot
warehouse, which was constructed in stages. A portion of the building was
built in 1930; major expansions took place in the mid-1940s, mid-1950s and
1981. In 1989, the entire property was renovated to convert it from a
manufacturing facility to a warehouse.
8

The following table sets forth certain information about the portfolio of
in-service and development properties as of December 31, 1996 and 1995:

December 31, 1996 December 31, 1995
Percent Percent
Number of Rentable Leased/ Number of Rentable Leased/
Properties Square Feet Pre-leased Properties Square Feet Pre-leased

In-Service
Office...................... 181 12,350,600 93% 87 4,921,400 95%
Industrial.................. 111 5,104,600 90 104 4,293,800 94
Total.................... 292 17,455,200 92% 191 9,215,200 95%
Under Development
Office...................... 12 825,000 52% 6 590,700 71%
Industrial.................. 2 190,000 24 1 127,600 100
Total.................... 14 1,015,000 46% 7 718,300 76%
Total
Office...................... 193 13,175,600 93 5,512,100
Industrial.................. 113 5,294,600 105 4,421,400
Total.................... 306 18,470,200 198 9,933,500

Tenants
The Properties are leased to approximately 1,800 tenants, which engage in a
wide variety of businesses including computers, healthcare, telecommunications,
finance, insurance and electronics. The following table sets forth information
concerning the 20 largest tenants of the Properties as of December 31, 1996
(dollars in thousands):

Percent
of Total
Annualized
Number Annualized Rental
Tenant of Leases Rental Revenue (1) Revenue

1. Federal Government............................................ 14 $ 5,557 2.9%
2. IBM Corporation............................................... 7 4,842 2.5
3. First Citizens Bank & Trust................................... 8 2,747 1.4
4. BellSouth..................................................... 6 2,279 1.2
5. MCI Telecommunications........................................ 6 1,879 1.0
6. International Paper Company................................... 6 1,825 1.0
7. Jacobs-Sirrene Engineers, Inc................................. 1 1,802 0.9
8. Barclays American............................................. 3 1,712 0.9
9. Healthsource.................................................. 1 1,629 0.9
10. Sears, Roebuck and Company.................................... 3 1,553 0.8
11. Aetna Life Insurance Corp..................................... 6 1,534 0.8
12. Blue Cross & Blue Shield of SC................................ 5 1,530 0.8
13. Duke University............................................... 4 1,450 0.8
14. Clintrials of North Carolina.................................. 4 1,436 0.8
15. Kraft Company................................................. 4 1,386 0.7
16. Volvo GM Heavy Truck Corp..................................... 4 1,318 0.7
17. Pharmacy Management Services, Inc............................. 2 1,261 0.7
18. A T & T....................................................... 3 1,216 0.6
19. Glaxo Wellcome, Inc........................................... 3 1,193 0.6
20. GTE Data Services, Inc........................................ 1 1,182 0.6
91 $ 39,331 20.6%

(1) Calculated by multiplying December 1996 rental revenue (base rent plus
operating pass throughs) by 12.
9

The following tables set forth certain information about the Company's
leasing activities for the years ended December 31, 1996 and 1995.

1996 1995
Office Industrial Office Industrial

Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases)........ 306 240 145 97
Rentable square footage leased...................... 1,158,563 2,302,151 655,546 586,748
Average per rentable square foot over the lease
term:
Base rent......................................... $ 15.00 $ 4.68 $ 15.39 $ 5.54
Tenant improvements............................... (0.93) (0.15) (0.29) (0.06)
Leasing commissions............................... (0.31) (0.10) (0.31) (0.12)
Rent concessions.................................. -- -- (0.01) --
Effective rent.................................... $ 13.76 $ 4.43 $ 14.78 $ 5.36
Expense stop...................................... (3.36) (0.39) (4.36) (0.32)
Equivalent effective net rent..................... $ 10.40 $ 4.04 $ 10.42 $ 5.04
Average term in years............................... 4 2 4 3
Rental Rate Trends:
Average final rate with expense pass throughs....... $ 13.64 $ 4.41 $ 14.63 $ 5.41
Average first year cash rental rate................. $ 14.46 $ 4.68 $ 15.12 $ 6.02
Percentage increase................................. 6.01% 6.12% 3.35% 11.28%
Capital Expenditures Related to
Re-leased Space:
Tenant Improvements:
Total dollars committed under signed leases....... $4,496,523 $ 685,880 $1,604,591 $ 115,097
Rentable square feet.............................. 1,158,563 2,302,151 655,546 586,748
Per rentable square foot.......................... $ 3.88 $ 0.30 $ 2.45 $ 0.20
Leasing Commissions:
Total dollars committed under signed leases....... $1,495,498 $ 470,090 $ 770,614 $ 169,929
Rentable square feet.............................. 1,158,563 2,302,151 655,546 586,748
Per rentable square foot.......................... $ 1.29 $ 0.20 $ 1.18 $ 0.29
Total:
Total dollars committed under signed leases....... $5,992,021 $1,155,970 $2,375,205 $ 285,026
Rentable square feet.............................. 1,158,563 2,302,151 655,546 586,748
Per rentable square foot.......................... $ 5.17 $ 0.50 $ 3.62 $ 0.49

The following tables set forth scheduled lease expirations for executed
leases as of December 31, 1996, assuming no tenant exercises renewal options.
Office Properties:

Average
Annual
Total Percentage of Annual Rents Rental Rate Percentage of
Rentable Leased Square Footage Under Per Square Leased Rents
Year of Lease Number of Square Feet Represented by Expiring Foot for Represented by
Expiration Leases Expiring Expiring Leases Leases (1) Expirations (1) Expiring Leases

1997 400 1,574,595 13.9% $ 21,523,277 $ 13.67 13.1%
1998 286 1,936,670 17.1 27,305,206 14.10 16.7
1999 300 1,608,604 14.2 23,500,305 14.61 14.3
2000 256 1,773,532 15.6 26,544,059 14.97 16.2
2001 202 1,717,446 15.2 27,706,704 16.13 16.9
2002 68 811,054 7.2 12,209,094 15.05 7.5
2003 33 622,660 5.5 9,382,358 15.07 5.7
2004 13 185,635 1.6 2,246,979 12.10 1.4
2005 13 406,609 3.6 4,307,218 10.59 2.6
2006 12 535,478 4.7 7,055,661 13.18 4.3
Thereafter 11 154,058 1.4 2,193,726 14.24 1.3
Total or
average 1,594 11,326,341 100.0% $ 163,974,587 $ 14.48 100.0%

Industrial Properties:

1997 188 1,417,501 30.4% $ 7,273,732 $ 5.13 27.5%
1998 120 825,438 17.7 5,161,532 6.25 19.6
1999 112 960,979 20.6 5,439,511 5.66 20.6
2000 40 578,220 12.4 3,888,141 6.72 14.7
2001 37 330,512 7.1 2,406,518 7.28 9.1
2002 8 361,162 7.7 1,170,620 3.24 4.4
2003 1 3,375 0.1 18,428 5.46 0.1
2004 2 34,569 0.8 288,074 8.33 1.1
2005 3 23,722 0.5 189,850 8.00 0.7
2006 1 127,600 2.7 575,476 4.51 2.2
Thereafter 0 -- 0.0% -- -- 0.0
Total or
average 512 4,663,078 100.0% $ 26,411,882 $ 5.66 100.0%

(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.
11

Table of Properties
The following table and the notes thereto set forth information regarding
the Properties at December 31, 1996:

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

Research Triangle, NC

Highwoods Office Center
Amica O 1983 20,708 100% 100%
Arrowood O 1979 58,743 100 100
Aspen O 1980 36,666 95 95
Birchwood O 1983 12,748 100 43
Cedar East O 1981 40,017 100 100
Cedar West O 1981 39,781 85 85
Cottonwood O 1983 40,150 100 100
Cypress O 1980 39,004 100 100
Dogwood O 1983 40,613 100 100
Global Software O 1996 92,720 86 86
Hawthorn O 1987 63,797 100 100
Highwoods Tower O 1991 185,222 99 99
Holly O 1984 20,186 100 100
Ironwood O 1978 35,695 97 97
Kaiser O 1988 56,975 100 100
Laurel O 1982 39,382 100 100
Leatherwood O 1979 36,581 96 96
Smoketree Tower O 1984 150,341 98 98
Rexwoods Office Center
2500 Blue Ridge O 1982 61,864 100 100
Blue Ridge II O 1988 20,673 100 100
Rexwoods Center O 1990 41,686 100 100
Rexwoods II O 1993 20,845 100 100
Rexwoods III O 1992 42,484 100 100
Rexwoods IV O 1995 42,331 100 100
Triangle Business Center
Bldg. 2A O 1984 102,400 60 60
Bldg. 2B S 1984 32,000 0 0
Bldg. 3 O 1988 135,382 100 100
Bldg. 7 O 1986 126,728 91 91
Progress Center
Cape Fear O 1979 41,293 79 79
Catawba O 1980 40,578 100 100
Pamlico (CompuChem) O 1980 105,540 0 0
North Park
4800 North Park O 1985 168,016 100 100
4900 North Park O 1984 32,002 75 75
5000 North Park O 1980 74,786 96 96
Creekstone Park
Creekstone Crossing O 1990 59,299 100 100
Riverbirch O 1987 60,163 100 100
Willow Oak O 1995 88,783 100 100
Research Commons
EPA Administration O 1966 46,718 100 100
EPA Annex O 1966 145,875 100 100
4501 Bldg. O 1985 56,566 100 100
4401 Bldg. O 1987 115,526 77 77
4301 Bldg. O 1989 90,894 100 100
4201 Bldg. O 1991 83,731 100 100
Hock Portfolio
Fairfield I O 1987 52,070 91 91
Fairfield II O 1989 59,954 79 79
Qualex O 1985 67,000 100 100
4101 Roxboro O 1984 56,000 100 100
4020 Roxboro O 1989 40,000 100 100

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

Research Triangle, NC

Highwoods Office Center
Amica Amica Mutual Insurance
Company
Arrowood First Citizens Bank & Trust
Aspen N/A
Birchwood USAA, Southlight, Inc.
Cedar East Amerimark Building Products
Cedar West N/A
Cottonwood First Citizens Bank & Trust
Cypress GSA-Army Recruiters
Dogwood First Citizens Bank & Trust
Global Software Global Software Inc.
Hawthorn Carolina Telephone
Highwoods Tower Maupin, Taylor, Ellis &
Adams
Holly Capital Associated
Industries
Ironwood First Citizens Bank & Trust
Kaiser Kaiser Foundation
Laurel Microspace Communications,
First Citizens Bank & Trust
Leatherwood GAB Robins North America,
Inc.
Smoketree Tower N/A
Rexwoods Office Center
2500 Blue Ridge Rex Hospital, Inc.
Blue Ridge II McGladrey & Pullen
Rexwoods Center N/A
Rexwoods II Raleigh Neurology Clinic
(2), Miller Building
Corporation
Rexwoods III Piedmont Olsen Hensley, Inc.
Rexwoods IV N/A
Triangle Business Center
Bldg. 2A Harris Corporation,
Bldg. 2B N/A
Bldg. 3 N/A
Bldg. 7 Broadband Technologies, Inc.
Progress Center
Cape Fear N/A
Catawba GSA -- EPA
Pamlico (CompuChem) N/A
North Park
4800 North Park IBM-PC Division
4900 North Park N/A
5000 North Park N/A
Creekstone Park
Creekstone Crossing N/A
Riverbirch Digital Equipment
Corporation, Quintiles, Inc.
Willow Oak AT&T Corporation
Research Commons
EPA Administration Environmental Protection
Agency
EPA Annex Environmental Protection
Agency
4501 Bldg. Martin Marietta
4401 Bldg. Ericsson
4301 Bldg. Glaxo Wellcome, Inc. (3)
4201 Bldg. Environmental Protection
Agency
Hock Portfolio
Fairfield I Reliance
Fairfield II Qualex
Qualex Qualex
4101 Roxboro Duke -- Cardiology
4020 Roxboro Duke -- Pediatrics
Duke -- Cardiology

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

Six Forks Center
Six Forks Center I O 1982 33,867 100% 100%
Six Forks Center II O 1983 55,603 94 94
Six Forks Center III O 1987 60,786 99 99
ONCC
Phase I S 1981 101,127 92 91
"W" Building O 1983 91,335 100 100
3645 Trust Drive O 1984 50,652 58 58
5220 Green's Dairy Road O 1984 29,869 100 100
5200 Green's Dairy Road O 1984 18,317 82 82
5301 Departure Drive S 1984 84,899 100 100
Other Research Triangle
Properties
Aerial Center O 1992 25,330 0 0
Colony Corporate Center O 1985 52,011 100 100
Concourse O 1986 131,645 99 99
Cotton Building O 1972 40,035 100 100
Expressway One Warehouse I 1990 59,600 44 44
Healthsource O 1996 180,000 100 100
Holiday Inn O 1984 30,000 100 100
Lake Plaza East O 1984 71,254 92 76
MSA O 1996 55,219 100 100
Phoenix O 1990 26,449 88 88
Situs I O 1996 57,784 73 73
South Square I O 1988 56,401 86 86
South Square II O 1989 58,793 100 100
Total or Weighted Average 4,491,492 91% 91%
Piedmont Triad, NC
Airpark East
Highland Industries S 1990 12,500 100% 100%
Service Center 1 S 1985 18,575 100 100
Service Center 2 S 1985 18,672 99 99
Service Center 3 S 1985 16,498 100 100
Service Center 4 S 1985 16,500 100 100
Copier Consultants S 1990 20,000 100 100
Service Court S 1990 12,600 99 99
Bldg. 01 O 1990 24,423 100 100
Bldg. 02 O 1986 23,827 100 100
Bldg. 03 O 1986 23,182 96 96
Bldg. A O 1986 56,272 100 100
Bldg. B O 1988 54,088 98 98
Bldg. C O 1990 134,893 83 78
Sears Cenfact O 1989 49,504 100 100
Hewlett Packard O 1996 15,000 95 95
Inacom O 1996 12,620 100 100
Warehouse 1 I 1985 64,000 81 81
Warehouse 2 I 1985 64,000 88 88
Warehouse 3 I 1986 57,600 93 91
Warehouse 4 I 1988 54,000 100 100
Airpark North
DC-1 I 1986 112,000 100 100
DC-2 I 1987 111,905 100 100
DC-3 I 1988 75,000 67 67
DC-4 I 1988 60,000 100 100
Airpark West
Airpark I O 1984 60,000 100 100
Airpark II O 1985 45,680 100 0
Airpark IV O 1985 22,612 99 99
Airpark V O 1985 21,923 60 60
Airpark VI O 1985 22,097 94 94

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

Six Forks Center
Six Forks Center I Centura Bank, NY Life Ins.
Co.
Six Forks Center II N/A
Six Forks Center III EDS
ONCC
Phase I Monolith Corporation
"W" Building International Business
Machines Corp.
3645 Trust Drive Customer Access Resources,
Inc.
5220 Green's Dairy Road N/A
5200 Green's Dairy Road Carolina Power & Light
Company
5301 Departure Drive ABB Power T&D Co., Inc.,
Cardiovascular Diagnostics,
Inc.
Other Research Triangle
Properties
Aerial Center N/A
Colony Corporate Center Rust Environmental &
Infrastructure, Fujitsu
Concourse ClinTrials
Cotton Building Cotton Inc., Associated
Insurances Inc.
Expressway One Warehouse N/A
Healthsource Healthsource N.C.
Holiday Inn Holiday Inns, Inc.
Lake Plaza East N/A
MSA Management Systems Assoc.
Phoenix Computer Intelligence, Inc.
Situs I BellSouth
South Square I Blue Cross and Blue Shield
South Square II Coastal Healthcare Group,
Inc.
Total or Weighted Average
Piedmont Triad, NC
Airpark East
Highland Industries Highland Industries, Inc.
(4)
Service Center 1 Genetic Design
Service Center 2 Genetic Design
Service Center 3 ECPI
Service Center 4 Genetic Design
Copier Consultants Copier Consultants
Service Court Genetic Design
Bldg. 01 Health & Hygiene
Bldg. 02 United States Postal Service
Bldg. 03 Time Warner, Martin Marietta
Bldg. A N/A
Bldg. B United States Postal Service
Bldg. C John Hancock
Sears Cenfact Sears Roebuck & Company
Hewlett Packard Hewlett Packard Co.
Inacom Inacom Business Centers Inc.
Warehouse 1 Guilford Business Forms,
Inc., Safelite Glass Corp.
Warehouse 2 Volvo GM Heavy Truck Corp.,
State Street Bank Realty
Warehouse 3 US Air, Inc., Garlock, Inc.
Warehouse 4 First Data Resources, Inc.,
Microdyne
Airpark North
DC-1 VSA, Inc.
DC-2 Sears Roebuck & Co., New
Breed Leasing, Electric
South
DC-3 Continuous Forms & Checks,
Inc.
DC-4 RSVP Communications, Inc.
Airpark West
Airpark I Volvo GM Heavy Truck Corp.
Airpark II Mohawk Carpet Corporation
Airpark IV Max Radio of Greensboro
Airpark V N/A
Airpark VI Brookstone College, Anacomp

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

West Point Business Park
BMF Warehouse I 1986 240,000 100% 100%
WP-11 I 1988 89,600 85 85
WP-12 I 1988 89,600 100 100
WP-13 I 1988 89,600 100 100
WP-3 & 4 S 1988 18,059 100 100
WP-5 S 1995 25,200 65 65
Fairchild Bldg. I 1990 89,000 100 66
LUWA Bahnson Bldg. O 1990 27,000 100 100
University Commercial Center
W-1 I 1983 44,400 100 100
W-2 I 1983 46,500 100 100
SR-1 S 1983 23,112 97 97
SR-2 01/02 S 1983 17,282 100 100
SR-3 S 1984 23,825 70 70
Bldg. 03 O 1985 37,077 66 66
Bldg. 04 O 1986 34,470 94 94
Ivy Distribution Center (5) I 1930- 400,000 79 79
1980
Knollwood Office Center
370 Knollwood O 1994 90,315 100 100
380 Knollwood O 1990 164,141 98 98
Stoneleigh Business Park
7327 W. Friendly Ave. S 1987 11,180 81 81
7339 W. Friendly Ave. S 1989 11,784 100 100
7341 W. Friendly Ave. S 1988 21,048 94 94
7343 W. Friendly Ave. S 1988 13,463 100 100
7345 W. Friendly Ave. S 1988 12,300 100 100
7347 W. Friendly Ave. S 1988 17,978 100 100
7349 W. Friendly Ave. S 1988 9,840 88 88
7351 W. Friendly Ave. S 1988 19,723 98 98
7353 W. Friendly Ave. S 1988 22,826 100 100
7355 W. Friendly Ave. S 1988 13,296 88 88
Spring Garden Plaza
4000 Spring Garden St. S 1983 21,773 100 100
4002 Spring Garden St. S 1983 6,684 100 100
4004 Spring Garden St. S 1983 23,724 62 62
Pomona Center -- Phase I
7 Dundas Circle S 1986 14,184 100 100
8 Dundas Circle S 1986 16,488 93 93
9 Dundas Circle S 1986 9,972 90 75
Pomona Center -- Phase II
302 Pomona Dr. S 1987 16,488 75 75
304 Pomona Dr. S 1987 4,344 100 100
306 Pomona Dr. S 1987 9,840 100 100
308 Pomona Dr. S 1987 14,184 96 96
5 Dundas Circle S 1987 14,184 100 100
Westgate on Wendover -- Phase I
305 South Westgate Dr. S 1985 4,608 83 83
307 South Westgate Dr. S 1985 12,672 91 91
309 South Westgate Dr. S 1985 12,960 89 89
311 South Westgate Dr. S 1985 14,400 80 80
315 South Westgate Dr. S 1985 10,368 89 89
317 South Westgate Dr. S 1985 15,552 100 100
319 South Westgate Dr. S 1985 10,368 100 100

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

West Point Business Park
BMF Warehouse Sara Lee Knit Products, Inc.
WP-11 N.C. Record Control Centers,
Walt Klein & Assoc.
WP-12 Norel Plastics, Sara Lee
WP-13 Sara Lee Knit Products, Inc.
WP-3 & 4 Tri-Communications, Inc.,
Rayco Safety, Inc.
WP-5 N/A
Fairchild Bldg. Fairchild Industrial
Products
LUWA Bahnson Bldg. Luwa Bahnson, Inc.
University Commercial Center
W-1 Lagenthal Corp.
W-2 Paper Supply Company
SR-1 N/A
SR-2 01/02 Decision Point Marketing
SR-3 Decision Point Marketing
Bldg. 03 N/A
Bldg. 04 Somur, Inc.
Ivy Distribution Center (5) N/A

Knollwood Office Center
370 Knollwood Krispy Kreme, Prudential
Carolinas Realty
380 Knollwood N/A
Stoneleigh Business Park
7327 W. Friendly Ave. American Telecom, Salem
Imaging
7339 W. Friendly Ave. Medical Endoscopy Service,
R.F. Micro Devices
7341 W. Friendly Ave. R.F. Micro Devices
7343 W. Friendly Ave. Executone
7345 W. Friendly Ave. Rule Manuf.
7347 W. Friendly Ave. Law Engineering, Winship
7349 W. Friendly Ave. Anderson & Assoc.
7351 W. Friendly Ave. General Transport, ACT
MEDIA, Inc.
7353 W. Friendly Ave. Office Equipment, Windsor
Door
7355 W. Friendly Ave. R.F. Micro Devices
Spring Garden Plaza
4000 Spring Garden St. N/A
4002 Spring Garden St. Jordan Graphics
4004 Spring Garden St. N/A
Pomona Center -- Phase I
7 Dundas Circle N/A
8 Dundas Circle N/A
9 Dundas Circle Netcom, Conservatop
Corporation
Pomona Center -- Phase II
302 Pomona Dr. N/A
304 Pomona Dr. Fortune Personnel
Consultants, OSC Fluid
306 Pomona Dr. AEL Defense Corporation,
Aqua Science
308 Pomona Dr. Hering North America
5 Dundas Circle N/A
Westgate on Wendover -- Phase I
305 South Westgate Dr. Alarmguard, The Computer
Store
307 South Westgate Dr. Anders Lufvenholm
309 South Westgate Dr. GEODAX Technology, Inc.,
McRae Graphics
311 South Westgate Dr. N/A
315 South Westgate Dr. N/A
317 South Westgate Dr. N/A
319 South Westgate Dr. N/A

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

Westgate on Wendover -- Phase II
206 South Westgate Dr. S 1986 17,376 100 100
207 South Westgate Dr. S 1986 26,448 100 100
300 South Westgate Dr. S 1986 12,960 100 100
4600 Dundas Circle S 1985 11,922 29 29
4602 Dundas Circle S 1985 13,017 61 61
Radar Road
500 Radar Rd. I 1981 78,000 100 100
502 Radar Rd. I 1986 15,000 100 100
504 Radar Rd. I 1986 15,000 98 98
506 Radar Rd. I 1986 15,000 100 100
Holden/85 Business Park
2616 Phoenix Dr. I 1985 31,894 100 100
2606 Phoenix Dr. -- 100 S 1989 15,000 100 100
2606 Phoenix Dr. -- 200 S 1989 15,000 100 100
2606 Phoenix Dr. -- 300 S 1989 7,380 67 67
2606 Phoenix Dr. -- 400 S 1989 12,300 90 90
2606 Phoenix Dr. -- 500 S 1989 15,180 90 90
2606 Phoenix Dr. -- 600 S 1989 18,540 90 90
Industrial Village
7906 Industrial Village Rd. I 1985 15,000 100 100
7908 Industrial Village Rd. I 1985 15,000 57 57
7910 Industrial Village Rd. I 1985 15,000 100 100
Other Piedmont Triad Properties
6348 Burnt Poplar I 1990 125,000 100 100
6350 Burnt Poplar I 1992 57,600 100 100
Deep River I O 1989 78,094 97 97
Forsyth I O 1985 51,236 41 41
Regency One I 1996 127,600 100 100
Regency Two I 1996 96,000 50 50
Stratford O 1991 135,533 96 96
Chesapeake I 1993 250,000 100 100
3288 Robinhood O 1989 19,599 87 87
Total or Weighted Average 4,521,062 93% 91%
Nashville, TN
Maryland Farms
Eastpark 1 O 1978 29,797 100% 100%
Eastpark 2 O 1978 85,516 100 100
Eastpark 3 O 1978 77,480 100 100
Harpeth II O 1984 78,283 100 100
Harpeth III O 1987 78,989 95 95
Harpeth IV O 1989 77,730 100 100
Highwoods Plaza I O 1996 102,000 58 58
EMI/Sparrow O 1982 59,656 100 100
5310 Maryland Way O 1994 76,615 100 100

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

Westgate on Wendover -- Phase II
206 South Westgate Dr. Home Care of the Central
Carolinas
207 South Westgate Dr. Health Equipment Services
300 South Westgate Dr. Health Equipment Services
4600 Dundas Circle Aquaterra, Inc.
4602 Dundas Circle Four Seasons Apparel
Radar Road
500 Radar Rd. United States Postal Service
502 Radar Rd. East Texas Distributing
504 Radar Rd. Triad International
Maintenance, Dayva
Industries
506 Radar Rd. Triad International
Maintenance, American
Coatings
Holden/85 Business Park
2616 Phoenix Dr. Pliana, Inc.
2606 Phoenix Dr. -- 100 Piedmont Plastics, Rexham
Corp.
2606 Phoenix Dr. -- 200 REHAU, Inc., Underground
Utility Locating
2606 Phoenix Dr. -- 300 N/A
2606 Phoenix Dr. -- 400 Spectrum Financial Services
2606 Phoenix Dr. -- 500 The Record Exchange
2606 Phoenix Dr. -- 600 AT&T, Faith & Victory Church
Industrial Village
7906 Industrial Village Rd. Texas Aluminum
7908 Industrial Village Rd. Air Express
7910 Industrial Village Rd. Wadkin North America, Inc.
Other Piedmont Triad Properties
6348 Burnt Poplar Sears Roebuck & Co.
6350 Burnt Poplar Industries for the Blind
Deep River I N/A
Forsyth I N/A
Regency One New Breed Leasing Corp.
Regency Two N/A
Stratford BB&T
Chesapeake Chesapeake Display &
Packaging
3288 Robinhood N/A
Total or Weighted Average
Nashville, TN
Maryland Farms
Eastpark 1 Brentwood Music, Volunteer
Credit Corp.
Eastpark 2 PMT Services, Inc.
Eastpark 3 N/A
Harpeth II N/A
Harpeth III Alcoa Fujikura Ltd.
Harpeth IV USF&G, L.M. Berry Co.
Highwoods Plaza I TCS Management Group, Inc.
EMI/Sparrow EMI
5310 Maryland Way BellSouth

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

Grassmere
Grassmere I S 1984 87,902 100% 92%
Grassmere II S 1985 140,617 100 100
Grassmere III S 1990 103,000 100 100
Other Nashville Properties
Century City Plaza I O 1987 56,161 100 100
Lakeview O 1986 99,722 100 100
3401 Westend O 1982 253,010 99 99
BNA O 1985 234,377 97 97
Total or Weighted Average 1,640,855 99% 99%
Tampa, FL
Sabal Park
Atrium O 1989 129,855 80 80
Sabal Business Center VI O 1988 99,136 100 100
Progressive Insurance O 1988 83,648 100 100
Sabal Business Center VII O 1990 71,248 100 100
Sabal Business Center V O 1988 60,578 100 100
Registry II O 1987 58,781 96 94
Registry I O 1985 58,319 90 88
Sabal Business Center IV O 1984 49,368 100 100
Sabal Tech Center O 1989 48,220 100 100
Sabal Park Plaza O 1987 46,758 97 97
Sabal Lake Building O 1986 44,533 100 100
Sabal Business Center I O 1982 40,698 88 88
Sabal Business Center II O 1984 32,660 64 64
Registry Square O 1988 26,568 85 85
Expo Building O 1981 25,600 100 100
Sabal Business Center III O 1984 21,300 100 100
Benjamin Center
Benjamin Center #7 O 1991 30,960 100 100
Benjamin Center #9 O 1989 38,405 76 76
Other Tampa Properties
Tower Place O 1988 180,848 91 91
Day Care Center O 1986 8,000 100 100
Total or Weighted Average 1,155,483 93% 93%
Charlotte, NC
Steele Creek Park
Bldg. A I 1989 42,500 100% 100%
Bldg. B I 1985 15,031 100 100
Bldg. E I 1985 39,300 98 98
Bldg. G-1 I 1989 22,500 44 44
Bldg. H I 1987 53,614 100 100
Bldg. K I 1985 19,400 100 100
Highwoods/Forsyth Business Park
4101 Stuart Andrew Blvd. S 1984 12,185 95 95
4105 Stuart Andrew Blvd. S 1984 4,528 96 96
4109 Stuart Andrew Blvd. S 1984 15,212 97 97
4201 Stuart Andrew Blvd. S 1982 19,333 98 98
4205 Stuart Andrew Blvd. S 1982 23,401 98 98
4209 Stuart Andrew Blvd. S 1982 15,901 98 98
4215 Stuart Andrew Blvd. S 1982 23,372 96 96
4301 Stuart Andrew Blvd. S 1982 40,601 85 85
4321 Stuart Andrew Blvd. S 1982 12,774 94 94

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

Grassmere
Grassmere I Contel Cellular of
Nashville, Inc.
Grassmere II N/A
Grassmere III Harris Graphics Corporation
Other Nashville Properties
Century City Plaza I N/A
Lakeview The Kroger Co. (6), Centex
3401 Westend N/A
BNA N/A
Total or Weighted Average
Tampa, FL
Sabal Park
Atrium GTE Data Services, Inc.
Sabal Business Center VI Pharmacy Management
Services, Inc.
Progressive Insurance Progressive American
Insurance Co.
Sabal Business Center VII Pharmacy Management
Services, Inc.
Sabal Business Center V Lebhar-Friedman Inc.
Registry II N/A
Registry I N/A
Sabal Business Center IV Phillips Educational Group
of Central Florida, Inc.,
TGC Home Health Care, Inc.
Sabal Tech Center National RX Services, Inc.
Sabal Park Plaza State of Florida Department
of Revenue, ERM South, Inc.
Sabal Lake Building Warner Publisher Services,
Inc.
Sabal Business Center I N/A
Sabal Business Center II Owen Ayres and Associates,
Inc.
Registry Square Proctor & Redfern, Inc.
Expo Building Exposystems, Inc.
Sabal Business Center III Eli Witt Co.
Benjamin Center
Benjamin Center #7 Basetec Office Systems,
Inc., Baers Construction
Benjamin Center #9 First Image Management
Company
Other Tampa Properties
Tower Place N/A
Day Care Center Telesco Enterprises, Inc.
Total or Weighted Average
Charlotte, NC
Steele Creek Park
Bldg. A Terrell Gear Drives, Inc.
Bldg. B Pump Parts & Services (7)
Bldg. E Bradman-Lake, Inc.
Bldg. G-1 Safewaste Corp.
Bldg. H Sugravo Rallis Engraving,
Eurotherm Drives, Inc.
Bldg. K Aptech, Inc.
Highwoods/Forsyth Business Park
4101 Stuart Andrew Blvd. N/A
4105 Stuart Andrew Blvd. Re-Directions, Transit &
Level Clinic, Bell/Sysco
Food
4109 Stuart Andrew Blvd. N/A
4201 Stuart Andrew Blvd. N/A
4205 Stuart Andrew Blvd. Sunbelt Video, Inc.
4209 Stuart Andrew Blvd. N/A
4215 Stuart Andrew Blvd. Cleaning Services Group,
Rodan, Inc.
4301 Stuart Andrew Blvd. Circle K
4321 Stuart Andrew Blvd. Communications Technology

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

Parkway Plaza
Building 1 O 1982 58,263 93% 93%
Building 2 O 1983 88,227 76 76
Building 3 O 1984 82,307 94 94
Building 6 O 1996 40,330 41 41
Building 7 (8) O 1985 60,722 100 100
Building 8 (8) O 1986 40,615 100 100
Building 9 (8) I 1984 110,000 0 0
Oakhill Business Park
Twin Oaks O 1985 97,652 94 94
Water Oak O 1985 90,853 90 90
Scarlet Oak O 1982 76,584 100 85
English Oak O 1984 54,865 100 100
Willow Oak O 1982 38,448 0 0
Laurel Oak O 1984 38,448 85 85
Live Oak O 1989 85,993 50 50
Other Charlotte Properties
First Citizens O 1989 57,214 100 100
Total or Weighted Average 1,380,173 79% 78%
Boca Raton, FL
One Boca Place O 1987 277,630 99% 93%
Highwoods Square O 1989 148,944 90 90
Highwoods Plaza O 1980 80,260 98 98
Total or Weighted Average 506,834 96% 95%
Richmond, VA
Innsbrook Office Center
Liberty Mutual O 1990 57,915 100% 100%
Markel American O 1988 38,427 100 100
Proctor-Silex O 1986 58,366 100 100
Vantage Place I O 1987 13,514 100 100
Vantage Place II O 1987 14,895 100 100
Vantage Place III O 1988 14,389 100 100
Vantage Place IV O 1988 13,411 100 100
Vantage Point O 1990 62,918 100 90
Innsbrook Tech I S 1991 18,350 100 100
DEQ Technology Center O 1991 53,847 84 84
DEQ Office O 1991 70,423 100 100
Aetna O 1989 99,209 100 100
Highwoods One O 1996 128,222 92 92
Technology Park
Virginia Center O 1985 119,754 83 75
Other Richmond Properties
Westshore I O 1995 18,775 100 100
Westshore II O 1995 27,625 98 98
East Cary Street O 1987 16,865 69 69
Total or Weighted Average 826,905 97% 95%
Greenville, SC
Brookfield Corporate
Center
Brookfield-Jacobs-Sirrine O 1990 228,345 100% 100%
Brookfield Plaza O 1987 116,800 78 78
Brookfield-YMCA S 1990 15,500 46 46
Patewood Business Center S 1983 103,302 100 100
Patewood Plaza Office Park
Patewood V O 1990 100,187 100 100
Patewood IV O 1989 61,649 100 100
Patewood III O 1989 61,539 100 100
Total or Weighted Average 687,322 95% 95%

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

Parkway Plaza
Building 1 BASF Corporation
Building 2 International Paper
Building 3 N/A
Building 6 Hewlett-Packard
Building 7 (8) Northwest Mortgage
Building 8 (8) Greenpoint Financial Corp.
Building 9 (8) N/A
Oakhill Business Park
Twin Oaks Springs Industries, Inc.
Water Oak N/A
Scarlet Oak Krueger Ringier, Inc.
English Oak The Employers Association of
the Carolinas
Willow Oak N/A
Laurel Oak Paramount Parks Inc.,
Woolpert Consultants
Live Oak CHF Industries
Other Charlotte Properties
First Citizens Volvo Car Finance, Inc.
Total or Weighted Average
Boca Raton, FL
One Boca Place N/A
Highwoods Square N/A
Highwoods Plaza N/A
Total or Weighted Average
Richmond, VA
Innsbrook Office Center
Liberty Mutual Capital One, Liberty Mutual
Markel American Mark IV
Proctor-Silex Proctor-Silex, Inc.
Vantage Place I Rountrey and Associates
Vantage Place II Hastings-Tapley
Vantage Place III Stenrich Group, Inc.
Vantage Place IV Corvel Healthcare,
Cemetary Mgmt.
Vantage Point EDS, Colonial Inc.
Innsbrook Tech I Air Specialists of VA, Hobbs
& Assoc.
DEQ Technology Center Virginia State Gov., First
Health
DEQ Office Circuit City
Aetna N/A
Highwoods One N/A
Technology Park
Virginia Center N/A
Other Richmond Properties
Westshore I Snyder Hunt Corp.
Westshore II Hewlett-Packard Co.
East Cary Street Butler, Macon Et. Al.
Total or Weighted Average
Greenville, SC
Brookfield Corporate
Center
Brookfield-Jacobs-Sirrine Jacobs-Sirrine Engineers,
Inc.
Brookfield Plaza DowBrands, Inc.
Brookfield-YMCA Kids & Company at Pelham
Falls, Inc.
Patewood Business Center N/A
Patewood Plaza Office Park
Patewood V Bell Atlantic Mobile
Systems, Inc., PYA/Monarch,
Inc.
Patewood IV MCI Telecommunications Corp.
Patewood III MCI Telecommunications Corp.
Total or Weighted Average

Percent Percent
Leased at Occupied at
Building Year Rentable December 31, December 31,
Property Type (1) Built Square Feet 1996 1996

Memphis, TN
Atrium I O 1984 42,124 100% 100%
Atrium II O 1984 42,099 100 100
International Place Phase II O 1988 208,006 98 98
Southwind Office Center "A" O 1991 62,179 100 100
Southwind Office Center "B" O 1990 61,860 100 100
Kirby Centre O 1984 32,007 100 100
Medical Properties, Inc. O 1988 18,079 100 100
Total or Weighted Average 466,354 99% 99%
Atlanta, GA
Oakbrook
Oakbrook I S 1981 106,662 94% 94%
Oakbrook II S 1983 141,938 73 56
Oakbrook III S 1984 164,246 95 95
Oakbrook IV O 1985 89,223 98 98
Oakbrook V O 1985 204,410 100 100
Total or Weighted Average 706,479 94% 92%
Columbia, SC
Fontaine Business Center
Fontaine I O 1985 97,576 97% 97%
Fontaine II O 1987 73,225 84 84
Fontaine III O 1988 57,888 100 100
Fontaine V O 1990 21,107 100 100
Other Columbia Properties
Center Point I O 1988 72,567 100 95
Center Point II O 1996 81,000 46 46
Total or Weighted Average 403,363 86% 85%
Orlando, FL
Metrowest I O 1988 102,019 94% 94%
Southwest Corporate Center O 1984 98,777 100 100
Total or Weighted Average 200,796 97% 97%
Birmingham, AL
Grandview I O 1989 114,539 100% 100%
Norfolk, VA
Battlefield I S 1987 97,633 100% 100%
Greenbrier Business Center O 1984 81,194 100 100
Total or Weighted Average 178,827 100% 100%
Asheville, NC
Ridgefield 300 O 1989 63,500 100% 100%
Ridgefield 200 S 1987 60,677 100 100
Total or Weighted Average 124,177 100% 100%
Jacksonville, FL
Towermarc Plaza O 1991 50,513 99% 99%
Total or Weighted Average
of All Properties 17,455,174 92% 92%

Tenants Leasing 25% or More
of Rentable Square Feet at
Property December 31, 1996

Memphis, TN
Atrium I Baptist Memorial Health Care
Atrium II Mueller Streamline Co.
International Place Phase II AC Humko Corp.,
International Paper Company
Southwind Office Center "A" Promus Hotels, Inc.
Southwind Office Center "B" Check Solutions, Inc.
Kirby Centre Financial Federal Savings
Bank, Union Central Life
Insurance Co.
Medical Properties, Inc. Health Tech Affiliates, Inc.
Total or Weighted Average
Atlanta, GA
Oakbrook
Oakbrook I N/A
Oakbrook II N/A
Oakbrook III N/A
Oakbrook IV N/A
Oakbrook V N/A
Total or Weighted Average
Columbia, SC
Fontaine Business Center
Fontaine I Blue Cross and Blue Shield
of S.C.
Fontaine II Blue Cross and Blue Shield
of S.C.
Fontaine III Companion Health Care
Fontaine V Roche Biomedical
Laboratories, Inc.
Other Columbia Properties
Center Point I Sedgewick James of South
Carolina, Inc., Alltel
Mobile Communication
BellSouth Mobility, Inc.
Center Point II BellSouth
Total or Weighted Average
Orlando, FL
Metrowest I N/A
Southwest Corporate Center Walt Disney World Co.
Total or Weighted Average
Birmingham, AL
Grandview I Computer Sciences
Corporation
Norfolk, VA
Battlefield I Kasei Memory Products, Inc.
Greenbrier Business Center Canon Computer Systems,
Inc., Roche Biomedical
Laboratories, Inc.
Total or Weighted Average
Asheville, NC
Ridgefield 300 N/A
Ridgefield 200 Memorial Mission Hospital,
Inc.
Total or Weighted Average
Jacksonville, FL
Towermarc Plaza Aetna Casualty
Total or Weighted Average
of All Properties

(1) I = Industrial, S = Service Center and O = Office.
(2) Raleigh Neurology Clinic has an option to purchase 33% of the Property in
December 1998 for cash at the then current fair market value, as to be
determined by an independent appraiser.
(3) Glaxo Wellcome has the option to purchase the Property from March 1997 to
the earlier of lease termination (currently March 2000) or March 2003 for
cash at the then current fair market value to be determined by an appraiser
chosen by the Company, provided the terms of such purchase are acceptable to
the Company and Glaxo Wellcome.
(4) Highland Industries, Inc., which entered into a 10-year lease beginning
January 1991, has the option during the term of its lease to purchase the
Property for a price of $1,034,000 during each of the first five years and,
thereafter, at decreasing amounts through the tenth year of the lease term
when the price will be $926,000.
(5) Ivy Distribution Center enables the Company to establish relationships with
potential tenants that need large blocks of affordable storage space,
frequently on a short-term basis. With the exception of 1989 when the
building was renovated to convert it from a manufacturing facility to a bulk
warehouse facility, Ivy Distribution Center has produced a positive cash
flow every year since its acquisition in 1978.
(6) Kroger Co. has an option to purchase the Property through January 2001. The
purchase price under the option is $10.0 million through January 1999 (and
$10.8 million from January 1999 through January 2001) subject to all
encumbrances, plus unamortized tenant improvements funded by the Company and
unamortized leasing commissions.
(7) Pump Parts & Services, Inc. has an option to purchase the Property for a
purchase price of $39.24 per square foot ($589,793) (as of August 1996)
subject to a minimum increase in the per square foot purchase price of 5%
per year.
(8) Properties subject to ground lease expiring December 31, 2082. The Company
has the option to purchase the land during the lease term at the greater of
$35,000 per acre or 85% of appraised value.

Development Land
As of December 31, 1996, the Company owned 238 acres and had committed to
purchase over the next six years an additional 311 acres of land for
development. The following table sets forth the location, acreage, build-out
capacity and estimated construction costs with respect to the Development Land
(dollars in thousands):

Estimated
Developable Square Footage Construction
Business Park: Location Acreage Office Industrial Total Costs (1)

Owned:
NationsFord Business Park Charlotte 15 -- 170,000 170,000 $ 3,920
Airpark East Greensboro 7 -- 50,000 50,000 1,150
Airpark North Greensboro 10 20,000 -- 20,000 1,600
Airport Center Drive Greensboro 20 241,000 -- 241,000 21,690
Highwoods Forsyth Park Greensboro 6 -- 60,000 60,000 3,600
West Point Business Park Winston-Salem 26 -- 286,000 286,000 8,712
Lakeview Ridge Nashville 18 200,000 -- 200,000 17,500
Grassmere Nashville 19 450,000 -- 450,000 29,250
Highwoods North Research Triangle 18 310,000 -- 310,000 26,350
Highwoods South Research Triangle 45 525,000 -- 525,000 44,625
Capital Center Research Triangle 10 110,000 -- 110,000 9,500
Creekstone Park Research Triangle 12 132,000 -- 132,000 11,220
Research Commons Research Triangle 10 100,000 -- 100,000 8,500
NorthPark Research Triangle 12 150,000 -- 150,000 12,750
Innsbrook Richmond 10 110,000 -- 110,000 7,200
238 2,348,000 566,000 2,914,000 $207,567
To be acquired:
Weston Research Triangle 243 2,700,000 -- 2,700,000 $248,000
Innsbrook Richmond 50 500,000 -- 500,000 50,000
Raleigh Corporate Center Research Triangle 15 300,000 -- 300,000 27,000
Maryland Farms Nashville 3 90,000 -- 90,000 9,000
311 3,590,000 -- 3,590,000 $334,000
Total 549 5,938,000 566,000 6,504,000 $541,567

(1) With respect to Development Land to be acquired, includes costs to acquire
land.
19

All of the Development Land is zoned and available for office or industrial
development, substantially all of which has utility infrastructure already in
place. The Company believes that the cost of developing the Development Land
could be financed with the funds available from the Company's existing credit
facility, additional borrowings and offerings of equity and debt securities. The
Company believes that its commercially zoned and unencumbered land in existing
business parks gives the Company an advantage in its future development
activities over other commercial real estate development companies in the
Research Triangle, the Piedmont Triad, Richmond, Nashville and Charlotte. Any
future development, however, is dependent on the demand for industrial or office
space in the area, the availability of favorable financing and other factors,
and no assurance can be given that any construction will take place on the
Development Land. In addition, if construction is undertaken on the Development
Land, the Company will be subject to the risks associated with construction
activities, including the risk that occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable,
construction costs may exceed original estimates and construction and lease-up
may not be completed on schedule, resulting in increased debt service expense
and construction expense.
Option Land
The Company has options to purchase or rights of first refusal to purchase,
lease or develop a total of 166 acres of undeveloped land (the "Option Land") at
locations adjacent to Properties in two existing business parks. The Company has
long-term rights of first refusal to purchase, lease or develop: (i) 147 acres
in the Expressway Commerce Center, which is targeted for development of
warehouses and service center facilities and (ii) 19 acres adjacent to
Creekstone Park, which is targeted for service center development. No assurance
can be given that any of the Option Land will be purchased or developed by the
Company.
20

ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a variety of legal proceedings arising in the
ordinary course of its business. The Company believes that it is adequately
covered by insurance and indemnification agreements. Accordingly, none of such
proceedings are expected to have a material adverse effect on the financial
position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company:

Name Age Position and Background

Ronald P. Gibson 52 Director, President and Chief Executive Officer. Mr. Gibson is a founder of the
Company and has served as President or managing partner of its predecessor since
its formation in 1978.
William T. Wilson III 42 Director and Executive Vice President. Mr. Wilson joined Forsyth Properties in
1982 and served as its president from 1993 until its merger with the Company.
Mr. Wilson is responsible for the operations in the Piedmont Triad, Charlotte
and South Carolina.
John L. Turner 50 Director, Vice Chairman of the Board of Directors and Chief Investment Officer.
Mr. Turner co-founded the predecessor of Forsyth Properties in 1975.
John W. Eakin 42 Director and Senior Vice President. Mr. Eakin is responsible for operations in
Tennessee, Florida and Alabama. Mr. Eakin was a founder and president of Eakin &
Smith, Inc. prior to its merger with the Company.
Thomas F. Cochran 42 Senior Vice President. Mr. Cochran manages the Charlotte and Greenville regions.
Mr. Cochran served as senior vice president for Crocker prior to its acquisition
by the Company in 1996.
Edward J. Fritsch 38 Senior Vice President and Secretary. Mr. Fritsch is responsible for the
operations of the Company's Research Triangle division. Mr. Fritsch joined the
Company in 1982.
Carman J. Liuzzo 36 Vice President, Chief Financial Officer and Treasurer. Prior to joining the
Company in 1994, Mr. Liuzzo was vice president and chief accounting officer for
Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant Properties, Inc. Mr.
Liuzzo is a certified public accountant.
John E. Reece II 37 Vice President. Mr. Reece is responsible for the operations of the Company's
Piedmont Triangle area properties. Mr. Reece joined the Company in connection
with the Company's merger with Forsyth Properties.

In addition, on February 12, 1997, Gene H. Anderson was appointed to the
Board of Directors and joined the Company as a senior vice president. Mr.
Anderson is responsible for the operations of the Company's Atlanta properties.
Mr. Anderson was the founder and president of Anderson Properties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
Employment Agreements
The Company's executive officers generally have employment agreements with
the Company with a three-year duration. Messrs. Gibson and Fritsch have
employment agreements through June 1997, Messrs. Turner, Wilson, Reece and
Liuzzo have employment agreements through February 1998, Mr. Eakin's employment
agreement runs through April 2000 and Mr. Anderson's employment agreement is
through February 2000. Each contract includes provisions restricting the
officers from competing with the Company during employment and, except in
certain circumstances, for a limited period of time after termination of
employment. Each of the employment contracts provides for severance payments in
the event of termination by the Company without cause equal to the officer's
base salary for the later of one year from the date of termination or the
expiration of the three-year employment agreement.
21

PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information and Dividends
The Common Stock has been traded on the NYSE under the symbol "HIW" since
the Company's initial public offering. The following table sets forth the
quarterly high and low sales prices per share reported on the NYSE for the
periods indicated and the distributions paid per share for each such period.

Period or
Quarter 1996 1995 1994
Ended: High Low Distribution High Low Distribution High Low Distribution

March 31............... $30.50 $27.75 $ 0.45 $22.00 $19.88 $0.425 -- -- --(1)
June 30................ 30.25 26.88 0.48 25.50 21.25 0.45 $21.68 $19.68 0.075(2)
September 30........... 30.38 27.00 0.48 26.88 23.88 0.45 21.13 19.75 0.425
December 31............ 33.75 28.50 0.48 28.38 25.50 0.45 21.68 18.50 0.425

(1) Prior to the Company's June 14, 1994, initial public stock offering.
(2) No distribution was paid during this period. The accrued distribution of
$0.075 per share was paid on November 16, 1994 at the time the Company paid
its initial distribution for the period from inception to September 30,
1994.
On March 14, 1997, the last reported sale price of the Common Stock on the
NYSE was $35.50 per share. On March 14, 1997, the Company had 654 stockholders
of record.
The Company intends to continue to pay regular quarterly distributions to
holders of shares of Common Stock and holders of Units. Although the Company
intends to maintain its current distribution rate, future distributions by the
Company will be at the discretion of the Board of Directors and will depend on
the actual funds from operations of the Company, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Internal Revenue Code of 1986 and such other factors as the
Board of Directors deems relevant.
During the year ended 1996, the Company's distributions totaled $48,259,000
of which $9,081,000 represented return of capital for financial statement
purposes. The minimum per share distribution required to maintain REIT status
was approximately $1.44 per share in 1996, $1.55 per share in 1995 and $.48 per
share in 1994.
The Company has instituted a Dividend Reinvestment and Stock Purchase Plan
under which holders of Common Stock may elect to automatically reinvest their
distributions in additional shares of Common Stock and may make optional cash
payments for additional shares of Common Stock. The Company may issue additional
shares of Common Stock or repurchase Common Stock in the open market for
purposes of financing its obligations under the Dividend Reinvestment and Stock
Purchase Plan.
Sales of Unregistered Securities
The Company issued 489,421 shares of Common Stock in connection with the
merger of Eakin & Smith, Inc. into the Company on April 1, 1996. As a result of
the merger, the Company succeeded to the third-party management and brokerage
business of Eakin & Smith. The merger was part of the larger Eakin & Smith
Transaction described above at "Business -- Recent Developments."
The shares were issued to the three principals of Eakin & Smith, including
John W. Eakin, who became an officer and director of the Company upon
consummation of the transaction. The shares were issued pursuant to an exemption
from the registration requirements of the Securities Act of 1933 (the
"Securities Act") under Rule 506. Each of the three principals of Eakin & Smith
are "accredited investors" under Rule 501 of the Securities Act. The Company
exercised reasonable care to assure that the principals were not purchasing the
shares with a view to their distribution.
22

ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Company as of December 31, 1996, 1995 and 1994, for the years ended
December 31, 1996 and 1995, and for the period from June 14, 1994 (commencement
of operations) to December 31, 1994. The following table also sets forth
selected financial and operating information on a historical basis for the
Highwoods Group (the predecessor to the Company) as of and for each of the years
in the two-year period ended December 31, 1993, and for the period from January
1, 1994, to June 13, 1994. The pro forma operating data for the year ended
December 31, 1994 assumes completion of the initial public offering and the
Formation Transaction as of January 1, 1994.
Due to the impact of the initial formation of the Company and the initial
public offering in 1994, the second and third offerings in 1995 and the
transactions more fully described in "Management's Discussion and
Analysis -- Overview and Background," the historical results of operations for
the year ended December 31, 1995 and the period from June 14, 1994 to December
31, 1994 may not be comparable to the current period results of operations.
The Company and the Highwoods Group

Highwoods Highwoods Group
Company Company Group
June 14, Pro Forma January 1,
Year Ended Year Ended 1994 to Year Ended 1994 to Year ended
December 31, December 31, December 31, December 31, June 13, December 31,
1996 1995 1994 1994 1994 1993 1992

(Dollars in thousands, except per share amounts)
Operating Data:
Total revenue.......... $ 137,926 $ 73,522 $ 19,442 $ 34,282 $ 6,648 $13,450 $12,532
Rental property
operating expenses... 35,313 17,049(1) 5,110(1) 9,677(1) 2,596(2) 6,248(2) 5,587(2)
General and
administrative....... 5,666 2,737 810 1,134 280 589 694
Interest expense....... 26,610 13,720 3,220 5,604 2,473 5,185 5,059
Depreciation and
amortization......... 22,095 11,082 2,607 4,638 835 1,583 1,431
Income (loss) before
minority interest.... 48,242 28,934 7,695 13,229 464 (155) (239)
Minority interest...... (6,782) (4,937) (808) (1,388) -- -- --
Income before
extraordinary item... 41,460 23,997 6,887 11,841 464 (155) (239)
Extraordinary item-loss
on early
extinguishment of
debt................. (2,140) (875) (1,273) -- -- -- --
Net income (loss)...... $ 39,320 $ 23,122 $ 5,614 $ 11,841 $ 464 $ (155) $ (239)
Net income per common
share................ $ 1.51 $ 1.49 $ .63 $ 1.32
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated
depreciation......... $1,377,874 $ 593,066 $ 207,976 $ -- $ -- $51,590 $46,626
Total assets........... $1,443,440 $ 621,134 $ 224,777 $ -- $ -- $58,679 $53,688
Total mortgages and
notes payable........ $ 555,876 $ 182,736 $ 66,864 $ -- $ -- $64,347 $60,279
Other Data:
Number of in-service
properties........... 292 191 44 -- 14 14 13
Total rentable square
feet................. 17,455,174 9,215,171 2,746,219 -- 816,690 816,690 794,174

(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security and
utilities.
(2) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security,
utilities, leasing, development, and construction expenses.
23

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview and Background
The Highwoods Group (the predecessor to the Company) was comprised of 13
office properties and one warehouse facility (the "Highwoods-Owned Properties"),
94 acres of development land and the management, development and leasing
business of Highwoods Properties Company ("HPC"). On June 14, 1994, following
completion of the Company's initial public offering, the Company, through a
business combination involving entities under varying common ownership,
succeeded to the Highwoods-Owned Properties, HPC's real estate business and 27
additional office properties owned by unaffiliated parties (such combination
being referred to as the "Formation Transaction"). Minority interest in the
Company represents the limited partnership interest owned by various individuals
and entities and not the Company in the Operating Partnership, the entity that
owns the Company's properties and through which the Company, as the sole general
partner, conducts substantially all of its operations. The Company acquired
three additional Properties in 1994 after the Formation Transaction.
In February 1995, the Company expanded into other North Carolina markets
and diversified its portfolio to include industrial and service center
properties with its $170 million, 57-Property business combination with Forsyth
Partners (the "Forsyth Transaction"). During the year ended December 31, 1995,
the Company acquired 144 Properties encompassing 6,357,000 square feet, at an
initial cost of $369.9 million.
During the year ended December 31, 1996, the Company acquired 91 Properties
encompassing 7,325,500 square feet at a initial cost of $704.0 million. See
"Business -- Recent Developments" for a description of the acquisition of
Crocker and the Eakin & Smith Transaction and for a table summarizing all
mergers and acquisitions completed during the year ended December 31, 1996.
Given the effect of the acquisitions discussed above, the results of the
Highwoods Group for the period from January 1, 1994, to June 13, 1994, are not
comparable to the current operations of the Company.
This information should be read in conjunction with the accompanying
consolidated and combined financial statements and the related notes thereto.
The pro forma operating data for the year ended December 31, 1994 assumes
completion of the initial public offering and the Formation Transaction as of
January 1, 1994.
Results of Operations
Comparison of 1996 to 1995
Revenue from rental operations increased $59.6 million, or 83.7% from $71.2
million in 1995 to $130.8 million in 1996. The increase is primarily a result of
revenue from newly acquired and developed properties. Interest and other income
increased 208.7% from $2.3 million in 1995 to $7.1 million in 1996. This
increase is a result of the excess cash and cash equivalents resulting from the
offering of Common Stock completed in the summer of 1996, and an increase in
third-party management and leasing income.
Rental operating expenses increased $18.3 million, or 107.6%, from $17.0
million in 1995 to $35.3 million in 1996. The increase is due to the addition of
8.2 million square feet to the in-service portfolio. Rental expenses as a
percentage of related rental revenues increased from 23.9% for the year ended
December 31, 1995 to 27.0% for the year ended December 31, 1996. The increase is
a result of an increase in the percentage of office properties in the portfolio;
which have fewer "triple net" leases, and approximately $400,000 in additional
expenses related to the severe winter weather in 1996 and the hurricane in
September of the same year.
Depreciation and amortization for the years ended December 31, 1996 and
1995 was $22.1 million and $11.1 million, respectively. The increase of $11.0
million or 99.1% is due to a 130.9% increase
24

in depreciable assets. Interest expense increased $12.9 million or 94.0% from
$13.7 million in 1995 to $26.6 million in 1996. The increase is attributable to
the increase in outstanding debt related to the Company's acquisition and
development activities. Interest expense for the years ended December 31, 1996
and 1995 included $1.9 million and $1.6 million, respectively, of non-cash
deferred financing costs and amortization of the costs related to the Company's
interest rate protection agreements.
General and administrative expenses increased from 3.8% of rental revenue
in 1995 to 4.3% in 1996. This increase is attributable to the addition of four
regional offices in Nashville, Memphis, Tampa, and Boca Raton as a result of
acquisitions. The duplication of certain personnel costs in the third quarter
during the acquisition of Crocker also contributed to higher general and
administrative expenses for the year ended December 31, 1996. Such duplicative
costs were eliminated in the fourth quarter as the Company realized the planned
synergies from the merger.
Net income before minority interest and extraordinary item equaled $48.2
million and $28.9 million for the years ended December 31, 1996 and 1995,
respectively. The extraordinary items consisted of prepayment penalties incurred
in connection with the extinguishment of certain debt assumed in the Crocker
merger in 1996 and the Forsyth Transaction in 1995.
Comparison of 1995 to Pro Forma 1994
For the year ended December 31, 1995 total revenues were comprised of $71.2
million of rental revenues and $2.3 million of interest and other income. For
the year ended December 31, 1994 pro forma total revenues included $33.6 million
of rental revenues, $200,000 in distributions from Highwoods Services, Inc. and
$456,000 of interest income.
The $37.6 million increase in rental income from pro forma 1994 to 1995 was
primarily attributable to the rental revenue derived from properties acquired
during 1995. Revenues from the Company's initial portfolio of 41 properties
increased by 2.1% over the comparable 1994 period. Vacancies in Smoketree Tower
and Cape Fear partially offset rental rate increases and occupancy gains in
other properties.
The increase in interest income from $465,000 in pro forma 1994 to $2.3
million in 1995 was due primarily to the increase in short-term investments
during the three-month period following the Company's 4,774,989-share offering
in August 1995.
Rental property expenses represented 23.9% of rental revenues in 1995
compared to 28.8% for pro forma 1994. The decline in this ratio was a result of
increased operating efficiencies and the addition of revenues from industrial
properties in 1995. Industrial properties are generally leased on a "triple net"
basis, with the tenant paying all operating costs.
General and administrative expenses increased from $1.1 million or 3.3% of
total revenues for pro forma 1994 to $2.7 million or 3.8% of total revenues for
1995. The increase in general and administrative expenses was a result of the
growth of the Company's operations into the Piedmont Triad and Richmond.
Interest expense increased from $5.6 million for pro forma 1994 to $13.7
million for 1995. The increase in interest expense was a result of an increased
debt level during 1995 compared to 1994 as the Company financed a portion of its
1995 acquisition activity through the use of debt financing. The Company's
interest expense for 1995 included a benefit of $385,000 as a result of an
interest rate protection agreement.
Depreciation and amortization expense increased from $4.6 million for pro
forma 1994 to $11.1 million for 1995. The increase in depreciation and
amortization expense reflects the increase in real estate assets during 1995.
Net income before minority interest and extraordinary item equaled $28.9
million or $1.87 per share for 1995 compared to $13.2 million or $1.47 per share
for pro forma 1994.
25

In connection with the repayment of indebtedness related to the Forsyth
Transaction, the Company incurred prepayment penalties of $1.0 million in 1995.
This amount was recorded as an extraordinary item and is presented in the 1995
consolidated financial statements ($875,000) net of the minority interest share
in such loss.
Liquidity and Capital Resources
Statement of Cash Flows
The Company generated $71.3 million in cash flows from operating activities
and $419.8 million in cash flows from financing activities for the year ended
December 31, 1996. These combined cash flows of $498.9 million were used to fund
$486.9 million of investing activities, which were primarily additions to real
estate assets and the cash purchase price for the net assets of Crocker.
Capitalization
Mortgage and notes payable at December 31, 1996 totaled $555.9 million and
were comprised of $296.9 million of secured indebtedness with an average rate of
8.0% and $259.0 million of unsecured indebtedness with an average rate of 7.1%.
All of the mortgage and notes payable outstanding at December 31, 1996 were
either fixed rate obligations or variable rate obligations covered by interest
rate protection agreements (see below). The weighted average life of the
indebtedness was approximately 6.5 years at December 31, 1996.
Based on the Company's total market capitalization of $1.9 billion at
December 31, 1996 (at the December 31, 1996, stock price of $33.75 per share and
assuming the redemption of each of the 4,283,000 Units of minority interest in
the Operating Partnership for a share of Common Stock), the Company's
indebtedness represented approximately 29% of its total market capitalization.
The Company completed the following financing activities during the year
ended December 31, 1996:
(Bullet) During June 1996, the Company completed a 11,500,000-share public
offering of Common Stock (including 1,500,000 shares issued
pursuant to the underwriters' over allotment option). The net
proceeds of the offering totaled $292.9 million and were used
primarily to fund the Crocker acquisition.
(Bullet) In July 1996, the Company sold an additional 250,000 shares of
Common Stock to underwriters who participated in the Company's
11,500,000-share offering. The net proceeds from this offering
were approximately $6.8 million.
(Bullet) In connection with the acquisition of Crocker, the Company assumed
a $140 million mortgage note (the "7.9% Mortgage Note"). The note
is secured by 46 Properties, which were acquired in the merger and
held by a subsidiary of the Company.
(Bullet) On September 27, 1996, the Company replaced a $140 million credit
facility with a $280 million unsecured revolving line of credit
(the "Revolving Loan") from a syndicate of lenders. The Revolving
Loan requires monthly payments of interest only with the balance
of all principal and accrued but unpaid interest due on October
31, 1999. The interest rate on the Revolving Loan at year end was
LIBOR plus 135 basis points and will adjust based on the Company's
senior unsecured credit rating within a range of LIBOR plus 100
basis points to LIBOR plus 175 basis points.
(Bullet) On November 26, 1996, the Operating Partnership issued $100
million of 6 3/4% notes due December 1, 2003, and $110 million of
7% notes due December 1, 2006 (collectively, the "Public Notes").
The proceeds were used to reduce amounts outstanding on the
revolving loan, to repay mortgage debt and to settle an interest
rate swap agreement.
(Bullet) In December 1996, the Company completed a public offering of
2,587,500 shares of Common Stock (including 337,500 shares issued
pursuant to the underwriters' over allotment option) and a
concurrent non-underwritten public offering of 1,093,577 shares of
Common Stock with
26

an institutional investor. The net proceeds from the two offerings
totaled approximately $96.7 million.
(Bullet) In connection with the 1996 acquisitions, the Company issued
807,608 Units and 489,421 shares of restricted Common Stock valued
at $35.6 million (based on the agreed-upon valuation of a share of
Common Stock at the time of the acquisition).
Additional information regarding the 7.9% Mortgage Note, the Public Note and the
Revolving Loan is set forth in the notes related to the accompanying
consolidated and combined financial statements.
To protect the Company from increases in interest expense due to changes in
the variable rate, the Company: (i) purchased an interest rate cap limiting its
exposure to an increase in interest rates (one-month LIBOR plus 135 basis
points) to 7.60% with respect to $80 million of the $280 million Revolving Loan,
and (ii) entered into interest rate swaps that limit its exposure to an increase
in the interest rates to 7.24% in connection with the $34 million of variable
rate mortgages. The interest rate on all such variable rate debt is adjusted at
monthly intervals, subject to the Company's interest rate protection program.
Payments received from the counterparties under the interest rate protection
agreements were $167,000, $385,000 and $25,000 for 1996, 1995 and 1994,
respectively. The Company is exposed to certain losses in the event of
non-performance by the counterparties under the cap and swap arrangements. The
counterparties are major financial institutions and are expected to perform
fully under the agreements. However, if they were to default on their
obligations under the arrangements, the Company could be required to pay the
full rate under the Revolving Loan and the variable rate mortgages, even if such
rate were in excess of the rate in the cap and swap agreements. In addition, the
Company may incur other variable rate indebtedness in the future. Increases in
interest rates on its indebtedness could increase the Company's interest expense
and could adversely affect the Company's cash flow and its ability to pay
expected distributions to stockholders.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. In addition, construction management,
maintenance, leasing and management fees have provided sources of cash flow.
Management believes that the Company will have access to the capital resources
necessary to expand and develop its business. To the extent that the Company's
cash flow from operating activities is insufficient to finance its acquisition
costs and other capital expenditures, including development costs, the Company
expects to finance such activities through the Revolving Loan and other debt and
equity financing.
The Company presently has no plans for major capital improvements to the
existing properties, other than a $4 million renovation of a 17-year old office
property and normal recurring non-revenue enhancing expenditures. The Company
expects to meet its short-term liquidity requirements generally through its
working capital and net cash provided by operating activities along with the
previously discussed Revolving Loan. The Company expects to meet certain of its
financing requirements through long-term secured and unsecured borrowings and
the issuance of debt securities or additional equity securities of the Company.
In addition, the Company anticipates utilizing the Revolving Loan primarily to
fund construction and development activities. The Company does not intend to
reserve funds to retire existing mortgage indebtedness or indebtedness under the
Revolving Loan upon maturity. Instead, the Company will seek to refinance such
debt at maturity or retire such debt through the issuance of additional equity
or debt securities. The Company anticipates that its available cash and cash
equivalents and cash flows from operating activities, together with cash
available from borrowings and other sources, will be adequate to meet the
capital and liquidity needs of the Company in both the short and long-term.
However, if these sources of funds are insufficient or unavailable, the
Company's ability to make the expected distributions discussed below may be
adversely affected.
In order to qualify as a REIT for Federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of recurring,
27

non-incremental revenue-generating expenditures. The Company intends to invest
amounts accumulated for distribution in short-term investments. The following
factors will affect cash flows from operating activities and, accordingly,
influence the decisions of the Board of Directors regarding distributions: (i)
debt service requirements after taking into account the repayment and
restructuring of certain indebtedness; (ii) scheduled increases in base rents of
existing leases; (iii) changes in rents attributable to the renewal of existing
leases or replacement leases; (iv) changes in occupancy rates at existing
Properties and procurement of leases for newly acquired or developed properties;
and (v) operating expenses and capital replacement needs.
Recent Developments
Century Center Transaction
On January 9, 1997, the Company acquired the 17-building Century Center
Office Park, four affiliated industrial properties and 20 acres of land for
development located in suburban Atlanta, Georgia (the "Century Center
Transaction"). The properties total 1.6 million rentable square feet and, as of
December 31, 1996, were 99% leased. The cost of the Century Center Transaction
was $55.6 million in Units (valued at $29.25 per Unit, the market value of a
share of Common Stock as of the signing of a letter of intent for the Century
Center Transaction), the assumption of $19.4 million of secured debt and a cash
payment of $53.1 million, drawn from the Company's $280 million Revolving Loan.
All Units issued in the transaction are subject to restrictions on transfer and
redemption. Such restrictions are scheduled to expire over a three-year period
in equal annual installments commencing one year from the date of issuance.
Century Center Office Park is located on approximately 77 acres, of which
approximately 61 acres are controlled under long-term fixed rental ground leases
that expire in 2058. The rent under the leases is approximately $180,000 per
year with scheduled 10% increases in 1999 and 2009. The leases do not contain a
right to purchase the subject land.
The Company estimates a first-year net operating income from the properties
acquired in the Century Center Transaction of $13.3 million. See " -- Disclosure
Regarding Forward-looking Statements" below.
Anderson Transaction
On February 12, 1997, the Company acquired a portfolio of industrial,
office and undeveloped properties in Atlanta from Anderson Properties, Inc. and
affiliates (the "Anderson Transaction"). The Anderson Transaction involved 22
industrial properties and six office properties totaling 1.6 million rentable
square feet, three industrial development projects totaling 402,000 square feet
and 137 acres of land for development. The in-service properties were 94% leased
as of December 31, 1996. The development projects have a cost-to-date of $4.6
million and are expected to be completed during 1997.
The cost of the Anderson Transaction consisted of the issuance of $22.9
million of Units (valued at $29.25 per Unit, the market value of a share of
Common Stock as of the signing of a letter of intent relating to the
transaction), the assumption of $7.8 million of mortgage debt and a cash payment
of $37.7 million. The cash amount does not include $11.1 million expected to be
paid to complete the three development projects. Approximately $5.5 million of
the Units are newly created Class B Units, which differ from other Units in that
they are not eligible for cash distributions from the Operating Partnership. The
Class B Units will convert to regular Units in 25% annual installments
commencing one year from the date of issuance. Prior to such conversion, such
Units will not be redeemable for cash or Common Stock. All other Units to be
issued in the transaction are also subject to restrictions on transfer or
redemption. Such lock-up restrictions will expire over a three-year period in
equal annual installments commencing one year from the date of issuance.
The Company estimates a first-year net operating income from the properties
of $5.7 million. See "Disclosure Regarding Forward-looking Statements" below.
28

Preferred Stock Offering
On February 7, 1997 the Company issued 125,000 shares of 8 5/8% perpetual
preferred stock for $1,000 per share. The net proceeds of $121.7 million were
used to reduce existing indebtedness and fund the Anderson Transaction. The
preferred stock is not redeemable prior to February 2027. The preferred stock is
not subject to any sinking fund or mandatory redemption and is not convertible
into any other securities of the Company.
Possible Environmental Liabilities
Under various Federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common laws, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental fines
and injuries to persons and property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at a disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws impose liability with respect to the release and
maintenance of asbestos-containing materials ("ACM"), and third parties may seek
recovery from owners or operators of real property for personal injuries
associated with asbestos-containing materials. A number of Company properties
contain ACM or material that is presumed to be ACM. In connection with the
ownership and operation of its properties, the Company may be liable for such
costs. In addition, it is not unusual for property owners to encounter on-site
contamination caused by off-site sources, and the presence of hazardous or toxic
substances at a site in the vicinity of a property could require the property
owner to participate in remediation activities in certain cases or could have an
adverse effect on the value of such property.
As of the date hereof, substantially all of the Properties have been
subjected to a Phase I environmental assessment. These assessments have not
revealed, nor is management of the Company aware of, any environmental liability
that it believes would have a material adverse effect on the Company's financial
position, operations or liquidity taken as a whole. This projection, however,
could prove to be incorrect depending on certain factors. For example, the
assessments may not reveal all environmental liabilities, or may underestimate
the scope and severity of environmental conditions observed, with the result
that there may be material environmental liabilities of which the Company is
unaware or, material environmental liabilities may have arisen after the
assessments were performed of which the Company is unaware. In addition,
assumptions regarding groundwater flow and the existence and source of
contamination are based on available sampling data, and there are no assurances
that the data is reliable in all cases. Moreover, there can be no assurance that
(i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties, or by third parties unrelated to
the Company.
Some tenants use or generate hazardous substances in the ordinary course of
their respective businesses. These tenants are required under their leases to
comply with all applicable laws and are responsible to the Company for any
damages resulting from the tenants' use of the property. The Company is not
aware of any material environmental problems resulting from tenants' use or
generation of hazardous substances. There are no assurances that all tenants
will comply with the terms of their leases or remain solvent and that the
Company may not at some point be responsible for contamination caused by such
tenants.
Compliance with the Americans with Disabilities Act
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations and commercial facilities are required to meet certain Federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could
29

require removal of access barriers, and non-compliance could result in
imposition of fines by the U.S. government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may incur additional costs to
comply with the ADA. Although the Company believes that such costs will not have
a material adverse effect on the Company, if required changes involve a greater
expenditure than the Company currently anticipates, the Company's results of
operations, liquidity and capital resources could be materially adversely
affected.
Funds From Operations and Cash Available for Distributions
The Company considers Funds from Operations ("FFO") to be a useful
financial performance measure of the operating performance of an equity REIT
because, together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds from Operations does
not represent net income or cash flows from operations as defined by GAAP, and
FFO should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flows as a
measure of liquidity. Funds from Operations does not measure whether cash flow
is sufficient to fund all of the Operating Partnership's cash needs including
principal amortization, capital improvements and distributions to stockholders.
Funds from Operations does not represent cash flows from operating, investing or
financing activities as defined by GAAP. Further, FFO as disclosed by other
REITs may not be comparable to the Company's calculation of FFO, as described
below. Funds from operations and cash available for distributions should not be
considered as alternatives to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity.
Funds from Operations means net income (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. In March
1995, the National Association of Real Estate Investment Trusts ("NAREIT")
issued a clarification of the definition of FFO. The clarification provides that
amortization of deferred financing costs and depreciation of non-real estate
assets are no longer to be added back to net income in arriving at FFO. Cash
available for distribution is defined as funds from operations reduced by
non-revenue enhancing capital expenditures for building improvements and tenant
improvements and lease commissions related to second generation space.
30

Funds from operations and cash available for distribution for the years
ended December 31, 1996 and 1995 are summarized in the following table (in
thousands):

Year Ended
December 31,
1996 1995

Funds from Operations:
Income before minority interest and extraordinary item.................................... $48,242 $28,934
Add (deduct):
Depreciation and amortization........................................................... 22,095 11,082
Minority interest in Crocker depreciation and amortization.............................. (117) --
Third-party service company cash flow................................................... 400 --
Funds from operations before minority interest....................................... 70,620 40,016
Cash Available for Distribution:
Add (deduct):
Rental income from straight-line rents.................................................. (2,603) (1,503)
Amortization of deferred financing costs................................................ 1,911 1,619
Non-incremental revenue generating capital expenditures:
Building improvements paid........................................................... (3,554) (1,337)
Second generation tenant improvements paid........................................... (3,471) (1,884)
Second generation lease commissions paid............................................. (1,426) (1,228)
Cash available for distribution.................................................... $61,477 $35,683
Weighted average shares/units outstanding (1)............................................. 30,219 18,697
Dividend payout ratio:
Funds from operations................................................................... 79.6% 81.8%
Cash available from distribution........................................................ 91.4% 91.7%

(1) Assumes redemption of Units for shares of Common Stock. Minority interest
Unit holders and the stockholders of the Company share equally on a per Unit
and per share basis; therefore, the per share information is unaffected by
conversion.
Inflation
In the last five years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate in the Company's geographic
areas of operation. Most of the leases require the tenants to pay their pro rata
share of operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing the Company's exposure to increases in
operating expenses resulting from inflation. In addition, many of the leases are
for terms of less than seven years, which may enable the Company to replace
existing leases with new leases at a higher base if rents on the existing leases
are below the then-existing market rate.
Disclosure Regarding Forward-looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement.
Accordingly, the Company hereby identifies the following important factors that
could cause the Company's actual financial results to differ materially from
those projected by the Company in forward-looking statements:
(i) unexpected increases in development of office or industrial
properties in the Company's markets;
(ii) deterioration in the financial condition of tenants;
(iii) construction costs of properties exceeding original estimates;
31

(iv) delays in the completion of development projects or acquisitions;
(v) delays in leasing or releasing space;
(vi) incorrect assessments of (or changes in) the environmental
condition of the Company's properties;
(vii) unexpected increases in interest rates; and
(viii) loss of key executives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
32

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section under the heading "Election of Directors" of the Proxy
Statement for the Annual Meeting of Stockholders to be held April 29, 1997
(the "Proxy Statement") is incorporated herein by reference for information
on directors of the Company. See ITEM X in Part I hereof for information
regarding executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section titled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section under the heading "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.
33

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 10-K
(a) List of Documents Filed as a Part of this Report
1. Consolidated Financial Statements and Report of Independent Auditors
See Index on Page F-1
2. Financial Statement Schedules
See Index on Page F-1
3. Exhibits

Exhibit No. FN Description

2.1 (1) Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Eakin & Smith, Inc. and the partnerships and
limited liability companies listed therein
2.2 (2) Stock Purchase Agreement among AP CRTI Holdings, L.P., AEW Partners, L.P.,
Thomas J. Crocker, Barbara F. Crocker, Richard S. Ackerman and Robert E.
Onisko and the Company and Cedar Acquisition Corporation, dated April
29, 1996
2.3 (2) Agreement and Plan of Merger by and among the Company, Crocker Realty
Trust, Inc. and Cedar Acquisition Corporation, dated as of April 29,
1996
2.4 (3) Contribution and Exchange Agreement by and among Century Center group, the
Operating Partnership and the Company, dated December 31, 1996
2.5 (3) Master Agreement of Merger and Acquisition by and among the Company, the
Operating Partnership, Anderson Properties, Inc., Gene Anderson, and the
partnerships and limited liability companies listed therein, dated
January 31, 1997
2.6 (4) Amended and Master Agreement of Merger and Acquisition dated January 9,
1995 by and among Highwoods Realty Limited Partnership, Forsyth Partners
Holdings, Inc., Forsyth Partners Brokerage, Inc., John L. Turner,
William T. Wilson III, John E. Reece II, H. Jack Leister and the
partnerships and corporations listed therein
3.1 (5) Amended and Restated Articles of Incorporation of the Company
3.2 (5) Amended and Restated Bylaws of the Company
4.1 (5) Specimen of certificate representing shares of Common Stock
4.2 (6) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust
Company of California, N.A. and Bankers Trust Company, dated as of March
1, 1994
4.3 (7) Indenture among the Operating Partnership, the Company, and First Union
National Bank of North Carolina, dated as of December 1, 1996
4.4 (7) Form of global security for 2003 Notes
4.5 (7) Form of global security for 2006 Notes
4.6 (8) Specimen of certificate representing 8 5/8% Series A Cumulative Redeemable
Preferred Shares
4.7 (8) Amendment to Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
4.8 (8) Articles Supplementary to the Amended and Restated Articles of
Incorporation of the Company
10.1 (5) Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 (9) Form of Registration Rights and Lockup Agreement among the Company and the
Holders named therein
10.3 (9) Articles of Incorporation of Highwoods Services, Inc.
10.4 (9) Bylaws of Highwoods Services, Inc.
10.5 (9) Articles of Incorporation of Forsyth Properties Services, Inc.
10.6 (9) Bylaws of Forsyth Properties Services, Inc.
10.7 (9)(10) Amended and Restated 1994 Stock Option Plan

10.8(a) (4)(10) Employment Agreement between the Company and the Operating Partnership and
Ronald P. Gibson
10.8(b) (4)(10) Employment Agreement between the Company and the Operating Partnership and
Edward J. Fritsch
10.8(c) (9)(10) Employment Agreement between the Company and the Operating Partnership and
Carman J. Liuzzo
10.8(d) (9)(10) Employment Agreement between the Company and the Operating Partnership and
John L. Turner
10.8(e) (9)(10) Employment Agreement between the Company and the Operating Partnership and
William T. Wilson, III
10.8(f) (1)(10) Employment Agreement between the Company and the Operating Partnership and
John W. Eakin
10.8(g) (3)(10) Employment Agreement between the Company and the Operating Partnership and
Gene H. Anderson
10.8(h) (4)(10) Employment Agreement between the Company and the Operating Partnership and
John E. Reece II
10.9 (1) Form of warrants to purchase Common Stock of the Company issued to W.
Brian Reames, John W. Eakin and Thomas S. Smith
10.10 (4) Contribution and Exchange of the Cotton Building between SJ Company and
the Operating Partnership dated December 4, 1995
10.11 (11) Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein, dated as of
September 27, 1996
10.12 (4) Operating Agreement of Forsyth/Carter Brokerage of North Carolina, L.L.C.
10.13 (4) Form of warrants to purchase Common Stock of the Company issued to John L.
Turner, William T. Wilson III and John E. Reece II
10.14 (4) Indemnification Agreement dated September 26, 1994 between Burnt Poplar
Associates Limited Partnership and Forsyth Partners Holdings, Inc.
related to the acquisition of Burnt Poplar, which agreement has been
assigned to Highwoods Realty Limited Partnership
10.15 (4) Contribution and Exchange Agreement dated January 10, 1995 between 4501
Alexander Associates and Highwoods Realty Limited Partnership related to
the acquisition of Research Commons
10.16 (4) Contribution and Exchange Agreement dated January 10, 1995 between JHPB
Partners and Highwoods Realty Limited Partnership related to the
acquisition of Research Commons
10.17 (4) Contribution and Exchange Agreement by and among the Operating
Partnership, R-K Properties 3, L.P. and the Partners listed therein,
dated as of July 18, 1995, relating to the purchase of Vantage Point
10.18 (4) Purchase and Sale Agreement by and between the Operating Partnership and
R-K Properties 5, L.P., dated as of July 18, 1995, relating to the
acquisition of Innsbrook Tech I Center
10.19 (4) Purchase and Sale Agreement by and between the Operating Partnership and
R-K Properties 1, L.P., dated as of July 18, 1995, relating to the
acquisition of Vantage Place II
10.20 (4) Purchase and Sale Agreement by and between the Operating Partnership and
R-K Properties 2, L.P., dated as of July 18, 1995, relating to the
acquisition of Vantage Place IV
10.21 (4) Asset Purchase Agreement between Ross-Kreckman Management Corporation and
Highwoods Services, Inc., dated as of July 5, 1995
10.22 (4) Contribution and Exchange Agreement by and among the Operating
Partnership, Vantage Associates I, L.P. and the Partners listed therein,
dated as of July 18, 1995, relating to the acquisition of Vantage Place
I
10.23 (4) Contribution and Exchange Agreement by and among the Operating
Partnership, Vantage Associates II, L.P. and the Partners listed
therein, dated as of July 18, 1995, relating to the acquisition of
Vantage Place III

10.24 (4) Agreement for Contribution and Exchange of Partnership Interests by and
among the Operating Partnership, Creekstone Associates I and the
Contributors named therein, dated as of May 11, 1995, relating to the
acquisition of Creekstone Crossing.
21 Schedule of subsidiaries of the Company
23 Consent of Ernst & Young
27 Financial Data Schedule

(1) Filed as a part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(2) Filed as a part of the Company's Current Report on Form 8-K dated April 29,
1996 and incorporated herein by reference.
(3) Filed as a part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(4) Filed as part of Registration Statement 33-88364 with the Securities and
Exchange Commission and incorporated herein by reference.
(5) Filed as part of Registration Statement 33-76952 with the Securities and
Exchange Commission and incorporated herein by reference.
(6) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No.
33-88482 filed with the Securities and Exchange Commission and incorporated
herein by reference.
(7) Filed as a part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(8) Filed as a part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(9) Filed as a part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
(10) Management contract or compensatory plan.
(11) Filed as part of the Company's Current Report on Form 8-K dated September
27, 1996 and incorporated herein by reference.
The Company will provide copies of any exhibit, upon written request, at a
cost of $.05 per page.
(b) Reports on Form 8-K
During the fourth quarter, the Company filed the following Form 8-K:

Date of Report Date Filed Items Reported

September 27, 1996 October 15, 1996 Completion of Acquisition of Crocker and related restructuring of
the Company; description of new Revolving Loan

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Raleigh, State of North Carolina, on March 27, 1997.
HIGHWOODS PROPERTIES, INC.
By: /s/ RONALD P. GIBSON
Ronald P. Gibson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

Signature Title Date

/s/ O. TEMPLE SLOAN, JR. Chairman of the Board of Directors March 27, 1997
O. Temple Sloan, Jr.
/s/ RONALD P. GIBSON President, Chief Executive Officer March 27, 1997
Ronald P. Gibson and Director
/s/ WILLIAM T. WILSON III Executive Vice President and March 27, 1997
William T. Wilson III Director
/s/ JOHN L. TURNER Vice Chairman of the Board and March 27, 1997
John L. Turner Chief Investment Officer
/s/ GENE H. ANDERSON Senior Vice President and Director March 27, 1997
Gene H. Anderson
/s/ JOHN W. EAKIN Senior Vice President and Director March 27, 1997
John W. Eakin
/s/ THOMAS W. ADLER Director March 27, 1997
Thomas W. Adler
/s/ WILLIAM E. GRAHAM, JR. Director March 27, 1997
William E. Graham, Jr.
/s/ L. GLENN ORR, JR. Director March 27, 1997
L. Glenn Orr, Jr.
/s/ WILLARD W. SMITH JR. Director March 27, 1997
Willard W. Smith Jr.
/s/ STEPHEN TIMKO Director March 27, 1997
Stephen Timko
/s/ CARMAN J. LIUZZO Vice President and Chief Financial March 27, 1997
Carman J. Liuzzo Officer (Principal Financial
Officer and Principal Accounting
Officer) and Treasurer

INDEX TO FINANCIAL STATEMENTS

Page

Highwoods Properties, Inc.
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and, 1995............................................ F-3
Consolidated Statements of Income for the Years Ended December 31, 1996, and 1995 and for the Period from
June 14, 1994 (commencement of operations) to December 31, 1994....................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996 and 1995 and for
the Period from June 14, 1994 (commencement of operations) to December 31, 1994....................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1995 and for the Period
from June 14, 1994 (commencement of operations) to December 31, 1994.................................. F-6
Notes to Consolidated Financial Statements............................................................... F-8
Schedule III -- Real Estate and Accumulated Depreciation................................................. F-21
Highwoods Group
Report of Independent Auditors........................................................................... F-29
Combined Statement of Income for the period from January 1, 1994 to June 13, 1994........................ F-30
Combined Statement of Owners' Deficit for the period from January 1, 1994 to
June 13, 1994......................................................................................... F-31
Combined Statement of Cash Flows for the period from January 1, 1994 to June 13, 1994.................... F-32
Notes to Combined Financial Statements................................................................... F-33

All other schedules are omitted because they are not applicable, or because
the required information is included in the financial statements or notes
thereto.
F-1

REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
HIGHWOODS PROPERTIES, INC.
We have audited the accompanying consolidated balance sheets of Highwoods
Properties, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the two
years ended December 31, 1996 and for the period from June 14, 1994
(commencement of operations) to December 31, 1994. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Highwoods Properties, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and cash flows for each of the two years in the period
ended December 31, 1996 and for the period from June 14, 1994 (commencement of
operations) to December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule
when considered in relation to the basic financial statements taken as a whole
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 14, 1997
F-2

HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)

December 31,
1996 1995

Assets
Real estate assets, at cost:
Land................................................................................ $ 237,090 $106,955
Buildings and improvements.......................................................... 1,152,990 491,581
Development in process.............................................................. 28,858 15,508
Furniture, fixtures and equipment................................................... 2,096 1,288
1,421,034 615,332
Less -- accumulated depreciation.................................................... (43,160) (22,266)
Net real estate assets.............................................................. 1,377,874 593,066
Cash and cash equivalents............................................................. 11,070 6,838
Restricted cash....................................................................... 8,539 --
Accounts receivable................................................................... 9,039 6,338
Advances to subsidiaries.............................................................. 2,406 1,274
Accrued straight line rents receivable................................................ 6,185 3,407
Other assets:
Deferred leasing costs.............................................................. 9,601 4,253
Deferred financing costs and interest rate caps..................................... 21,789 8,268
Prepaid expenses and other.......................................................... 3,901 1,521
35,291 14,042
Less -- accumulated amortization.................................................... (6,964) (3,831)
28,327 10,211
$1,443,440 $621,134
Liabilities and stockholders' equity
Mortgages and notes payable........................................................... $ 555,876 $182,736
Accounts payable, accrued expenses and other liabilities.............................. 27,600 11,052
Total liabilities................................................................... 583,476 193,788
Minority interest..................................................................... 89,617 73,536
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000 shares;
issued and outstanding 35,636,155 at December 31, 1996 and 19,404,411 at December
31, 1995............................................................................ 356 194
Additional paid-in capital............................................................ 780,562 355,248
Distributions in excess of net earnings............................................... (10,571) (1,632)
Total stockholders' equity.......................................................... 770,347 353,810
$1,443,440 $621,134

See accompanying notes to consolidated financial statements.
F-3

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
For the Years Ended December 31, 1996 and 1995 and
for the Period from June 14, 1994 (commencement of operations) to
December 31, 1994

1996 1995 1994

Revenue:
Rental income.............................................................. $130,848 $71,217 $19,011
Interest and other income.................................................. 7,078 2,305 431
Total revenue................................................................ 137,926 73,522 19,442
Operating expenses:
Rental property............................................................ 35,313 17,049 5,110
Depreciation and amortization.............................................. 22,095 11,082 2,607
Interest expense:
Contractual............................................................. 24,699 12,101 2,482
Amortization of deferred financing costs and interest rate cap.......... 1,911 1,619 738
26,610 13,720 3,220
General and administrative................................................. 5,666 2,737 810
Income before minority interest and extraordinary item.................. 48,242 28,934 7,695
Minority interest............................................................ (6,782) (4,937) (808)
Income before extraordinary item........................................ 41,460 23,997 6,887
Extraordinary item -- loss on early extinguishment of debt................... (2,140) (875) (1,273)
Net income.............................................................. $ 39,320 $23,122 $ 5,614
Net income per common share:
Income before extraordinary item........................................... $ 1.59 $ 1.55 $ 0.77
Extraordinary item -- loss on early extinguishment of debt................. (.08) (.06) (0.14)
Net income................................................................. $ 1.51 $ 1.49 $ 0.63
Weighted average shares outstanding........................................ 26,111 15,487 8,936

See accompanying notes to consolidated financial statements.
F-4

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
For the Years Ended December 31, 1996 and 1995 and
for the Period from June 14, 1994 (commencement of operations) to
December 31, 1994

Retained
Earnings
(Distributions
Number of Common Additional in Excess of
Shares Stock Paid-In-Capital Net Earnings) Total

Balance at June 14, 1994 (commencement of
operations)............................. -- $-- $ 1 $-- $ 1
Issuance of Common Stock.................. 8,986,190 90 164,324 164,414
Charge to reflect carryover of historical
basis of accounting and recognition of
minority interest in Operational
Partnership for continuing investors.... -- -- (28,794) -- (28,794)
Distributions paid........................ -- -- -- (5,020) (5,020)
Net income................................ -- -- -- 5,614 5,614
Balance at December 31, 1994.............. 8,986,190 90 135,531 594 136,215
Issuance of Common Stock.................. 10,418,221 104 219,717 -- 219,821
Distributions paid........................ -- -- -- (25,348) (25,348)
Net income................................ -- -- -- 23,122 23,122
Balance at December 31, 1995.............. 19,404,411 194 355,248 (1,632) 353,810
Issuance of Common Stock.................. 15,976,161 160 419,892 -- 420,052
Distributions paid........................ -- -- -- (48,259) (48,259)
Net income................................ -- -- -- 39,320 39,320
Shares issued upon redemption of Operating
Partnership Units....................... 255,583 2 5,422 -- 5,424
Balance at December 31, 1996.............. 35,636,155 $356 $ 780,562 $(10,571) $770,347

See accompanying notes to consolidated financial statements.
F-5

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1996 and 1995 and
for the Period from June 14, 1994 (commencement of operations) to
December 31, 1994

1996 1995 1994

Operating activities:
Net income................................................................ $ 39,320 $ 23,122 $ 5,614
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................ 20,752 10,483 2,324
Amortization............................................................ 3,254 2,218 1,021
Loss on early extinguishment of debt.................................... 2,432 875 1,273
Minority interest....................................................... 6,193 4,937 808
Changes in operating assets and liabilities:
Accounts receivable.................................................. (1,437) (1,561) (321)
Prepaid expenses and other assets.................................... (776) (173) (521)
Accrued straight line rents receivable............................... (2,778) (1,519) (503)
Accounts payable, accrued expenses and other liabilities............. 4,357 4,787 3,455
Net cash provided by operating activities.......................... 71,317 43,169 13,150
Investing activities:
Proceeds from disposition of real estate assets........................... 900 2,200 --
Additions to real estate assets........................................... (181,444) (130,411) (99,208)
Advances to subsidiaries.................................................. (1,132) (654) (620)
Other assets and notes receivable......................................... (3,626) (1,123) --
Cash from contributed net assets.......................................... 20,711 549 2,088
Cash paid in exchange for net assets...................................... (322,276) (6,593) (9,623)
Net cash used in investing activities................................ (486,867) (136,032) (107,363)
Financing activities:
Distributions paid........................................................ (55,515) (29,845) (5,020)
Net proceeds from the sale of Common Stock................................ 406,595 219,821 164,413
Payment of prepayment penalties........................................... (1,184) (1,046) (1,025)
Borrowings on revolving loan.............................................. 307,500 50,800 62,700
Repayment of revolving loan............................................... (299,000) (87,000) (20,000)
Proceeds from mortgages and notes payable................................. 213,500 90,250 --
Repayment of mortgages and notes payable.................................. (141,216) (148,907) (93,947)
Payment of deferred financing costs....................................... (10,898) (630) (6,650)
Net cash provided by financing activities............................ 419,782 93,443 100,471
Net increase in cash and cash equivalents................................. 4,232 580 6,258
Cash and cash equivalents at beginning of the period...................... 6,838 6,258 --
Cash and cash equivalents at end of the period............................ $ 11,070 $ 6,838 $ 6,258
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................... $ 26,039 $ 11,965 $ 2,073

See accompanying notes to consolidated financial statements.
F-6

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows -- Continued
(Dollars in thousands)
For the Years Ended December 31, 1996 and 1995 and
for the Period from June 14, 1994 (commencement of operations) to
December 31, 1994

Supplemental disclosure of non-cash investing and financing activities
The following summarizes the net assets contributed or assets acquired
subject to mortgages and notes payable:

1996 1995 1994

Assets:
Real estate assets, net................................................... $625,137 $260,883 $ 51,614
Cash and cash equivalents................................................. 20,711 549 2,088
Restricted cash........................................................... 11,476 -- --
Deferred rent receivable.................................................. -- -- 1,385
Tenant leasing costs, net................................................. -- -- 1,188
Deferred financing costs, net............................................. 3,871 842 488
Accounts receivable and other............................................. 1,635 6,290 174
Total assets............................................................ 662,830 268,564 56,937
Liabilities:
Mortgages and notes payable............................................... 244,129 210,728 63,947
Accounts payable, accrued expenses and other liabilities.................. 19,142 549 2,262
Total liabilities....................................................... 263,271 211,277 66,209
Net assets (liabilities)............................................. $399,559 $ 57,287 $ (9,272)
In connection with the above transactions, the Company made additional cash payments
to certain partners in exchange for their partnership net assets in the amounts of
$9,623,000 in 1994 and $6,593,000 in 1995. These transactions were accounted for
using the purchase method of accounting. Further, in connection with these
transactions, the Company received cash payments at closing to fund the payment of
certain accrued liabilities such as property taxes.
Additionally, in connection with the formation of the Company additional debt of
$54,164,000 was assumed and Units valued at $4,199,000 were issued during the
period from June 14, 1994, to December 31, 1994.

See accompanying notes to consolidated financial statements.
F-7

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Formation of the Company
Highwoods Properties, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust (REIT) which operates in the
southeastern United States. The Company's assets include 181 suburban office
properties, 111 industrial properties and 238 acres of undeveloped land suitable
for future development.
The Company was incorporated in Maryland in February 1994 and is the
successor to the operations of the Highwoods Group. On June 14, 1994, the
Company commenced operations upon completion of a public offering of 7,400,000
shares of $.01 par value Common Stock (plus 1,110,000 shares subsequently issued
pursuant to the underwriters' over-allotment option, the "Initial Public
Offering"). The Initial Public Offering price was $21 per share resulting in
gross offering proceeds of $178,710,000. Proceeds to the Company, net of
underwriters' discount, an advisory fee and total offering expenses, were
$164,481,300.
The following transactions (the "Formation Transactions") occurred in
connection with the Initial Public Offering:
(Bullet) Through the merger of Highwoods Properties Company ("HPC") into
the Company certain investors received 476,190 shares of
restricted Common Stock in exchange for their holdings in HPC.
(Bullet) The Company consummated various purchase agreements to acquire
certain interests in 41 properties, including 27 properties that
were not owned by the Highwoods Group prior to the Initial Public
Offering.
For the 14 properties previously owned by the Highwoods Group,
negative net assets of approximately $9,272,000 were contributed
to the Operating Partnership at their historical cost.
Approximately, $8,400,000 was distributed to the non-continuing
partners of the Highwoods Group for their partnership interests in
the 14 properties. For the 27 properties not owned by the
Highwoods Group, the Company issued approximately $4,200,000 of
units in the Operating Partnership ("Units"), assumed $54,164,000
of debt and paid $82,129,000 in cash. These 27 properties were
recorded at their purchase price using the purchase method of
accounting.
(Bullet) The Company became the sole general partner of Highwoods/Forsyth
Limited Partnership, formerly Highwoods Realty Limited Partnership
(the "Operating Partnership"), by contributing its ownership
interests in the 41 properties and its third-party fee business
and all but $10,400,000 of the net proceeds of the Initial Public
Offering in exchange for an approximate 88.3% interest in the
Operating Partnership.
(Bullet) The Operating Partnership executed various option and purchase
agreements whereby it paid approximately $81,352,000 in cash,
issued 1,054,664 Units and assumed approximately $118,111,000 of
indebtedness in exchange for fee simple interests in the 41
properties and the development land.
(Bullet) The Operating Partnership contributed the third-party management
and development business and the third-party leasing business to
Highwoods Services, Inc. (formerly Highwoods Realty Services, Inc.
and Highwoods Leasing Company) in exchange for 100% of each
company's non-voting common stock and 1% of each company's voting
common stock.
F-8

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
Generally one year after issuance (the "lock-up period"), the Operating
Partnership is obligated to redeem each Unit at the request of the holder
thereof for cash equal to the fair market value of one share of the Company's
Common Stock at the time of such redemption, provided that the Company at its
option may elect to acquire any such Unit presented for redemption for cash or
one share of Common Stock. When a Unit holder redeems a Unit for a share of
Common Stock or cash, the minority interest will be reduced and the Company's
share in the Operating Partnership will be increased. The Units owned by the
Company are not redeemable for cash. At December 31, 1996, the lock-up period
had expired with respect to 3,475,629 of the 4,283,237 Units issued and
outstanding.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and the Operating Partnership. The Company's investments in Highwoods Services,
Inc. and Forsyth Properties Services, Inc. (the "Service Companies") are
accounted for using the equity method of accounting. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
The Company is a real estate investment trust ("REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended.
Minority interest represents the limited partnership interest in the
Operating Partnership owned by Unit holders other than the Company. Per share
information is calculated using the weighted average number of shares
outstanding.
The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt and is shown
net of the minority interest's share in the loss.
Real Estate Assets
Real estate assets are stated at the lower of cost or fair value. All
capitalizable costs related to the improvement or replacement of commercial real
estate properties are capitalized. Depreciation is computed by the straight-line
method over the estimated useful life of 40 years for buildings and improvements
and 5 to 7 years for furniture and equipment. Tenant improvements are amortized
over the life of the respective leases, using the straight-line method.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted the Statement in
the first quarter of 1996 and the adoption did not have any material effect.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. Unpaid rents are included in accounts receivable. Certain lease
agreements contain provisions which provide reimbursement of real estate taxes,
insurance, advertising and certain common area maintenance
F-9

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
(CAM) costs. These additional rents are recorded on the accrual basis. All rent
and other receivables from tenants are due from commercial building tenants
located in the properties.
Deferred Lease Fees and Loan Costs
Lease fees, concessions and loan costs are capitalized at cost and
amortized over the life of the related lease or loan term, respectively.
Income Taxes
The Company is a real estate investment trust ("REIT") for federal income
tax purposes. A corporate REIT is a legal entity that holds real estate assets,
and through distributions to stockholders, is permitted to reduce or avoid the
payment of Federal income taxes at the corporate level. To maintain
qualification as a REIT, the Company must distribute to stockholders at least
95% of REIT taxable income.
No provision has been made for income taxes because the Company qualified
as a REIT, distributed the necessary amount of taxable income and, therefore,
incurred no income tax expense during the period.
Concentration of Credit Risk
Management of the Company performs ongoing credit evaluations of its
tenants. The properties are leased to approximately 1,800 tenants, in 16
geographic locations, which engage in a wide variety of businesses. There is no
dependence upon any single tenant.
Interest Rate Risk Management
The Company enters into various interest rate swaps and collars in managing
its interest rate risk. Payments to or from the counterparties are recorded as
adjustments to interest expense. The Company has designated these instruments as
hedges against existing liabilities and accordingly utilizes hedge accounting.
The Company is exposed to certain losses in the event of non-performance by
the counterparties under the collar and swap arrangements. The counterparties
are major financial institutions with credit ratings of Aa3 or better, and are
expected to perform fully under the agreements. However, if they were to default
on their obligations under the arrangements, the Company could be required to
pay the full rate under its Revolving Loan and the variable rate mortgages, even
if such rate were in excess of the rate in the collar and swap agreements. The
Company would not realize a material loss as of December 31, 1996 in the event
of non-performance by any one counterparty. Additionally, the Company limits the
amount of credit exposure with any one institution.
Stock Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. As described in Note 8, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
options.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consisted of the following at December 31, 1996
and 1995 (in thousands):

1996 1995

Mortgage notes payable:
7.9% mortgage note due 2001................................... $140,000 $ --
9.0% mortgage note due 2005................................... 40,168 40,659
8.2% mortgage note due 2005................................... 31,410 31,833
7.6% to 13% mortgage notes due between 1999 and 2013.......... 73,719 62,195
Variable rate mortgage note due 2000.......................... 11,612 36,549
296,909 171,236
Unsecured indebtedness:
6.8% notes due in 2003........................................ 100,000 --
7.0% notes due in 2006........................................ 110,000 --
7% and 9% notes due in 1997................................... 11,595 5,000
Variable rate note due in 1999................................ 22,372 --
Revolving loan due in 1999.................................... 15,000 6,500
258,967 11,500
Total.................................................... $555,876 $182,736

Mortgage notes payable were secured by real estate with an aggregate
carrying value of $595,000,000 at December 31, 1996.
The Company has entered into interest swap agreements with financial
institutions to effectively fix the interest rate on the variable rate mortgages
and variable rate notes at a rate of 7.2%. At December 31, 1996, the notional
amounts of the interest rate swaps equaled the outstanding balance of the
indebtedness. The swaps expire in June 1999 and July 2000 upon the maturity of
the respective indebtedness and had a cost basis of $475,000 at December 31,
1996.
The 7.9% Mortgage Note is secured by 46 of the Properties (the "Mortgage
Note Properties"), which are held by AP Southeast Portfolio Partners, L.P. (the
"Financing Partnership"). The Company has a 99.99% economic interest in the
Financing Partnership, which is managed, indirectly, by the Company. The 7.9%
Mortgage Note is a conventional, monthly pay, first mortgage note in the
principal amount of $140 million issued by the Financing Partnership. The 7.9%
Mortgage Note is a limited recourse obligation of the Financing Partnership as
to which, in the event of a default under the indenture or the mortgage,
recourse may be had only against the Mortgage Note Properties and other assets
that have been pledged as security. The 7.9% Mortgage Note was issued to Kidder
Peabody Acceptance Corporation I pursuant to an indenture, dated March 1, 1994
(the "Mortgage Note Indenture"), among the Financing Partnership, Bankers Trust
Company of California, N.A., and Bankers Trust Company.
The Mortgage Note Indenture provides for a lockout period that prohibits
optional redemption payments in respect of principal of the 7.9% Mortgage Note
(other than a $7 million premium-free redemption payment) prior to November
1998. Thereafter, the Financing Partnership may make optional redemption
payments in respect of principal of the 7.9% Mortgage Note on any distribution
date, subject to the payment of a yield maintenance charge in connection with
such payments made prior to August 1, 2000.
Under the terms of the purchase agreement relating to the Mortgage Note
Properties, the Financing Partnership may be obligated to pay NationsBank, N.A.
a deferred contingent purchase price. This
F-11

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. MORTGAGES AND NOTES PAYABLE -- Continued
contingent payment, which will in no event exceed $4.4 million, is due on April
1, 1998 if the actual four-year cumulative cash flow of such properties exceeds
the projected four-year cumulative cash flow. Based on the estimates of future
operations, the Company does not believe that any deferred contingent purchase
principal price will be payable.
On November 26, 1996, the Operating Partnership issued $100,000,000 of
unsecured 6 3/4% notes due December 1, 2003 and $110,000,000 of unsecured 7%
notes due December 1, 2006. Interest on the notes is payable semi-annually on
June 1 and December 1 commencing on June 1, 1997. In accordance with the terms
of the Indenture under which the unsecured notes are issued, the Company is
required to (a) limit its total indebtedness, (b) limit its level of secured
debt, (c) maintain a minimum debt service coverage ratio and (d) maintain a
minimum level of unencumbered assets. At December 31, 1996, the Company was in
compliance with these covenants.
In September 1996, the Company obtained a $280,000,000 unsecured revolving
loan which matures on October 31, 1999. Borrowings under the revolving loan will
adjust based upon the Company's senior unsecured debt rating with a range of
30-day LIBOR plus 100 basis points to LIBOR plus 175 basis points. At December
31, 1996, the rate was set at 30-day LIBOR plus 135 basis points and the
effective interest rate was 6.91%. The terms of the revolving loan require the
Company to pay a commitment fee equal to .15% to .25% of the unused portion of
the revolving loan and include certain restrictive covenants which limit, among
other things, dividend payments, and which require compliance with certain
financial ratios and measurements. At December 31, 1996, the Company was in
compliance with these covenants.
To limit increases in interest expense on $80,000,000 of the revolving
loan, the Company has purchased an interest rate collar which limits its
exposure to an increase in 30-day LIBOR to 6.25% through November 2001. The
initial premium used to acquire the $80,000,000 interest rate cap is being
amortized over the term of the collar.
Payments received from counterparties under the above interest rate
protection agreements were $167,000 in 1996, $385,000 in 1995 and $25,000 in
1994 and were recorded as a reduction of interest expense.
The aggregate maturities of the mortgage and notes payable at December 31,
1996 are as follows (in thousands):

1997................................................. $ 16,089
1998................................................. 8,033
1999................................................. 52,205
2000................................................. 32,279
2001................................................. 143,827
Thereafter........................................... 303,443
$555,876

Total interest capitalized was $2,935,000 in 1996, $507,000 in 1995 and
$17,000 in 1994.
3. MANAGEMENT COMPENSATION PROGRAM
The Company has established an incentive compensation plan for employees of
the Company. The plan provides for payment of a cash bonus to participating
officers and employees if certain Company performance objectives are achieved.
The amount of the bonus to participating officers and employees is based on a
formula determined for each employee by the Compensation Committee, but may not
exceed 100% of base salary. All bonuses may be subject to adjustment to reflect
individual
F-12

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MANAGEMENT COMPENSATION PROGRAM -- Continued
performance as measured by specific qualitative criteria to be approved by the
Compensation Committee. Bonuses are accrued in the year earned and included in
accrued expenses in the Consolidated Balance Sheets.
In addition, as an incentive to retain top management, the Company has
established a deferred compensation plan which provides for phantom stock
awards. Under the deferred compensation plan, phantom stock or stock
appreciation rights equal in value to 25% of the yearly cash bonus may be set
aside in an incentive pool, with payment after five years. If an employee leaves
the Company for any reason (other than death, disability or normal retirement)
prior to the end of the five-year period, all awards under the deferred
compensation plan will be forfeited.
4. 401(k) SAVINGS PLAN
The Company has a 401(k) savings plan covering substantially all employees
who meet certain age and employment criteria. The Company matches the first 6%
of compensation deferred at the rate of 50% of employee contributions. During
1996, 1995 and 1994, the Company contributed $160,000, $51,000 and $0,
respectively to the Plan. Administrative expenses of the plan are paid by the
Company.
5. RENTAL INCOME
The Company's real estate assets are leased to tenants under operating
leases, substantially all of which expire over the next ten years. The minimum
rental amounts under the leases are generally either subject to scheduled fixed
increases or adjustments based on the Consumer Price Index. Generally, the
leases also require that the tenants reimburse the Company for increases in
certain costs above the base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from tenants for leases in effect at December 31, 1996, are as
follows (in thousands):

1997......................................................................... $175,091
1998......................................................................... 149,113
1999......................................................................... 118,620
2000......................................................................... 83,978
2001......................................................................... 52,465
Thereafter................................................................... 98,133
$677,400

6. RELATED PARTY TRANSACTIONS
The Company makes advances to Highwoods Services, Inc. and Forsyth
Properties Services, Inc. for working capital purposes. These advances bear
interest at a rate of 7% per annum and totaled $2,406,000 at December 31, 1996,
and $1,274,000 at December 31, 1995. The Company recorded interest income from
these advances of $91,000, $43,000 and $15,000 for the years ended December 31,
1996 and 1995, and for the period from June 14, 1994, to December 31, 1994,
respectively.
During the year ended December 31, 1995, the Company acquired two
properties encompassing 99,334 square feet at an aggregate purchase price of
$6,850,000 from partnerships in which certain officers and directors of the
Company owned a majority interest. These transactions were accounted for using
the purchase method of accounting and their operating results are included in
the Statements of Income from their respective acquisition dates.
F-13

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. DISTRIBUTIONS
Distributions paid were $1.86 and $1.75 per share for the years ended
December 31, 1996 and 1995 respectively, and $.50 per share for the period from
June 14, 1994, to December 31, 1994.
For federal income tax purposes, the following table summarizes the
estimated taxability of distributions paid:

1996 1995 1994

Per Share:
Ordinary income................................... $1.50 $1.63 $.50
Capital gains..................................... .01 -- --
Return of capital................................. .35 .12 --
Total.......................................... $1.86 $1.75 $.50

The Company's tax return for the year ended December 31, 1996, has not been
filed, and the taxability information for 1996 is based upon the best available
data. The Company's tax returns have not been examined by the Internal Revenue
Service, and therefore the taxability of distributions is subject to change.
The tax basis of the Company's assets and liabilities are $1,186,654,000
and $592,106,000 respectively.
On February 4, 1997, the Board of Directors declared a distribution of $.48
per share payable on February 21, 1997, to stockholders of record on February
14, 1997.
8. STOCK OPTIONS AND WARRANTS
As of December 31, 1996, 1,381,455 shares of the Company's authorized
Common Stock were reserved for issuance upon the exercise of options under the
Amended and Restated 1994 Stock Option Plan. For the Company's executive and
senior officers and non-independent directors, the options vest in four equal
installments on the second, third, fourth, and fifth anniversaries of the date
of grant. For other employees and independent directors, the options vest in
four equal installments on the first, second, third and fourth anniversaries of
the date of grant.
F-14

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. STOCK OPTIONS AND WARRANTS -- Continued
In 1995, the Financial Accounting Standards Board issued a Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). SFAS 123 recommends the use of a fair value based
method of accounting for an employee stock option whereby compensation cost is
measured at the grant date on the fair value of the award and is recognized over
the service period (generally the vesting period of the award). However, SFAS
123 specifically allows an entity to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") so long as pro forma disclosures of net income and
earnings per share are made as if SFAS 123 had been adopted. The Company has
elected to follow APB 25 and related interpretations in accounting for its
employee stock options because the Company believes that the models available to
estimate the fair value of employee stock options do not provide a reliable
single measure of the fair value of employee stock options. Moreover, such
models required the input of highly subjective assumptions, which can materially
affect the fair value estimates. APB 25 requires the recognition of compensation
expense at the date of grant equal to the difference between the option price
and the value of the underlying stock. Because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, the Company records no compensation expense for the award
of employee stock options.
Under SFAS 123, a public entity must estimate the fair value of a stock
option by using an option-pricing model that takes into account as of the grant
date the exercise price and expected life of the options, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the option. SFAS
provides examples of possible pricing models and includes the Black-Scholes
pricing model, which the Company used to develop its pro forma disclosures.
However, as previously noted, the Company does not believe that such models
provide a reliable single measure of the fair value of employee stock options.
Furthermore, the Black-Scholes model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable, rather than for use in estimating the fair value of employee stock
options subject to vesting and transferability restrictions.
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, only options granted subsequent to that date were valued
using this Black-Scholes model. The fair value of these options was estimated at
the date of grant using the following weighted-average assumptions for 1996 and
1995: risk-free interest rate of 6.47%; expected volatility of .182; dividend
yield of 7.07% and a weighted-average expected life of the options of five
years. Had the compensation cost for the Company's stock option plans been
determined based on the fair value at the date of grant for awards in 1996 and
1995 consistent with the provisions of SFAS 123, the Company's net income and
net income per share would have decreased to the pro forma amounts indicated
below:

Year ended December
31
1996 1995

Net income -- as reported...................................... $39,320 $23,122
Net income -- pro forma........................................ $38,861 $22,999
Net income per share -- as reported............................ 1.51 1.49
Net income per share -- pro forma.............................. 1.49 1.49

F-15

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. STOCK OPTIONS AND WARRANTS -- Continued
The following table summarizes information about stock options outstanding
at December 31, 1996:

Options Outstanding
Weighted
Average
Number Exercise
of Shares Price

Balances at December 31, 1994........................................................ 233,570 $21.00
Options granted...................................................................... 340,500 22.09
Options canceled..................................................................... -- --
Options exercised.................................................................... (8,000) $21.00
Balances at December 31, 1995........................................................ 566,070 21.68
Options granted...................................................................... 484,675 28.26
Options canceled..................................................................... -- --
Options exercised.................................................................... (10,545) 20.75
Balances at December 31, 1996........................................................ 1,040,200 $24.75

Options Exercisable
Weighted
Average
Number of Exercise
Shares Price

December 31, 1994.................................................................... -- $21.00
December 31, 1995.................................................................... 48,000 $21.00
December 31, 1996.................................................................... 225,350 $21.74

Exercise prices for options outstanding as of December 31, 1996 ranged from
$20.75 to $29.63. The weighted average remaining contractual life of those
options is 8.7 years. Using the Black-Scholes options valuation model, the
weighted average fair value of options granted during 1996 and 1995 was $3.10
and $1.90, respectively.
Warrants:
In connection with various acquisitions in 1995 and 1996, the Company
issued warrants to certain officers and directors of the Company to purchase
100,000 shares of the Company's Common Stock at $21 per share and 150,000 shares
at $28 per share. The warrants expire 10 years from the date of issuance and are
exercisable as of December 31, 1996.
F-16

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. COMMITMENTS AND CONTINGENCIES
Lease:
Two of the properties located in the Parkway Plaza development are subject
to a land lease expiring December 31, 2082. Rental payments are to be adjusted
yearly based on the consumer price index. The Company has the option to purchase
the leased land during the lease term at the greater of 85% of appraised value
or $35,000 per acre. The obligation for future minimum lease payments is as
follows (in thousands):

1997................................................................ $ 97
1998................................................................ 97
1999................................................................ 97
2000................................................................ 97
2001................................................................ 97
Thereafter.......................................................... 7,884
$8,369

Litigation:
The Company is a party to a variety of legal proceedings arising in the
ordinary course of its business. These matters are generally covered by
insurance or indemnities. All of these matters, taken together, are not expected
to have a material adverse effect on the accompanying consolidated financial
statements notwithstanding possible insurance recovery.
Contracts:
The Company has entered into construction contracts totaling $62.2 million
at December 31, 1996. The amounts remaining on these contracts as of December
31, 1996, totaled $17.1 million.
The Company has entered into a contract under which it is committed to
acquire 50 acres of land over a four-year period for an aggregate purchase price
of approximately $8,000,000. The seller has the option to elect to receive the
purchase price in either cash or Units valued at $26.67 per Unit.
The Company has also entered into a contract under which it is committed to
acquire 18 acres of land on or before August 1, 1998, for an aggregate purchase
price of approximately $2,032,000.
Environmental Matters:
Substantially all of the Company's properties have been subjected to Phase
I environmental reviews. Such reviews have not revealed, nor is management aware
of, any environmental liability that management believes would have a material
adverse effect on the accompanying consolidated financial statements.
F-17

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair values were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Company could realize upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair values. The carrying amounts and estimated fair values of the
Company's financial instruments at December 31, 1996, were as follows (in
thousands):

Carrying Fair
Amount Value

Cash and cash equivalents........................... $ 19,609 $ 19,609
Accounts and notes receivable....................... $ 11,445 $ 11,445
Mortgages and notes payable......................... $555,876 $571,000
Interest rate collar and swap agreements............ $ 3,606 $ 1,403

The fair values for the Company's fixed rate mortgages and notes payable
were estimated using discounted cash flow analysis, based on the Company's
estimated incremental borrowing rate at December 31, 1996, for similar types of
borrowing arrangements. The carrying amounts of the Company's variable rate
borrowings approximate fair value.
The fair values of the Company's interest rate swap and interest rate
collar agreements represent the estimated amount the Company would receive or
pay to terminate or replace the financial instruments at current market rates.
Disclosures about the fair value of financial instruments are based on
relevant information available to the Company at December 31, 1996. Although
management is not aware of any factors that would have a material effect on the
fair value amounts reported herein, such amounts have not been revalued since
that date and current estimates of fair value may significantly differ from the
amounts presented herein.
11. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming
the following transactions all occurred as of January 1, 1995: (1) the 1995
acquisition of 144 properties at an initial cost of $369,900,000, (2) the 1996
acquisition of 91 properties at an initial cost of $704,000,000, (3) the
February 1995, August 1995, Summer 1996, and December 1996 Common Stock
offerings and (4) the November 1996 issuance of $210,000,000 of unsecured notes.
Pro forma interest expense was calculated based on the indebtedness
outstanding after debt repayment and using the effective interest rate on such
indebtedness. In connection with various transactions, the Company issued
Operating Partnership Units and shares of Common Stock totaling 2,677,748 in
1995 and 1,267,737 in 1996 which were recorded at their fair market value upon
the closing date of the transactions.

Pro Forma Year Ended Pro Forma Year Ended
December 31, 1996 December 31, 1995

(in thousands, except per share amounts)
Revenues.............................. $196,723 $182,522
Net Income before Extraordinary
Item................................ $ 55,209 $ 51,317
Net Income............................ $ 53,069 $ 48,302
Net Income per Share.................. $ 1.51 $ 1.37

The pro forma information is not necessarily indicative of what the
Company's results of operations would have been if the transactions had occurred
at the beginning of each period presented.
F-18

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. PRO FORMA INFORMATION (UNAUDITED) -- Continued
Additionally, the pro forma information does not purport to be indicative of the
Company's results of operations for future periods.
12. SUBSEQUENT EVENTS
Acquisition of Suburban Atlanta Properties
Century Center Transaction. On January 9, 1997, the Company acquired the
17-building Century Center Office Park, four affiliated industrial properties
and 20 acres of Development Land located in suburban Atlanta, Georgia (the
"Century Center Transaction"). The properties total 1.6 million rent-able square
feet and, as of December 31, 1996, were 99% leased. The cost of the Century
Center Transaction was $55.6 million in Units (valued at $29.25 per Unit, the
market value of a share of Common Stock as of the signing of a letter of intent
for the Century Center Transaction), the assumption of $19.4 million of secured
debt and a cash payment of $53.1 million drawn from the Company's $280 million
Revolving Loan. All Units issued in the transaction are subject to restrictions
on transfer and redemption. Such restrictions are scheduled to expire over a
three-year period in equal annual installments commencing one year from the date
of issuance.
Century Center Office Park is located on approximately 77 acres, of which
approximately 61 acres are controlled under long-term fixed rental ground leases
that expire in 2058. The rent under the leases is approximately $180,000 per
year with scheduled 10% increases in 1999 and 2009. The leases do not contain a
right to purchase the subject land.
Anderson Transaction. On February 12, 1997, the Company acquired a
portfolio of industrial, office and undeveloped properties in Atlanta from
affiliates of Anderson Properties (the "Anderson Transaction"). The Anderson
Transaction involves 22 industrial properties and six office properties totaling
1.6 million rentable square feet, three industrial development projects totaling
402,000 square feet and 137 acres of land for development.
The cost of the Anderson Transaction consisted of the issuance of $22.9
million of Units (valued at $29.25 per Unit, the market value of a share of
Common Stock as of the signing of a letter of intent relating to the
transaction), the assumption of $7.8 million of mortgage debt and a cash payment
of $37.7 million. The cash amount does not includes $11.1 million expected to be
paid to complete the three development projects. Approximately $5.5 million of
the Units are newly created Class B Units, which differ from other Units in that
they are not eligible for cash distributions from the Operating Partnership. The
Class B Units will convert to regular Units in 25% annual installments
commencing one year from the date of issuance. Prior to such conversion, such
Units will not be redeemable for cash or Common Stock. All other Units to be
issued in the transaction are also subject to restrictions on transfer or
redemption. Such lock-up restrictions will expire over a three-year period in
equal annual installments commencing one year from the date of issuance.
Preferred Stock Offering
On February 7, 1997 the Company issued 125,000 shares of 8 5/8% perpetual
preferred stock for $1,000 per share. The net proceeds of $121.7 million were
used to pay down existing indebtedness and fund the Anderson Transaction. The
preferred stock is not redeemable prior to February 2027. The preferred stock is
not subject to any sinking fund or mandatory redemption and is not convertible
into any other securities of the Company.
F-19

HIGHWOODS PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for the years ended December 31, 1996 and
1995, and for the period from June 14, 1994, to December 31, 1994, is as follows
(in thousands except per share amounts):

For the period from June 14, 1994 to December 31, 1994*
First Quarter Second Quarter Third Quarter Fourth Quarter Total

Revenues....................... $ -- $ 1,482 $ 8,810 $ 9,150 $ 19,442
Income before minority interest
and extraordinary item....... -- 534 3,652 3,509 7,695
Minority interest.............. -- (56) (384) (368) (808)
Extraordinary item............. -- (1,273) -- -- (1,273)
Net (loss) income.............. $ -- $ (795) $ 3,268 $ 3,141 $ 5,614
Per Share:
Income before extraordinary
item...................... $ -- $ 0.06 $ 0.36 $ 0.35 $ 0.77
Net (loss) income............ $ -- $ (0.09) $ 0.36 $ 0.35 $ 0.63

For the year ended December 31, 1995*
First Quarter Second Quarter Third Quarter Fourth Quarter Total

Revenues....................... $12,846 $ 17,518 $20,560 $ 22,598 $ 73,522
Income before minority interest
and extraordinary item....... 4,879 6,829 7,939 9,287 28,934
Minority interest.............. (800) (1,270) (1,381) (1,486) (4,937)
Extraordinary item............. (875) -- -- -- (875)
Net income..................... $ 3,204 $ 5,559 $ 6,558 $ 7,801 $ 23,122
Per Share:
Income before extraordinary
item...................... $ 0.36 $ 0.39 $ 0.39 $ 0.40 $ 1.55
Net income................... $ 0.29 $ 0.39 $ 0.39 $ 0.40 $ 1.49

For the year ended December 31, 1996*
First Quarter Second Quarter Third Quarter Fourth Quarter Total

Revenues....................... $23,757 $ 27,680 $36,329 $ 50,160 $137,926
Income before minority interest
and extraordinary item....... 9,002 10,134 14,223 14,883 48,242
Minority interest.............. (1,571) (1,753) (1,881) (1,577) (6,782)
Extraordinary item............. -- -- (2,140) -- (2,140)
Net (loss) income.............. $ 7,431 $ 8,381 $10,202 $ 13,306 $ 39,320
Per Share:
Income before extraordinary
item...................... $ 0.38 $ 0.42 $ 0.39 $ 0.41 $ 1.59
Net income................... $ 0.38 $ 0.42 $ 0.32 $ 0.41 $ 1.51

* The total of the four quarterly amounts for net income per share do not equal
the total for the year due to the use of a weighted average to compute the
average number of shares outstanding.
F-20

HIGHWOODS PROPERTIES, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In thousands)

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

Highwoods Office Center
Amica -- $ 289 $ 1,544 $ -- $ 71 $ 289
Arrowwood -- 955 3,406 -- 225 955
Aspen -- 560 2,104 -- 128 560
Birchwood -- 201 911 -- 201
Cedar East -- 563 2,498 -- 149 563
Cedar West -- 563 2,487 -- 253 563
Cottonwood -- 609 3,253 -- 22 609
Cypress -- 567 1,747 -- 95 567
Dogwood 2,603 766 2,790 -- 9 766
Global Software -- 465 5,358 -- 1,672 465
Hawthorn -- 904 3,782 -- 32 904
Highwoods Tower -- 203 16,948 -- 115 203
Holly -- 300 1,170 -- 43 300
Ironwood -- 319 1,276 -- 188 319
Kaiser -- 133 3,625 -- 3 133
Laurel -- 884 2,537 -- 17 884
Leatherwood -- 213 851 -- 121 213
Smoketree Tower -- 2,353 11,922 -- 1,691 2,353
Rexwoods Office Center
2500 Blue Ridge -- 722 4,552 -- 170 722
Blue Ridge II 1,431 434 -- 29 1,426 462
Rexwoods Center (2) 775 -- 103 3,668 878
Rexwoods II -- 355 -- 7 1,815 362
Rexwoods III 3,288 886 -- 34 2,838 919
Rexwoods IV -- 586 -- -- 3,870 586
Triangle Business
Center
Bldg. 2A (2) 377 4,004 -- 510 377
Bldg. 2B (2) 118 1,225 -- 232 118
Bldg. 3 (2) 409 5,349 -- 574 409
Bldg. 7 (2) 414 6,301 -- 231 414
Progress Center
Cape Fear -- 131 -- -- 2,516 131
Catawba -- 125 -- -- 1,693 125
Pamilo (CompuChem) -- 269 -- 20 6,756 289
North Park
4800 North Park -- 2,678 17,673 -- 224 2,678
4900 North Park 1,528 770 1,989 -- 56 770
5000 North Park -- 1,010 4,697 -- 856 1,010
Creekstone Park
Creekstone Crossing -- 728 3,891 -- 15 728
Riverbirch -- 448 -- 21 4,196 469
Willow Oak -- 458 4,685 -- 1,696 458
Research Commons
EPA Annex/
Administration -- 2,601 10,920 -- 91 2,601
4501 Bldg. -- 785 4,448 -- 665 785
4401 Bldg. -- 1,249 8,929 -- 3,673 1,249
4301 Bldg. -- 900 7,425 -- 235 900
4201 Bldg. -- 1,204 7,715 -- 2,310 1,204
Hock Portfollo
Fairfield I -- 805 3,227 -- 39 805
Fairfield II -- 910 3,647 -- 210 910
Qualex -- 879 3,522 -- 1 879
4101 Roxboro -- 1,059 4,243 -- 112 1,059
4020 Roxboro -- 675 2,708 -- 11 675
Six Forks Center
Six Forks Center I -- 666 2,688 -- 142 666
Six Forks Center II -- 1,086 4,370 -- 228 1,086
Six Forks Center III -- 862 4,444 -- 98 862

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

Highwoods Office Center
Amica $ 1,616 $ 1,905 $ 132 1983
Arrowwood 3,631 4,586 264 1979
Aspen 2,232 2,792 163 1980
Birchwood 911 1,112 71 1983
Cedar East 2,647 3,210 187 1981
Cedar West 2,739 3,302 186 1981
Cottonwood 3,275 3,884 211 1983
Cypress 1,842 2,409 145 1980
Dogwood 2,800 3,566 178 1983
Global Software 7,030 7,495 210 1996
Hawthorn 3,814 4,718 1,591 1987
Highwoods Tower 17,063 17,266 2,507 1991
Holly 1,213 1,513 81 1984
Ironwood 1,464 1,783 130 1978
Kaiser 3,628 3,761 1,071 1988
Laurel 2,554 3,438 162 1982
Leatherwood 971 1,184 84 1979
Smoketree Tower 13,613 15,966 908 1984
Rexwoods Office Center
2500 Blue Ridge 4,722 5,444 296 1982
Blue Ridge II 1,426 1,888 368 1988
Rexwoods Center 3,668 4,546 743 1990
Rexwoods II 1,815 2,177 145 1993
Rexwoods III 2,838 3,757 400 1992
Rexwoods IV 3,870 4,456 229 1994
Triangle Business
Center
Bldg. 2A 4,514 4,891 370 1984
Bldg. 2B 1,457 1,575 78 1984
Bldg. 3 5,923 6,332 519 1988
Bldg. 7 6,532 6,946 398 1988
Progress Center
Cape Fear 2,516 2,647 1,063 1980
Catawba 1,693 1,818 954 1980
Pamilo (CompuChem) 6,756 7,045 1,891 1980
North Park
4800 North Park 17,898 20,576 1,151 1985
4900 North Park 2,045 2,815 139 1984
5000 North Park 5,553 6,563 405 1980
Creekstone Park
Creekstone Crossing 3,907 4,635 161 1990
Riverbirch 4,196 4,665 928 1987
Willow Oak 6,381 6,839 401 1995
Research Commons
EPA Annex/
Administration 11,011 13,612 518 1966
4501 Bldg. 5,113 5,898 382 1985
4401 Bldg. 12,602 13,851 1,380 1987
4301 Bldg. 7,660 8,560 354 1989
4201 Bldg. 10,025 11,229 978 1991
Hock Portfollo
Fairfield I 3,265 4,070 122 1987
Fairfield II 3,858 4,768 135 1989
Qualex 3,522 4,401 128 1985
4101 Roxboro 4,355 5,414 156 1984
4020 Roxboro 2,719 3,394 99 1989
Six Forks Center
Six Forks Center I 2,830 3,496 82 1982
Six Forks Center II 4,598 5,684 128 1983
Six Forks Center III 4,542 5,404 261 1987

Life on
Which
Depreciation
Description is Computed

Highwoods Office Center
Amica 5-40 yrs.
Arrowwood 5-40 yrs.
Aspen 5-40 yrs.
Birchwood 5-40 yrs.
Cedar East 5-40 yrs.
Cedar West 5-40 yrs.
Cottonwood 5-40 yrs.
Cypress 5-40 yrs.
Dogwood 5-40 yrs.
Global Software 5-40 yrs.
Hawthorn 5-40 yrs.
Highwoods Tower 5-40 yrs.
Holly 5-40 yrs.
Ironwood 5-40 yrs.
Kaiser 5-40 yrs.
Laurel 5-40 yrs.
Leatherwood 5-40 yrs.
Smoketree Tower 5-40 yrs.
Rexwoods Office Center
2500 Blue Ridge 5-40 yrs.
Blue Ridge II 5-40 yrs.
Rexwoods Center 5-40 yrs.
Rexwoods II 5-40 yrs.
Rexwoods III 5-40 yrs.
Rexwoods IV 5-40 yrs.
Triangle Business
Center
Bldg. 2A 5-40 yrs.
Bldg. 2B 5-40 yrs.
Bldg. 3 5-40 yrs.
Bldg. 7 5-40 yrs.
Progress Center
Cape Fear 5-40 yrs.
Catawba 5-40 yrs.
Pamilo (CompuChem) 5-40 yrs.
North Park
4800 North Park 5-40 yrs.
4900 North Park 5-40 yrs.
5000 North Park 5-40 yrs.
Creekstone Park
Creekstone Crossing 5-40 yrs.
Riverbirch 5-40 yrs.
Willow Oak 5-40 yrs.
Research Commons
EPA Annex/
Administration 5-40 yrs.
4501 Bldg. 5-40 yrs.
4401 Bldg. 5-40 yrs.
4301 Bldg. 5-40 yrs.
4201 Bldg. 5-40 yrs.
Hock Portfollo
Fairfield I 5-40 yrs.
Fairfield II 5-40 yrs.
Qualex 5-40 yrs.
4101 Roxboro 5-40 yrs.
4020 Roxboro 5-40 yrs.
Six Forks Center
Six Forks Center I 5-40 yrs.
Six Forks Center II 5-40 yrs.
Six Forks Center III 5-40 yrs.

F-21

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

ONCC
Phase I 1,988 768 4,353 -- 18 768
"W" Building 3,789 1,163 6,592 -- -- 1,163
3645 Trust Drive 1,778 520 2,949 -- -- 520
5220 Green's Dairy
Road 1,072 382 2,165 -- -- 382
5200 Green's Dairy
Road 593 169 959 -- 14 169
Other Research Triangle
Properties
4000 Aerial Center -- 541 2,163 -- -- 541
Colony Corporate
Center -- 613 3,296 -- 117 613
Concourse -- 986 12,069 -- 282 986
Cotton Building -- 460 1,844 -- 72 460
5301 Departure Drive -- 882 5,000 -- 4 882
Expressway One
Warehouse 1,634 242 -- 4 1,832 246
Healthsource -- 1,294 10,593 10 2,340 1,304
Holiday Inn 2,439 867 2,748 -- 136 867
Lake Plaza East -- 856 4,893 -- 248 856
MSA -- 717 3,418 -- 966 717
Phoenix -- 394 2,019 -- 40 394
Situs I -- -- 2,917 -- 809 --
South Square I (2) 606 3,785 -- 307 606
South Square II -- 525 4,742 -- 134 525
Airpark East
Highland Industries (6) 175 699 -- 7 175
Service Center 1 (6) 275 1,099 -- 38 275
Service Center 2 (6) 222 889 -- 3 222
Service Center 3 (6) 304 1,214 -- 53 304
Service Center 4 (6) 224 898 -- 3 224
Copier Consultants (6) 252 1,008 -- 3 252
Service Court (6) 194 774 -- 26 194
Bldg. 01 (6) 377 1,510 -- 38 377
Bldg. 02 (6) 461 1,842 -- 12 461
Bldg. 03 (6) 321 1,283 -- 21 321
Bldg. A (6) 541 2,913 -- 154 541
Bldg. B (6) 779 3,200 -- 181 779
Bldg. C (6) 2,384 9,535 -- 87 2,384
Sears Cenfact 4,528 861 3,446 -- 13 862
Hewlett Packard -- 149 727 -- 183 149
Warehouse 1 (6) 384 1,535 -- 28 384
Warehouse 2 (6) 372 1,488 -- 11 372
Warehouse 3 (6) 370 1,480 -- 17 370
Warehouse 4 (6) 657 2,628 -- 19 657
Inacom -- 106 478 -- 282 106
Airpark North
DC-1 (6) 723 2,891 -- 38 723
DC-2 (6) 1,094 4,375 -- 58 1,094
DC-3 (6) 378 1,511 -- 144 378
DC-4 (6) 377 1,508 -- 54 377
Airpark West
Airpark I (2) 954 3,817 -- 354 954
Airpark II (2) 887 3,536 (3) 30 884
Airpark IV (2) 226 903 -- 109 226
Airpark V (2) 242 966 -- 18 242
Airpark VI (2) 326 1,308 -- 78 326
West Point Business
Park
BMF Warehouse (7) 795 3,181 -- 795
WP-11 (7) 393 1,570 -- 41 393
WP-12 (7) 382 1,531 -- 23 382
WP-13 (7) 297 1,192 -- 22 297
WP-3 & 4 (7) 120 480 -- 2 120
WP-5 -- 178 590 -- 234 178
Fairchild Bldg. (7) 640 2,577 -- 640
LUWA Bahnson Bldg. (7) 346 1,384 -- 1 346

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

ONCC
Phase I 4,372 5,140 35 1981
"W" Building 6,592 7,755 53 1983
3645 Trust Drive 2,949 3,469 24 1984
5220 Green's Dairy
Road 2,165 2,547 17 1984
5200 Green's Dairy
Road 973 1,142 8 1984
Other Research Triangle
Properties
4000 Aerial Center 2,163 2,704 2 1992
Colony Corporate
Center 3,413 4,026 229 1985
Concourse 12,351 13,337 816 1986
Cotton Building 1,917 2,377 48 1972
5301 Departure Drive 5,004 5,886 40 1984
Expressway One
Warehouse 1,832 2,078 295 1990
Healthsource 12,933 14,237 99 1996
Holiday Inn 2,885 3,752 181 1984
Lake Plaza East 5,141 5,997 385 1984
MSA 4,383 5,100 18 1996
Phoenix 2,059 2,453 133 1990
Situs I 3,726 3,726 9 1996
South Square I 4,092 4,698 276 1988
South Square II 4,875 5,400 317 1989
Airpark East
Highland Industries 706 881 33 1990
Service Center 1 1,137 1,412 58 1985
Service Center 2 892 1,114 42 1985
Service Center 3 1,267 1,571 65 1985
Service Center 4 901 1,125 42 1985
Copier Consultants 1,012 1,264 47 1990
Service Court 800 994 39 1990
Bldg. 01 1,548 1,925 78 1990
Bldg. 02 1,854 2,315 87 1986
Bldg. 03 1,304 1,625 64 1986
Bldg. A 3,067 3,608 158 1986
Bldg. B 3,381 4,160 171 1988
Bldg. C 9,621 12,005 460 1990
Sears Cenfact 3,459 4,321 162 1989
Hewlett Packard 910 1,059 36 1996
Warehouse 1 1,563 1,947 76 1985
Warehouse 2 1,500 1,872 72 1985
Warehouse 3 1,497 1,867 70 1986
Warehouse 4 2,647 3,304 124 1988
Inacom 761 867 13 1996
Airpark North
DC-1 2,929 3,652 137 1986
DC-2 4,433 5,527 210 1987
DC-3 1,655 2,033 81 1988
DC-4 1,561 1,938 72 1988
Airpark West
Airpark I 4,171 5,125 247 1984
Airpark II 3,566 4,450 170 1985
Airpark IV 1,012 1,238 56 1985
Airpark V 984 1,226 49 1985
Airpark VI 1,386 1,712 85 1985
West Point Business
Park
BMF Warehouse 3,181 3,976 149 1986
WP-11 1,611 2,004 77 1988
WP-12 1,554 1,936 73 1988
WP-13 1,214 1,511 57 1988
WP-3 & 4 482 602 23 1988
WP-5 824 1,002 54 1995
Fairchild Bldg. 2,577 3,217 121 1990
LUWA Bahnson Bldg. 1,385 1,731 65 1990

Life on
Which
Depreciation
Description is Computed

ONCC
Phase I 5-40 yrs.
"W" Building 5-40 yrs.
3645 Trust Drive 5-40 yrs.
5220 Green's Dairy
Road 5-40 yrs.
5200 Green's Dairy
Road 5-40 yrs.
Other Research Triangle
Properties
4000 Aerial Center 5-40 yrs.
Colony Corporate
Center 5-40 yrs.
Concourse 5-40 yrs.
Cotton Building 5-40 yrs.
5301 Departure Drive 5-40 yrs.
Expressway One
Warehouse 5-40 yrs.
Healthsource 5-40 yrs.
Holiday Inn 5-40 yrs.
Lake Plaza East 5-40 yrs.
MSA 5-40 yrs.
Phoenix 5-40 yrs.
Situs I 5-40 yrs.
South Square I 5-40 yrs.
South Square II 5-40 yrs.
Airpark East
Highland Industries 5-40 yrs.
Service Center 1 5-40 yrs.
Service Center 2 5-40 yrs.
Service Center 3 5-40 yrs.
Service Center 4 5-40 yrs.
Copier Consultants 5-40 yrs.
Service Court 5-40 yrs.
Bldg. 01 5-40 yrs.
Bldg. 02 5-40 yrs.
Bldg. 03 5-40 yrs.
Bldg. A 5-40 yrs.
Bldg. B 5-40 yrs.
Bldg. C 5-40 yrs.
Sears Cenfact 5-40 yrs.
Hewlett Packard 5-40 yrs.
Warehouse 1 5-40 yrs.
Warehouse 2 5-40 yrs.
Warehouse 3 5-40 yrs.
Warehouse 4 5-40 yrs.
Inacom 5-40 yrs.
Airpark North
DC-1 5-40 yrs.
DC-2 5-40 yrs.
DC-3 5-40 yrs.
DC-4 5-40 yrs.
Airpark West
Airpark I 5-40 yrs.
Airpark II 5-40 yrs.
Airpark IV 5-40 yrs.
Airpark V 5-40 yrs.
Airpark VI 5-40 yrs.
West Point Business
Park
BMF Warehouse 5-40 yrs.
WP-11 5-40 yrs.
WP-12 5-40 yrs.
WP-13 5-40 yrs.
WP-3 & 4 5-40 yrs.
WP-5 5-40 yrs.
Fairchild Bldg. 5-40 yrs.
LUWA Bahnson Bldg. 5-40 yrs.

F-22

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

University Commercial
Center
W-1 -- 203 812 -- -- 203
W-2 -- 196 786 -- 6 196
SR-1 -- 276 1,155 -- 20 276
SR-2 01/02 -- 215 859 -- 92 215
SR-3 -- 167 668 -- 1 167
Bldg. 03 -- 429 1,771 -- 77 429
Bldg. 04 -- 514 2,058 -- 128 514
Ivy Distribution Center -- 452 1,812 -- 103 452
Knollwood Office Center
370 Knollwood (6) 1,819 7,451 -- 456 1,819
380 Knollwood (6) 2,977 11,912 -- 837 2,977
Stoneleigh Business
Park
7327 W. Friendly Ave. -- 60 441 -- 6 60
7339 W. Friendly Ave. -- 63 465 -- 14 63
7341 W. Friendly Ave. (1) 113 831 -- 57 113
7343 W. Friendly Ave. (1) 72 531 -- 7 72
7345 W. Friendly Ave. (1) 66 485 -- 8 66
7347 W. Friendly Ave. (1) 97 709 -- 9 97
7349 W. Friendly Ave. (1) 53 388 -- 8 53
7351 W. Friendly Ave. (1) 106 778 -- 21 106
7353 W. Friendly Ave. (1) 123 901 -- 12 123
7355 W. Friendly Ave. (1) 72 525 -- 7 72
Spring Garden Plaza
4000 Spring Garden
St. -- 127 933 -- 31 127
4002 Spring Garden
St. -- 39 290 -- 2 39
4004 Spring Garden
St. -- 139 1,019 -- 23 139
Pomona Center-Phase I
7 Dundas Circle (1) 75 552 -- 4 75
8 Dundas Circle (1) 84 617 -- 5 84
9 Dundas Circle (1) 51 373 -- 51
Pomona Center-Phase II
302 Pomona Dr. (1) 84 617 -- 5 84
304 Pomona Dr. (1) 22 163 -- 22
306 Pomona Dr. (1) 50 368 -- 8 50
308 Pomona Dr. (1) 72 531 -- 2 72
5 Dundas Circle (1) 72 531 -- 9 72
Westgate on Wendover-
Phase I
305 South Westgate
Dr. -- 30 220 -- 7 30
307 South Westgate
Dr. -- 66 485 -- 6 66
309 South Westgate
Dr. -- 68 496 -- 6 68
311 South Westgate
Dr. -- 75 551 -- 12 75
315 South Westgate
Dr. -- 54 396 -- 4 54
317 South Westgate
Dr. -- 81 597 -- 7 81
319 South Westgate
Dr. -- 54 396 -- 3 54
Westgate on Wendover-
Phase II
206 South Westgate
Dr. (1) 91 664 -- 64 91
207 South Westgate
Dr. (1) 138 1,012 -- 6 138
300 South Westgate
Dr. (1) 68 496 -- 3 68
4600 Dundas Circle (1) 62 456 -- 26 62
4602 Dundas Circle (1) 68 498 -- 15 68
Radar Road
500 Radar Rd. (1) 202 1,484 -- 17 202
502 Radar Rd. (1) 39 285 -- 21 39
504 Radar Rd. (1) 39 285 -- -- 39
506 Radar Rd. (1) 39 285 -- -- 39
Holden/85 Business Park
2616 Phoenix Dr. (1) 135 990 -- 3 135
2606 Phoenix Dr. --
100 (1) 63 466 -- -- 63
2606 Phoenix Dr. --
200 (1) 63 466 -- 3 63
2606 Phoenix Dr. --
300 (1) 31 229 -- 7 31
2606 Phoenix Dr. --
400 (1) 52 382 -- 4 52
2606 Phoenix Dr. --
500 (1) 64 471 -- 6 64
2606 Phoenix Dr. --
600 (1) 78 575 -- -- 78

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

University Commercial
Center
W-1 812 1,015 38 1983
W-2 792 988 37 1983
SR-1 1,174 1,450 58 1983
SR-2 01/02 951 1,166 57 1983
SR-3 669 836 31 1984
Bldg. 03 1,848 2,277 84 1985
Bldg. 04 2,185 2,699 100 1986
Ivy Distribution Center 1,915 2,367 94 1930-1980
Knollwood Office Center
370 Knollwood 7,907 9,726 416 1994
380 Knollwood 12,750 15,727 602 1990
Stoneleigh Business
Park
7327 W. Friendly Ave. 447 507 16 1987
7339 W. Friendly Ave. 479 542 19 1989
7341 W. Friendly Ave. 888 1,001 33 1988
7343 W. Friendly Ave. 538 610 20 1988
7345 W. Friendly Ave. 493 559 19 1988
7347 W. Friendly Ave. 719 816 26 1988
7349 W. Friendly Ave. 396 449 15 1988
7351 W. Friendly Ave. 800 906 30 1988
7353 W. Friendly Ave. 912 1,035 33 1988
7355 W. Friendly Ave. 531 603 19 1988
Spring Garden Plaza
4000 Spring Garden
St. 965 1,092 36 1983
4002 Spring Garden
St. 292 331 11 1983
4004 Spring Garden
St. 1,042 1,181 39 1983
Pomona Center-Phase I
7 Dundas Circle 557 632 21 1986
8 Dundas Circle 622 706 24 1986
9 Dundas Circle 373 424 14 1986
Pomona Center-Phase II
302 Pomona Dr. 622 706 23 1987
304 Pomona Dr. 163 185 6 1987
306 Pomona Dr. 377 427 15 1987
308 Pomona Dr. 533 605 19 1987
5 Dundas Circle 540 612 21 1987
Westgate on Wendover-
Phase I
305 South Westgate
Dr. 228 258 8 1985
307 South Westgate
Dr. 491 557 19 1985
309 South Westgate
Dr. 501 569 18 1985
311 South Westgate
Dr. 562 637 24 1985
315 South Westgate
Dr. 400 454 15 1985
317 South Westgate
Dr. 604 685 23 1985
319 South Westgate
Dr. 400 454 15 1985
Westgate on Wendover-
Phase II
206 South Westgate
Dr. 728 819 24 1986
207 South Westgate
Dr. 1,018 1,156 37 1986
300 South Westgate
Dr. 498 566 18 1986
4600 Dundas Circle 481 543 17 1985
4602 Dundas Circle 513 581 19 1985
Radar Road
500 Radar Rd. 1,500 1,702 55 1981
502 Radar Rd. 305 344 11 1986
504 Radar Rd. 285 324 10 1986
506 Radar Rd. 285 324 10 1986
Holden/85 Business Park
2616 Phoenix Dr. 993 1,128 36 1985
2606 Phoenix Dr. --
100 466 529 17 1989
2606 Phoenix Dr. --
200 469 532 17 1989
2606 Phoenix Dr. --
300 236 267 8 1989
2606 Phoenix Dr. --
400 386 438 16 1989
2606 Phoenix Dr. --
500 477 541 19 1989
2606 Phoenix Dr. --
600 575 653 21 1989

Life on
Which
Depreciation
Description is Computed

University Commercial
Center
W-1 5-40 yrs.
W-2 5-40 yrs.
SR-1 5-40 yrs.
SR-2 01/02 5-40 yrs.
SR-3 5-40 yrs.
Bldg. 03 5-40 yrs.
Bldg. 04 5-40 yrs.
Ivy Distribution Center 5-40 yrs.
Knollwood Office Center
370 Knollwood 5-40 yrs.
380 Knollwood 5-40 yrs.
Stoneleigh Business
Park
7327 W. Friendly Ave. 5-40 yrs.
7339 W. Friendly Ave. 5-40 yrs.
7341 W. Friendly Ave. 5-40 yrs.
7343 W. Friendly Ave. 5-40 yrs.
7345 W. Friendly Ave. 5-40 yrs.
7347 W. Friendly Ave. 5-40 yrs.
7349 W. Friendly Ave. 5-40 yrs.
7351 W. Friendly Ave. 5-40 yrs.
7353 W. Friendly Ave. 5-40 yrs.
7355 W. Friendly Ave. 5-40 yrs.
Spring Garden Plaza
4000 Spring Garden
St. 5-40 yrs.
4002 Spring Garden
St. 5-40 yrs.
4004 Spring Garden
St. 5-40 yrs.
Pomona Center-Phase I
7 Dundas Circle 5-40 yrs.
8 Dundas Circle 5-40 yrs.
9 Dundas Circle 5-40 yrs.
Pomona Center-Phase II
302 Pomona Dr. 5-40 yrs.
304 Pomona Dr. 5-40 yrs.
306 Pomona Dr. 5-40 yrs.
308 Pomona Dr. 5-40 yrs.
5 Dundas Circle 5-40 yrs.
Westgate on Wendover-
Phase I
305 South Westgate
Dr. 5-40 yrs.
307 South Westgate
Dr. 5-40 yrs.
309 South Westgate
Dr. 5-40 yrs.
311 South Westgate
Dr. 5-40 yrs.
315 South Westgate
Dr. 5-40 yrs.
317 South Westgate
Dr. 5-40 yrs.
319 South Westgate
Dr. 5-40 yrs.
Westgate on Wendover-
Phase II
206 South Westgate
Dr. 5-40 yrs.
207 South Westgate
Dr. 5-40 yrs.
300 South Westgate
Dr. 5-40 yrs.
4600 Dundas Circle 5-40 yrs.
4602 Dundas Circle 5-40 yrs.
Radar Road
500 Radar Rd. 5-40 yrs.
502 Radar Rd. 5-40 yrs.
504 Radar Rd. 5-40 yrs.
506 Radar Rd. 5-40 yrs.
Holden/85 Business Park
2616 Phoenix Dr. 5-40 yrs.
2606 Phoenix Dr. --
100 5-40 yrs.
2606 Phoenix Dr. --
200 5-40 yrs.
2606 Phoenix Dr. --
300 5-40 yrs.
2606 Phoenix Dr. --
400 5-40 yrs.
2606 Phoenix Dr. --
500 5-40 yrs.
2606 Phoenix Dr. --
600 5-40 yrs.

F-23

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

Industrial Village
7906 Industrial
Village Rd. (1) 62 455 -- 5 62
7908 Industrial
Village Rd. (1) 62 455 -- 5 62
7910 Industrial
Village Rd. (1) 62 455 -- 5 62
Other Piedmont Triad
Properties
6348 Burnt Poplar -- 721 2,883 -- 7 721
6350 Burnt Poplar -- 339 1,365 -- 5 339
Deep River I 2,305 1,033 5,855 -- 63 1,033
Forsyth I 1,963 326 1,850 -- (4) 326
Regency One -- 515 2,352 -- 563 515
Regency Two -- 435 1,864 -- 435
Stratford -- 2,777 11,459 -- 33 2,777
Chesapeake (2) 1,236 4,944 -- 8 1,236
3288 Robinhood 1,160 290 1,159 -- 67 290
Maryland Farms
Eastpark 1, 2, 3 4,229 3,571 14,306 -- 276 3,571
Harpeth II -- 1,419 5,677 -- 83 1,419
Highwoods Plaza I -- 1,772 6,380 -- 1,080 1,772
EMI/Sparrow -- 1,262 5,047 -- 1,262
5310 Maryland Way 5,091 1,710 6,868 -- 12 1,710
Harpeth on the Green
III -- 1,658 6,633 -- 47 1,658
Harpeth on the Green
IV -- 1,709 6,835 -- -- 1,709
Grassmere
Grassmere I 2,856 1,251 7,091 -- 234 1,251
Grassmere II 4,401 2,260 12,804 -- 91 2,260
Grassmere III 5,053 1,340 7,592 1 3 1,341
Other Nashville
Properties
Century City Plaza I -- 903 3,612 -- 15 903
Lakeview -- 2,075 7,517 -- 36 2,075
3401 Westend -- 5,349 21,415 -- 58 5,349
BNA 11,819 -- 22,786 -- 35 --
Sabal Park
Atrium -- 1,639 9,286 -- 12 1,639
Sabal Business Center
VI 5,919 1,609 9,116 -- -- 1,609
Progressive Insurance -- 1,366 7,742 -- -- 1,366
Sabal Business Center
VII 4,815 1,519 8,605 -- 5 1,519
Sabal Business Center
V 2,532 1,026 5,813 -- 1,026
Registry II -- 908 5,147 -- 97 908
Registry I -- 744 4,216 -- 26 740
Sabal Business Center
IV 2,107 819 4,638 -- -- 819
Sabal Tech Center -- 548 3,107 -- -- 548
Sabal Park Plaza -- 611 3,460 -- -- 611
Sabal Lake Building -- 572 3,241 -- 33 572
Sabal Business Center
I -- 375 2,127 -- -- 375
Sabal Business Center
II 1,235 342 1,935 -- -- 342
Registry Square -- 344 1,951 -- -- 344
Expo Building -- 171 969 -- -- 171
Sabal Business Center
III 852 290 1,642 -- 16 290
Benjamin Center
Benjamin Center #7 -- 296 1,678 -- 30 296
Benjamin Center #9 -- 300 1,699 -- 300
Other Tampa Properties
Tower Place -- 3,194 18,098 -- -- 3,194
Day Care Center -- 61 347 -- -- 61
Steele Creek Park
Bldg. A (2) 499 1,998 -- 8 499
Bldg. B (2) 110 441 -- 2 110
Bldg. E (2) 188 751 -- 89 188
Bldg. G-1 (2) 196 783 -- 20 196
Bldg. H (2) 169 677 -- 114 169
Bldg. K (2) 148 592 -- 148
Bissell Business Park
4101 Stuart Andrew
Blvd. (1) 70 510 -- 10 70
4105 Stuart Andrew
Blvd. (1) 26 189 -- 1 26

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

Industrial Village
7906 Industrial
Village Rd. 460 522 17 1985
7908 Industrial
Village Rd. 460 522 17 1985
7910 Industrial
Village Rd. 460 522 17 1985
Other Piedmont Triad
Properties
6348 Burnt Poplar 2,890 3,611 136 1990
6350 Burnt Poplar 1,370 1,709 64 1992
Deep River I 5,918 6,951 49 1989
Forsyth I 1,846 12,172 15 1985
Regency One 2,915 3,430 58 1996
Regency Two 1,864 2,299 6 1996
Stratford 11,491 14,268 543 1991
Chesapeake 4,951 6,187 232 1993
3288 Robinhood 1,226 1,516 67 1989
Maryland Farms
Eastpark 1, 2, 3 14,582 18,153 244 1978
Harpeth II 5,761 7,180 42 1984
Highwoods Plaza I 7,460 9,232 7 1996
EMI/Sparrow 5,047 6,309 37 1982
5310 Maryland Way 6,880 8,590 130 1994
Harpeth on the Green
III 6,680 8,338 21 1987
Harpeth on the Green
IV 6,835 8,544 21 1989
Grassmere
Grassmere I 7,325 8,576 58 1984
Grassmere II 12,895 15,155 104 1985
Grassmere III 7,595 8,936 61 1990
Other Nashville
Properties
Century City Plaza I 3,627 4,530 43 1987
Lakeview 7,553 9,628 133 1986
3401 Westend 21,473 26,822 418 1982
BNA 22,821 22,821 399 1985
Sabal Park
Atrium 9,298 10,937 74 1989
Sabal Business Center
VI 9,116 10,725 73 1988
Progressive Insurance 7,742 9,108 62 1988
Sabal Business Center
VII 8,610 10,129 69 1990
Sabal Business Center
V 5,813 6,839 46 1988
Registry II 5,244 6,152 43 1987
Registry I 4,242 4,982 34 1985
Sabal Business Center
IV 4,638 5,457 37 1984
Sabal Tech Center 3,107 3,655 25 1989
Sabal Park Plaza 3,460 4,071 28 1987
Sabal Lake Building 3,275 3,847 26 1986
Sabal Business Center
I 2,127 2,502 17 1982
Sabal Business Center
II 1,935 2,277 15 1984
Registry Square 1,951 2,295 16 1988
Expo Building 969 1,140 8 1981
Sabal Business Center
III 1,658 1,948 13 1984
Benjamin Center
Benjamin Center #7 1,708 2,004 16 1991
Benjamin Center #9 1,699 1,999 14 1989
Other Tampa Properties
Tower Place 18,098 21,292 144 1988
Day Care Center 347 408 3 1986
Steele Creek Park
Bldg. A 2,005 2,504 94 1989
Bldg. B 444 554 21 1985
Bldg. E 840 1,028 39 1985
Bldg. G-1 803 999 43 1989
Bldg. H 792 961 68 1987
Bldg. K 592 740 28 1985
Bissell Business Park
4101 Stuart Andrew
Blvd. 520 590 20 1984
4105 Stuart Andrew
Blvd. 190 216 7 1984

Life on
Which
Depreciation
Description is Computed

Industrial Village
7906 Industrial
Village Rd. 5-40 yrs.
7908 Industrial
Village Rd. 5-40 yrs.
7910 Industrial
Village Rd. 5-40 yrs.
Other Piedmont Triad
Properties
6348 Burnt Poplar 5-40 yrs.
6350 Burnt Poplar 5-40 yrs.
Deep River I 5-40 yrs.
Forsyth I 5-40 yrs.
Regency One 5-40 yrs.
Regency Two 5-40 yrs.
Stratford 5-40 yrs.
Chesapeake 5-40 yrs.
3288 Robinhood 5-40 yrs.
Maryland Farms
Eastpark 1, 2, 3 5-40 yrs.
Harpeth II 5-40 yrs.
Highwoods Plaza I 5-40 yrs.
EMI/Sparrow 5-40 yrs.
5310 Maryland Way 5-40 yrs.
Harpeth on the Green
III 5-40 yrs.
Harpeth on the Green
IV 5-40 yrs.
Grassmere
Grassmere I 5-40 yrs.
Grassmere II 5-40 yrs.
Grassmere III 5-40 yrs.
Other Nashville
Properties
Century City Plaza I 5-40 yrs.
Lakeview 5-40 yrs.
3401 Westend 5-40 yrs.
BNA 5-40 yrs.
Sabal Park
Atrium 5-40 yrs.
Sabal Business Center
VI 5-40 yrs.
Progressive Insurance 5-40 yrs.
Sabal Business Center
VII 5-40 yrs.
Sabal Business Center
V 5-40 yrs.
Registry II 5-40 yrs.
Registry I 5-40 yrs.
Sabal Business Center
IV 5-40 yrs.
Sabal Tech Center 5-40 yrs.
Sabal Park Plaza 5-40 yrs.
Sabal Lake Building 5-40 yrs.
Sabal Business Center
I 5-40 yrs.
Sabal Business Center
II 5-40 yrs.
Registry Square 5-40 yrs.
Expo Building 5-40 yrs.
Sabal Business Center
III 5-40 yrs.
Benjamin Center
Benjamin Center #7 5-40 yrs.
Benjamin Center #9 5-40 yrs.
Other Tampa Properties
Tower Place 5-40 yrs.
Day Care Center 5-40 yrs.
Steele Creek Park
Bldg. A 5-40 yrs.
Bldg. B 5-40 yrs.
Bldg. E 5-40 yrs.
Bldg. G-1 5-40 yrs.
Bldg. H 5-40 yrs.
Bldg. K 5-40 yrs.
Bissell Business Park
4101 Stuart Andrew
Blvd. 5-40 yrs.
4105 Stuart Andrew
Blvd. 5-40 yrs.

F-24

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

4109 Stuart Andrew
Blvd. (1) 87 636 -- 9 87
4201 Stuart Andrew
Blvd. (1) 110 809 -- 28 110
4205 Stuart Andrew
Blvd. (1) 134 979 -- 13 134
4209 Stuart Andrew
Blvd. (1) 91 665 -- 11 91
4215 Stuart Andrew
Blvd. (1) 133 978 -- 17 133
4301 Stuart Andrew
Blvd. (1) 232 1,702 -- 29 232
4321 Stuart Andrew
Blvd. (1) 73 534 -- 5 73
Parkway Plaza
Building 1 -- 1,110 4,741 -- 67 1,110
Building 2 -- 1,694 6,777 -- 166 1,694
Building 3 -- 1,570 6,282 -- 333 1,570
Building 7 -- -- 4,648 -- 38 --
Building 8 -- -- 4,698 -- 5 --
Building 9 4,800 -- 6,008 -- 3 --
Oakhill Business Park
Twin Oaks 3,406 1,243 7,044 -- 49 1,243
Water Oak 5,097 1,623 9,196 -- 140 1,623
Scarlet Oak 2,177 1,073 6,078 -- 22 1,073
English Oak 1,968 750 4,248 -- 20 750
Willow Oak 1,234 442 2,505 -- 174 442
Laurel Oak 1,448 471 2,671 -- 74 471
Live Oak -- 1,403 5,611 -- -- 1,403
Other Charlotte
Properties
First Citizens -- 647 5,528 -- 49 647
Boca Raton, FL
One Boca Place -- 5,736 32,505 -- -- 5,736
Highwoods Square -- 2,586 14,657 -- 5 2,586
Highwoods Plaza -- 1,772 10,042 -- -- 1,772
Innsbrook Office Center
Markel American (8) 585 2,347 -- 103 585
Proctor-Silex (8) 1,086 4,344 -- 33 1,086
Vantage Place I -- 235 940 -- 15 235
Vantage Place II -- 203 811 -- 55 203
Vantage Place III -- 218 873 -- 16 218
Vantage Place IV -- 233 931 -- 30 233
Vantage Point 4,459 1,089 4,354 -- 151 1,089
Innsbrook Tech I 1,171 264 1,058 -- 7 264
DEQ Tech Center -- 541 2,166 -- 18 541
DEQ Office -- 1,324 5,305 -- 36 1,324
Aetna 4,878 2,163 8,659 -- 58 2,163
Highwoods One -- 1,846 8,613 -- 726 1,846
Liberty Mutual
Building 3,500 1,205 4,819 -- -- 1,205
Technology Park
Virginia Center -- 1,438 5,858 -- 175 1,438
Other Richmond
Properties
East Cary Street
Building -- 171 685 -- -- 171
Westshore I -- 358 1,431 -- 20 358
Westshore II -- 545 2,181 -- 1 545
Brookfield Corporate
Center
Brookfield-Jacobs-
Sirrine 12,049 3,022 17,125 -- -- 3,022
Brookfield Plaza 4,768 1,489 8,437 -- -- 1,489
Brookfield-YMCA 429 33 189 -- -- 33
Patewood Business
Center 2,576 1,312 7,436 -- -- 1,312
Patewood Plaza Office
Park
Patewood V 4,779 1,677 9,503 -- 10 1,677
Patewood IV (10) 1,210 6,856 -- -- 1,210
Patewood III 5,417 835 4,733 -- 29 835
Memphis, TN
International Place
Phase II -- 4,847 27,469 -- 5 4,847
Southwind Office
Center "A" -- 996 5,643 -- 4 996

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

4109 Stuart Andrew
Blvd. 645 732 25 1984
4201 Stuart Andrew
Blvd. 837 947 33 1982
4205 Stuart Andrew
Blvd. 992 1,126 38 1982
4209 Stuart Andrew
Blvd. 676 767 26 1982
4215 Stuart Andrew
Blvd. 994 1,127 40 1982
4301 Stuart Andrew
Blvd. 1,730 1,962 66 1982
4321 Stuart Andrew
Blvd. 540 613 20 1982
Parkway Plaza
Building 1 4,808 5,918 129 1982
Building 2 6,942 8,636 194 1983
Building 3 6,614 8,184 186 1984
Building 7 4,685 4,685 122 1985
Building 8 4,703 4,703 123 1986
Building 9 6,010 6,010 157 1984
Oakhill Business Park
Twin Oaks 7,093 8,336 56 1985
Water Oak 9,336 10,959 74 1985
Scarlet Oak 6,099 7,172 49 1982
English Oak 4,268 5,018 35 1984
Willow Oak 2,679 3,121 20 1982
Laurel Oak 2,746 3,217 22 1984
Live Oak 5,611 7,014 41 1989
Other Charlotte
Properties
First Citizens 5,577 6,224 367 1989
Boca Raton, FL
One Boca Place 32,505 38,241 259 1987
Highwoods Square 14,662 17,248 117 1989
Highwoods Plaza 10,042 11,814 80 1980
Innsbrook Office Center
Markel American 2,450 3,035 109 1988
Proctor-Silex 4,377 5,463 158 1986
Vantage Place I 955 1,190 32 1987
Vantage Place II 866 1,069 33 1987
Vantage Place III 889 1,107 29 1988
Vantage Place IV 961 1,194 32 1988
Vantage Point 4,504 5,593 162 1990
Innsbrook Tech I 1,065 1,329 36 1991
DEQ Tech Center 2,184 2,725 66 1991
DEQ Office 5,341 6,665 161 1991
Aetna 8,717 10,880 118 1989
Highwoods One 9,339 11,185 52 1996
Liberty Mutual
Building 4,819 6,024 5 1990
Technology Park
Virginia Center 6,033 7,471 310 1985
Other Richmond
Properties
East Cary Street
Building 685 856 1 1987
Westshore I 1,451 1,809 18 1995
Westshore II 2,182 2,727 25 1995
Brookfield Corporate
Center
Brookfield-Jacobs-
Sirrine 17,125 20,147 137 1990
Brookfield Plaza 8,437 9,926 67 1987
Brookfield-YMCA 189 222 2 1990
Patewood Business
Center 7,436 8,748 59 1983
Patewood Plaza Office
Park
Patewood V 9,513 11,190 76 1990
Patewood IV 6,856 8,066 55 1989
Patewood III 4,761 5,596 40 1989
Memphis, TN
International Place
Phase II 27,474 32,321 219 1988
Southwind Office
Center "A" 5,647 6,643 45 1991

Life on
Which
Depreciation
Description is Computed

4109 Stuart Andrew
Blvd. 5-40 yrs.
4201 Stuart Andrew
Blvd. 5-40 yrs.
4205 Stuart Andrew
Blvd. 5-40 yrs.
4209 Stuart Andrew
Blvd. 5-40 yrs.
4215 Stuart Andrew
Blvd. 5-40 yrs.
4301 Stuart Andrew
Blvd. 5-40 yrs.
4321 Stuart Andrew
Blvd. 5-40 yrs.
Parkway Plaza
Building 1 5-40 yrs.
Building 2 5-40 yrs.
Building 3 5-40 yrs.
Building 7 5-40 yrs.
Building 8 5-40 yrs.
Building 9 5-40 yrs.
Oakhill Business Park
Twin Oaks 5-40 yrs.
Water Oak 5-40 yrs.
Scarlet Oak 5-40 yrs.
English Oak 5-40 yrs.
Willow Oak 5-40 yrs.
Laurel Oak 5-40 yrs.
Live Oak 5-40 yrs.
Other Charlotte
Properties
First Citizens 5-40 yrs.
Boca Raton, FL
One Boca Place 5-40 yrs.
Highwoods Square 5-40 yrs.
Highwoods Plaza 5-40 yrs.
Innsbrook Office Center
Markel American 5-40 yrs.
Proctor-Silex 5-40 yrs.
Vantage Place I 5-40 yrs.
Vantage Place II 5-40 yrs.
Vantage Place III 5-40 yrs.
Vantage Place IV 5-40 yrs.
Vantage Point 5-40 yrs.
Innsbrook Tech I 5-40 yrs.
DEQ Tech Center 5-40 yrs.
DEQ Office 5-40 yrs.
Aetna 5-40 yrs.
Highwoods One 5-40 yrs.
Liberty Mutual
Building 5-40 yrs.
Technology Park
Virginia Center 5-40 yrs.
Other Richmond
Properties
East Cary Street
Building 5-40 yrs.
Westshore I 5-40 yrs.
Westshore II 5-40 yrs.
Brookfield Corporate
Center
Brookfield-Jacobs-
Sirrine 5-40 yrs.
Brookfield Plaza 5-40 yrs.
Brookfield-YMCA 5-40 yrs.
Patewood Business
Center 5-40 yrs.
Patewood Plaza Office
Park
Patewood V 5-40 yrs.
Patewood IV 5-40 yrs.
Patewood III 5-40 yrs.
Memphis, TN
International Place
Phase II 5-40 yrs.
Southwind Office
Center "A" 5-40 yrs.

F-25

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

Southwind Office
Center "B" -- 1,356 7,684 -- 21 1,356
Kirby Centre -- 525 2,973 -- 6 525
Medical Properties,
Inc. -- 398 2,256 -- -- 398
Atrium I & II -- 1,530 6,121 -- -- 1,530
Oakbrook
Oakbrook I 2,013 873 4,948 -- 40 873
Oakbrook II 3,463 1,579 8,950 -- 278 1,579
Oakbrook III 3,931 1,480 8,388 -- -- 1,480
Oakbrook IV 2,381 953 5,400 -- 3 953
Oakbrook V 5,664 2,206 12,501 -- 55 2,206
Fontaine Business
Center
Fontaine I 3,520 1,219 6,907 -- -- 1,219
Fontaine II 1,807 941 5,335 -- 479 941
Fontaine III -- 853 4,833 -- 69 853
Fontaine V 1,192 395 2,237 -- -- 395
Other Columbia
Properties
Center Point I 3,549 1,313 7,441 -- -- 1,313
Center Point II -- 1,183 6,702 -- 1,034 1,183
Orlando, FL
Metrowest I 3,530 1,344 7,618 -- 54 1,344
Southwest Corporate
Center 3,717 991 5,613 -- -- 991
Birmingham, AL
Grandview I 5,154 1,895 10,739 -- -- 1,895
Norfolk, VA
Battlefield I 2,717 774 4,387 -- -- 774
Greenbrier Business
Center 2,768 936 5,305 -- -- 936
Asheville, NC
Ridgefield II 1,837 910 5,157 -- 14 910
Ridgefield I 1,685 636 3,607 -- 5 636
Jacksonville, FL
Towermarc Plaza -- 1,143 6,476 -- -- 1,143
Development Projects
Highwoods Health Club -- 142 564 -- -- 142
One Shockoe Plaza -- -- -- -- -- --
North Park -- -- -- -- -- --
Sycamore -- -- -- -- -- --
Two AirPark East -- 271 -- -- 1 271
AirPark East-Simplex -- 103 -- -- -- 103
Center Point V -- 269 -- -- 1 269
Highwoods Plaza II -- 1,448 -- -- -- 1,448
Highwoods Two -- 785 -- -- -- 785
Grove Park I -- 819 -- -- -- 819
West Shore III -- 961 -- -- -- 961
Clintrials -- 3,278 -- -- -- 3,278
Center Point VI -- 269 -- -- -- 269
Highwoods Airport
Center -- 708 -- -- -- 708
R.F. Micro Devices -- 512 -- -- -- 512
Development Land
Airport Center 2 -- 362 -- -- -- 362
Airpark East -- 1,932 -- (616) (8) 1,317
Airpark North -- 804 -- -- -- 804
Capital Center -- 851 -- -- -- 851
Creekstone Park -- 1,255 -- (453) (6) 802
Development
Opportunity Strip -- 26 -- -- -- 26
End of Cox Road Land -- 966 -- -- -- 966
Grassmere -- 1,779 -- -- -- 1,779
Grassmere/
Thousdale -- 760 -- -- -- 760
Highwoods Square -- -- -- 112 -- 112
Highwoods Office
Center North -- 1,555 49 (450) (7) 1,104
Highwoods Office
Center South -- 2,518 -- -- -- 2,518
NationsFord Business
Park -- 1,206 -- -- -- 1,206
North Park -- Wake
Forest -- 962 -- -- -- 962
Raleigh Corp Ctr-
Daycare -- 295 -- -- -- 295
Research Commons -- 1,349 -- -- -- 1,349
Ridge Development -- 1,960 -- -- -- 1,960

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

Southwind Office
Center "B" 7,705 9,061 62 1990
Kirby Centre 2,979 3,504 24 1984
Medical Properties,
Inc. 2,256 2,654 18 1988
Atrium I & II 6,121 7,651 6 1984
Oakbrook
Oakbrook I 4,988 5,861 40 1981
Oakbrook II 9,228 10,807 81 1983
Oakbrook III 8,388 9,868 67 1984
Oakbrook IV 5,403 6,356 43 1985
Oakbrook V 12,557 14,763 101 1985
Fontaine Business
Center
Fontaine I 6,907 8,126 55 1985
Fontaine II 5,814 6,755 56 1987
Fontaine III 4,902 5,755 41 1988
Fontaine V 2,237 2,632 18 1990
Other Columbia
Properties
Center Point I 7,441 8,754 59 1988
Center Point II 7,736 8,919 57 1996
Orlando, FL
Metrowest I 7,671 9,015 62 1988
Southwest Corporate
Center 5,613 6,604 45 1984
Birmingham, AL
Grandview I 10,739 12,634 86 1989
Norfolk, VA
Battlefield I 4,387 5,161 35 1987
Greenbrier Business
Center 5,305 6,241 42 1984
Asheville, NC
Ridgefield II 5,170 6,080 41 1989
Ridgefield I 3,612 4,248 29 1987
Jacksonville, FL
Towermarc Plaza 6,476 7,619 52 1991
Development Projects
Highwoods Health Club 559 701 -- N/A
One Shockoe Plaza -- -- 32 N/A
North Park -- -- -- N/A
Sycamore -- -- -- N/A
Two AirPark East 1 272 -- N/A
AirPark East-Simplex -- 103 -- N/A
Center Point V 1 270 -- N/A
Highwoods Plaza II -- 1,448 -- N/A
Highwoods Two -- 785 -- N/A
Grove Park I -- -- -- N/A
West Shore III -- -- -- N/A
Clintrials -- 3,278 -- N/A
Center Point VI -- -- -- N/A
Highwoods Airport
Center -- 708 -- N/A
R.F. Micro Devices -- 512 -- N/A
Development Land
Airport Center 2 -- 362 -- N/A
Airpark East -- 1,317 -- N/A
Airpark North -- 804 -- N/A
Capital Center -- 851 -- N/A
Creekstone Park -- 802 -- N/A
Development
Opportunity Strip -- 26 -- N/A
End of Cox Road Land -- 966 -- N/A
Grassmere -- 1,779 -- N/A
Grassmere/
Thousdale -- 760 -- N/A
Highwoods Square -- 112 -- N/A
Highwoods Office
Center North 49 1,153 11 N/A
Highwoods Office
Center South -- 2,518 -- N/A
NationsFord Business
Park -- 1,206 -- N/A
North Park -- Wake
Forest -- 962 -- N/A
Raleigh Corp Ctr-
Daycare -- 295 -- N/A
Research Commons -- 1,349 -- N/A
Ridge Development -- 1,960 -- N/A

Life on
Which
Depreciation
Description is Computed

Southwind Office
Center "B" 5-40 yrs.
Kirby Centre 5-40 yrs.
Medical Properties,
Inc. 5-40 yrs.
Atrium I & II 5-40 yrs.
Oakbrook
Oakbrook I 5-40 yrs.
Oakbrook II 5-40 yrs.
Oakbrook III 5-40 yrs.
Oakbrook IV 5-40 yrs.
Oakbrook V 5-40 yrs.
Fontaine Business
Center
Fontaine I 5-40 yrs.
Fontaine II 5-40 yrs.
Fontaine III 5-40 yrs.
Fontaine V 5-40 yrs.
Other Columbia
Properties
Center Point I 5-40 yrs.
Center Point II 5-40 yrs.
Orlando, FL
Metrowest I 5-40 yrs.
Southwest Corporate
Center 5-40 yrs.
Birmingham, AL
Grandview I 5-40 yrs.
Norfolk, VA
Battlefield I 5-40 yrs.
Greenbrier Business
Center 5-40 yrs.
Asheville, NC
Ridgefield II 5-40 yrs.
Ridgefield I 5-40 yrs.
Jacksonville, FL
Towermarc Plaza 5-40 yrs.
Development Projects
Highwoods Health Club N/A
One Shockoe Plaza N/A
North Park N/A
Sycamore N/A
Two AirPark East N/A
AirPark East-Simplex N/A
Center Point V N/A
Highwoods Plaza II N/A
Highwoods Two N/A
Grove Park I N/A
West Shore III N/A
Clintrials N/A
Center Point VI N/A
Highwoods Airport
Center N/A
R.F. Micro Devices N/A
Development Land
Airport Center 2 N/A
Airpark East N/A
Airpark North N/A
Capital Center N/A
Creekstone Park N/A
Development
Opportunity Strip N/A
End of Cox Road Land N/A
Grassmere N/A
Grassmere/
Thousdale N/A
Highwoods Square N/A
Highwoods Office
Center North N/A
Highwoods Office
Center South N/A
NationsFord Business
Park N/A
North Park -- Wake
Forest N/A
Raleigh Corp Ctr-
Daycare N/A
Research Commons N/A
Ridge Development N/A

F-26

Gross
Amount at
Which
Carried
Initial Cost Cost Capitalized Subsequent at Close
Building & to Acquisition of Period
Description Encumbrance Land Improvements Land Building & Improvements Land

West Point Business
Park -- 1,759 -- -- -- 1,759
Airport Center Drive -- 1,600 -- -- -- 1,600
$ 237,639 $ 1,087,765 $(1,181) $65,872 $ 236,453

Gross Amount at Which
Carried at Close of Period
Building & Accumulated
Description Improvements Total (9) Depreciation Date of Construction

West Point Business
Park -- 1,759 -- N/A
Airport Center Drive -- 1,600 -- N/A
$ 1,153,626 $ 1,390,079 $42,195

Life on
Which
Depreciation
Description is Computed

West Point Business
Park N/A
Airport Center Drive N/A

(1) These assets are pledged as collateral for a $11,612,000 first mortgage
loan.
(2) These assets are pledged as collateral for a $31,410,000 first mortgage
loan.
(3) These assets are pledged as collateral for a $40,167,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $8,629,000 first mortgage
loan.
(5) These assets are pledged as collateral for a $4,924,000 first mortgage
loan.
(6) Reflects land transferred to the Willow Oak Property.
(7) Reflects land transferred to the Global property.
(8) Reflects land transferred to the Hewlett Packard property, Inacom property,
Two AirPark East property, AirPark East-Simplex property.
(9) The aggregate cost for Federal Income Tax purposes was approximately
$964,000,000.
(10) Patewood III and IV are considered one property for encumbrance purposes.
F-27

HIGHWOODS PROPERTIES, INC.
NOTE TO SCHEDULE III
(in thousands)
As of December 31, 1996, 1995 and 1994
A summary of activity for real estate and accumulated depreciation is as
follows:

December 31,
1996 1995 1994

Real Estate:
Balance at beginning of year.......................................... $ 598,536 $218,699 $ 61,656
Additions:
Acquisitions, development and improvements......................... 792,697 381,936 157,043
Cost of real estate sold.............................................. (1,154) (2,099) --
Balance at close of year (a)............................................ $1,390,079 $598,536 $218,699
Accumulated Depreciation:
Balance at beginning of year.......................................... $ 21,452 $ 11,003 $ 8,679
Depreciation expense.................................................. 20,752 10,483 2,324
Real estate sold...................................................... (10) (34) --
Balance at close of year (b).......................................... $ 42,194 $ 21,452 $ 11,003

(a) Reconciliation of total cost to balance sheet caption at December 31, 1996,
1995 and 1994 (in thousands):

1996 1995 1994

Total per schedule III.................................................. $1,390,079 $598,536 $218,699
Construction in progress exclusive
of land included in Schedule III...................................... 28,859 15,508 --
Furniture, fixtures and equipment....................................... 2,096 1,288 967
Total real estate assets at cost........................................ $1,421,034 $615,332 $219,666

(b) Reconciliation of total accumulated depreciation to balance sheet caption at
December 31, 1996, 1995 and 1994 (in thousands):

1996 1995 1994

Total per schedule III........................................................ $42,195 $21,452 $11,003
Accumulated depreciation -- furniture, fixtures and equipment................. 965 814 687
Total accumulated depreciation................................................ $43,160 $22,266 $11,690

F-28

REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
HIGHWOODS PROPERTIES, INC.
We have audited the accompanying combined statements of income, owners'
deficit and cash flows for the period from January 1, 1994 to June 13, 1994 of
the Highwoods Group. These financial statements and schedule are the
responsibility of the Highwoods Group's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows for the period from January 1, 1994 to June 13, 1994 of the Highwoods
Group in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
January 10, 1995
F-29

HIGHWOODS GROUP
COMBINED STATEMENT OF INCOME
(In thousands)

January 1, 1994
to
June 13, 1994

Revenue:
Rental income................................................................................. $ 4,953
Leasing, Development and Construction Income.................................................. 1,268
Other income.................................................................................. 427
Total revenue................................................................................... 6,648
Expenses:
Property operating expenses................................................................... 2,246
Leasing, Development and Construction Expenses................................................ 350
Interest...................................................................................... 2,473
Depreciation and amortization................................................................. 835
Marketing, general and administrative......................................................... 280
Total expenses.................................................................................. 6,184
Net income...................................................................................... $ 464

See accompanying notes.
F-30

HIGHWOODS GROUP
COMBINED STATEMENT OF OWNERS' DEFICIT
(In thousands)

Owners'
Deficit

Balance at December 31, 1993........................................................................... (7,977)
Owners' distributions................................................................................ (1,759)
Net income for the period from January 1, 1994 to June 13, 1994...................................... 464
Balance at June 13, 1994............................................................................... $(9,272)

See accompanying notes.
F-31

HIGHWOODS GROUP
COMBINED STATEMENT OF CASH FLOWS
(In thousands)

January 1, 1994
to
June 13, 1994

Operating activities
Net income...................................................................................... $ 464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................. 835
Changes in operating assets and liabilities:
Rents and other receivables from tenants.................................................... 1,100
Deferred lease fees and loan costs.......................................................... 26
Deferred offering costs and prepaids........................................................ 181
Tenant security deposits.................................................................... 8
Accrued straight line rents receivable...................................................... 239
Accrued expenses and accounts payable....................................................... (54)
Net cash provided by operating activities....................................................... 2,799
Investing activities
Changes in restricted cash...................................................................... 835
Purchases of, and improvements to, rental properties............................................ (347)
Net cash provided by investing activities....................................................... 488
Financing activities
Principal payments on notes payable............................................................. (399)
Distributions to partners....................................................................... (1,759)
Cash used in financing activities............................................................... (2,158)
Net increase in cash and cash equivalents....................................................... 1,129
Cash and cash equivalents at beginning of year.................................................. 866
Cash and cash equivalents at end of year........................................................ $ 1,995
Supplemental disclosures of cash flow information
Cash paid during the year for interest.......................................................... $ 2,410

See accompanying notes.
F-32

HIGHWOODS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1994 THROUGH JUNE 13, 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Highwoods Group is engaged in the ownership, management, operation,
leasing and development of commercial real estate properties. The Highwoods
Group owns and operates 14 buildings located in the Research Triangle Park
region of North Carolina.
Principles of Combination
The Highwoods Group is not a legal entity but rather a combination of
commercial real estate properties that are organized as general partnerships and
are under common control, and an affiliated real estate management company, the
Highwoods Properties Company ("HPC"). HPC provides property management services
to the properties. All significant intercompany transactions and balances have
been eliminated in the combination.
On June 14, 1994, the Highwoods Group transferred all of its assets and
liabilities to Highwoods Realty Limited Partnership in connection with Highwoods
Properties, Inc.'s initial public offering of common stock.
Cash Equivalents
The Highwoods Group considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease, and due and unpaid rents are included in rents and other
receivables from tenants in the accompanying balance sheet. Certain lease
agreements contain provisions which provide reimbursement of real estate taxes,
insurance and certain common area maintenance (CAM) costs. These additional
rents are recorded on the accrual basis. All rent and other receivables from
tenants are due from commercial building tenants located in the properties.
Lease fee income is recognized 50% when the lease is signed and 50% when the
tenant takes occupancy.
Other Income
Other income consists primarily of management fees generated by HPC from
providing property management services to third parties and interest income.
Income Taxes
No provision has been made for income taxes because the commercial real
estate properties are owned by partnerships whose partners are required to
include their respective share of profits or losses in their individual tax
returns.
HPC elected to be taxed for federal and state income tax purposes as an
S-Corporation under provisions of the Internal Revenue Code. Consequently
income, losses and credits are passed through directly to the stockholders,
rather than being taxed at the corporate level.
2. LEASES
The Highwoods Group leases automobiles, and office space under various
operating leases. Total rent expense for these leases was $70,000 for the period
from January 1, 1994 to June 13, 1994. As of June 13, 1994, the Company did not
have contractual leases in place with remaining terms of one year or more.
F-33