SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 1, 1997
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State of Incorporation)
1-13100 56-1871668
(Commission File Number) (IRS Employer Identification No.)
3100 SMOKETREE COURT, SUITE 600 27604
RALEIGH, NORTH CAROLINA (Zip Code)
(Address of principal executive offices)
(919) 872-4924
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 1 and October 7, 1997, Highwoods Properties, Inc. (the
"Company") closed substantially all of its previously announced business
combination with Associated Capital Properties, Inc. ("ACP") and related
portfolio acquisition (the "ACP Transaction"). The ACP Transaction includes the
acquisition of a portfolio of 84 office properties encompassing 6.5 million
rentable square feet (the "ACP Properties") and approximately 50 acres of land
for development in six markets in Florida. To date, the Company has completed
the acquisition of all but one of the ACP Properties, Signature Plaza in
Orlando, Florida. The Company expects to complete the acquisition of Signature
Plaza by October 17, 1997. (All information presented about the ACP Transaction
assumes the acquisition of Signature Plaza.)
The ACP Properties were 90% leased as of June 30, 1997. The ACP Properties
include 82 office properties (78 of which are suburban) in Florida's four major
markets, Orlando, Tampa, Jacksonville and South Florida, one 245,000-square foot
suburban office property in Tallahassee and one 51,831-square foot office
property in Ft. Myers. The ACP Properties include seven properties that ACP had
under contract to purchase.
Under the terms of the agreements relating to the ACP Transaction, the
Company merged with Associated Capital Properties, Inc. and acquired the
ownership interests in the entities that own the ACP Properties for an aggregate
purchase price of $617 million. The cost of the ACP Transaction consists of the
issuance of 2,955,110 Common Units (valued at $32.50 per Common
Unit), the assumption of $481 million of mortgage debt ($391 million of which
has been paid off by the Company), the issuance of 117,265 shares of Common
Stock (valued at $32.50 per share), a capital expenditure reserve of $11 million
and a cash payment of $25 million. All Common Units and Common Stock issued in
the transaction are subject to restrictions on transfer or redemption which will
expire over a three-year period. All lockup restrictions on the transfer of such
Common Units or Common Stock issued to ACP and its affiliates will expire in the
event of a change of control of the Company or a material adverse change in the
financial condition of the Company. Such restrictions will also expire if James
R. Heistand, former president of ACP, is not appointed or elected as a director
of the Company prior to October 7, 1998. Also in connection with the ACP
Transaction, the Company issued to certain affiliates of ACP warrants to
purchase 1,479,290 shares of the Common Stock at $32.50 per share exercisable
after October 1, 2002.
Mr. Heistand has become a regional vice president of the Company
responsible for its Florida operations and an advisory member of the Company's
investment committee. Mr. Heistand is expected to join the Company's Board of
Directors and become a voting member of the Company's investment committee
within the next year. Mr. Heistand has over 19 years of commercial real estate
experience in Florida. Over 100 employees of ACP have joined the Company,
including the two other members of ACP's senior management team, Allen C. de
Olazarra and Dale Johannes.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Following is a list of the financial statements, pro forma financial
information and exhibits filed as a part of this report
(a) Financial Statements of Businesses Acquired
Associated Capital Properties Portfolio
Report of Independent Auditors
Combined Statements of Revenue and Certain Operating Expenses
Notes to Combined Statements of Revenues and Certain Operating
Expenses
1997 Pending Acquisitions
Report of Independent Auditors
Combined Statements of Revenue and Certain Operating Expenses
Notes to Combined Statements of Revenues and Certain Operating
Expenses
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Combining Financial Statements
Pro Forma Condensed Combining Balance Sheet (unaudited) as of June 30,
1997
Pro Forma Condensed Statement of Operations (unaudited) for the six
months ended June 30, 1997
Pro Forma Condensed Statements of Operations (unaudited) for the year
ended December 31, 1996
Notes to Pro Forma Condensed Combining Financial Statements
(c) The following exhibits are filed as part of this report:
2.1 Master Agreement of Merger and Acquisition by and among
Highwoods Properties, Inc., Highwoods/Forsyth Limited
Partnership, Associated Capital Properties, Inc. and its
shareholders dated August 27, 1997 (Incorporated by
reference to the Company's current report on Form 8-K
dated August 27, 1997).
23.1 Consent of Coopers & Lybrand LLP
4
SIGNATURES
Pursuant to the requirements 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.
HIGHWOODS PROPERTIES, INC.
/S/ CARMAN J. LIUZZO
Carman J. Liuzzo
Vice President and Chief Financial
Officer
Date: October 16, 1997
5
INDEX TO THE FINANCIAL STATEMENTS
HIGHWOODS PROPERTIES, INC. UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Combining Balance Sheet (unaudited) as of June 30, 1997............................................ F-2
Notes to Pro Forma Condensed Combining Balance Sheet................................................................... F-3
Pro Forma Condensed Combining Statement of Operations (unaudited) for the six months ended June 30, 1997............... F-4
Notes to Pro Forma Condensed Combining Statement of Operations......................................................... F-5
Pro Forma Condensed Combining Statement of Operations (unaudited) for the year ended December 31, 1996................. F-6
Notes to Pro Forma Condensed Combining Statement of Operations......................................................... F-7
ASSOCIATED CAPITAL PROPERTIES PORTFOLIO
Report of Independent Accountants...................................................................................... F-9
Combined Statements of Revenue and Certain Operating Expenses for the year ended December 31, 1996 and for the
(unaudited) six months ended June 30, 1997........................................................................... F-10
Notes to Combined Statements of Revenues and Certain Operating Expenses................................................ F-11
1997 PENDING ACQUISITIONS
Report of Independent Accountants...................................................................................... F-13
Combined Statements of Revenue and Certain Operating Expenses for the year ended December 31, 1996 and for the
(unaudited) six months ended June 30, 1997........................................................................... F-14
Notes to Combined Statements of Revenues and Certain Operating Expenses................................................ F-15
F-1
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED COMBINING BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
(IN THOUSANDS)
AUGUST 1997 PREFERRED
OFFERING COMMON STOCK STOCK
HISTORICAL (A) (B) ACP, INC. (C) OFFERING (D) OFFERING (E)
ASSETS
Real estate assets, net................. $1,664,751 $ -- $ 617,000 $ -- $ --
Cash and cash equivalents............... 18,625 57,000 (25,477) 58,380 --
Accounts and notes receivables.......... 14,078 -- -- -- --
Accrued straight line rent receivable... 8,682 -- -- -- --
Other assets............................ 31,402 -- -- -- --
$1,737,538 $57,000 $ 591,523 $ 58,380 $ --
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable............. $ 647,473 $ -- $ 481,171 $(223,862) $ (166,916)
Accounts payable, accrued expenses and
other................................ 28,211 -- 10,500 -- --
Total liabilities....................... 675,684 -- 491,671 (223,862) (166,916)
Minority interest....................... 171,759 -- 96,041 -- --
Preferred stock:
Series A............................. 125,000 -- -- -- --
Series B............................. -- -- -- -- 172,500
Stockholders' equity:
Common stock......................... 359 18 1 85 --
Additional paid in capital........... 783,442 56,982 2,935 282,157 (5,584)
Distributions in excess of net
earnings........................... (18,706) -- -- --
Total Stockholders' equity.............. 890,095 57,000 3,811 282,242 166,916
$1,737,538 $57,000 $ 591,523 $ 58,380 $ --
PRO FORMA
ASSETS
Real estate assets, net................. $2,281,751
Cash and cash equivalents............... 108,528
Accounts and notes receivables.......... 14,078
Accrued straight line rent receivable... 8,682
Other assets............................ 31,402
$2,444,441
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable............. $ 737,866
Accounts payable, accrued expenses and
other................................ 38,711
Total liabilities....................... 776,577
Minority interest....................... 267,800
Preferred stock:
Series A............................. 125,000
Series B............................. 172,500
Stockholders' equity:
Common stock......................... 463
Additional paid in capital........... 1,120,807
Distributions in excess of net
earnings........................... (18,706)
Total Stockholders' equity.............. 1,400,064
$2,444,441
F-2
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINING BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combining balance sheet is
presented as if the following transactions had been consummated on June 30,
1997: (a) the issuance of 1.8 million shares of Common Stock (the "August 1997
Offering"), (b) the completion of the proposed purchase of the stock of and
merger with Associated Capital Properties, Inc. (together with its affiliates,
"ACP") and the acquisition of an affiliated property portfolio (collectively,
the "ACP Portfolio") (the "Merger"), (c) the completion of the acquisition of
the seven properties that ACP has under contract to purchase (the "1997 Pending
Acquisitions"), (d) the issuance of 8.5 million shares of Common Stock at an
assumed price of $35 per share (the "Common Stock Offering") and (e) the
issuance of 6.9 million shares of 8% Series B Cumulative Redeemable Preferred
Shares at an assumed price of $25 per share (the "Preferred Stock Offering").
The acquisitions have been or will be accounted for using the purchase
method of accounting. Accordingly, assets acquired and liabilities assumed have
been or will be recorded at their estimated fair values which may be subject to
further refinement, including appraisals and other analyses. Management does not
expect that the final allocation of the purchase prices for the above
acquisitions will differ materially from the preliminary allocations.
This unaudited pro forma condensed combining balance sheet should be read
in conjunction with the pro forma condensed combining statement of operations of
the Company for the six months ended June 30, 1997 and for the year ended
December 31, 1996, the consolidated financial statements and related notes of
the Company included in its Annual Report on Form 10-K for the year ended
December 31, 1996, the unaudited financial statements and related notes of the
Company included in its Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, and the financial statements and related notes
of Associated Capital Properties Portfolio and 1997 Pending Acquisitions
included herein.
The pro forma condensed combining balance sheet is unaudited and not
necessarily indicative of what the actual financial position would have been had
the aforementioned transactions actually occurred on June 30, 1997, nor does it
purport to represent the future financial position of the Company.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(a.) Represents the Company's historical balance sheet contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
(b.) Reflects the net proceeds of the Company's August 1997 Offering of
1.8 million shares of Common Stock.
(c.) Reflects the allocation of the $ 617 million purchase price to the
fair value of the net assets acquired in the Merger and the 1997
Pending Acquisitions (collectively, the "ACP Transaction"). The
purchase price will consist of the issuance of 3,036,702 Common Units
(valued at $32.50 per Common Unit), the assumption of $481 million of
mortgage debt, the issuance of 90,342 shares of Common Stock (valued
at $32.50 per share), a cash payment of $24 million and $11 million
capital expenditure reserve.
(d.) Reflects the issuance of 8.5 million shares of Common Stock in the
Offering at an assumed offering price of $35 per share and the use of
the net proceeds to pay off debt to be assumed in the ACP
Transaction. In determining net proceeds from the Common Stock
Offering, underwriting discounts and other offering costs have been
assumed to equal $15.3 million.
(e.) Reflects the issuance of 6.9 million shares of 8% Series B Cumulative
Redeemable Preferred Shares at an assumed offering price of $25 per
share and the use of the net proceeds to find the $24 million cash
portion of the purchase price of and to repay debt assumed in the ACP
Transaction. In determining net proceeds from the Preferred Stock
Offering, underwriting discounts and other offering costs have been
assumed to equal $5.6 million.
F-3
HIGHWOODS PROPERTIES, INC.
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CENTURY CENTER 1997
AND ANDERSON OTHER ACP PENDING PRO FORMA
HISTORICAL (A) TRANSACTIONS (B) OFFERINGS (C) PORTFOLIO (D) ACQUISITIONS (E) ADJUSTMENTS
REVENUE:
Rental property........ $115,478 $ 1,047 $ -- $34,691 $7,305 $ 1,721(f)
Other Income........... 4,081 -- -- 998 71 --
119,559 1,047 -- 35,689 7,376 1,721
OPERATING EXPENSES:
Rental property........ 31,588 317 -- 16,449 3,216 --
Depreciation and
amortization.......... 19,900 715 -- -- -- 6,013(g)
INTEREST EXPENSE:
Contractual........... 22,516 1,358 (3,711) -- -- 16,438(h)
Amortization of
deferred financing
costs................ 1,122 -- -- -- -- --
23,638 1,358 (3,711) -- -- 16,438
General and
administrative........ 4,284 -- -- -- -- --
Income before minority
interest.............. 40,149 (1,343) 3,711 19,240 4,160 (20,730)
Minority interest...... (6,424) -- -- -- -- (1,773)(i)
Income before
extraordinary item and
dividends on preferred
shares................ 33,725 (1,343) 3,711 19,240 4,160 (22,503)
Dividends on 8 5/8%
Series A Redeemable
Preferred Shares...... (4,102) -- (1,289) -- -- --
Dividends on 8% Series
B Redeemable Preferred
Shares................ -- -- -- -- -- --
Net income available
for common
shareholders before
extraordinary
item.................. $ 29,623 $ (1,343) $ 2,422 $19,240 $4,160 $ (22,503)
Net income per common
share................. $ 0.84
Weighted average
shares................ 35,375
PREFERRED COMMON
STOCK STOCK
OFFERING OFFERING PRO FORMA
REVENUE:
Rental property........ $ -- $ -- $ 160,242
Other Income........... -- -- 5,150
-- -- 165,392
OPERATING EXPENSES:
Rental property........ -- -- 51,570
Depreciation and
amortization.......... -- -- 26,628
INTEREST EXPENSE:
Contractual........... (5,425)(j) (7,276)(l) 23,900
Amortization of
deferred financing
costs................ -- -- 1,122
(5,425) (7,276) 25,022
General and
administrative........ -- -- 4,284
Income before minority
interest.............. 5,425 7,276 57,888
Minority interest...... (863)(i) (1,302)(i) (10,362)
Income before
extraordinary item and
dividends on preferred
shares................ 4,562 5,974 47,526
Dividends on 8 5/8%
Series A Redeemable
Preferred Shares...... -- -- (5,391)
Dividends on 8% Series
B Redeemable Preferred
Shares................ (6,900)(k) -- (6,900)
Net income available
for common
shareholders before
extraordinary
item.................. $(2,338) $ 5,974 $ 35,235
Net income per common
share................. $ 0.76
Weighted average
shares................ 46,537
F-4
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combining statement of
operations is presented as if the following transactions had been consummated on
January 1, 1996: (a) the completion of the merger with Anderson Properties, Inc.
("Anderson Properties") and the purchase of a portfolio of properties from
affiliates of Anderson Properties (the "Anderson Transaction") and the purchase
of Century Center Office Park and an affiliated property portfolio (the "Century
Center Transaction"), (b) the completion of the offering of $125,000,000 of
8 5/8% Series A Cumulative Redeemable Preferred Shares and of $100,000,000 of
Exercisable Put Option Securities (collectively the "Other Offerings"), (c) the
completion of the Merger (d) the completion of the 1997 Pending Acquisitions,
(e) the issuance of 8.5 million shares of common stock at an assumed price of
$35 per share (the "Common Stock Offering") and (f) the issuance of 6.9 million
shares of 8% Series B Cumulative Redeemable Preferred Shares at an assumed price
of $25 per share (the "Preferred Stock Offering").
This unaudited pro forma condensed combining statement of operations should
be read in conjunction with the pro forma condensed balance sheet of the Company
as of June 30, 1997, the consolidated financial statements and related notes of
the Company included in its Annual Report on Form 10-K for the year ended
December 31, 1996, the unaudited financial statements and related notes of the
Company included in its Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, and the financial statements and related notes
of Associated Capital Properties Portfolio and 1997 Pending Acquisitions
included herein.
The pro forma condensed combining statement of operations is unaudited and
is not necessarily indicative of what the Company's actual results would have
been had the aforementioned transactions actually occurred on January 1, 1996
nor does it purport to represent the future operating results of the Company.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF
OPERATIONS
(a.) Represents the Company's historical statement of operations contained
in its Quarterly Report on Form 10-Q for the six months ended June
30, 1997.
(b.) Reflects the historical statement of operations of Century Center
Office Park and an affiliated portfolio ("Century Center") and
Anderson Properties for the period from January 1, 1997 through the
respective dates of their acquisition, adjusted on a pro forma basis
for interest expense and depreciation expense.
(c.) Reflects the estimated interest expense savings on $127.5 million of
the Company's $280 million unsecured revolving line of credit (the
"Revolving Loan") and $63.1 million of other loans repaid with the
proceeds of the Other Offerings and the dividends incurred on the
Company's 8 5/8% Series A Cumulative Redeemable Preferred Stock from
January 1, 1997 through the date of the offering of the 8 5/8% Series
A Cumulative Redeemable Preferred Stock.
(d.) Represents the historical revenues and operating expenses of ACP and
the ACP Portfolio for the six months ended June 30, 1997 and the
historical operations of properties acquired by ACP during 1997 from
January 1, 1997 to the respective dates of their acquisition.
(e.) Reflects the historical revenues and operating expenses of the 1997
Pending Acquisitions for the six months ended June 30, 1997.
(f.) Reflects incremental rental revenue for significant leases signed
during 1997 related to buildings acquired that were owner-occupied
prior to June 30, 1997.
(g.) Represents the net adjustment to depreciation expense based upon an
assumed allocation of the purchase price to land, buildings and
development in process. Building depreciation is computed on a
straight-line basis using an estimated life of 40 years.
(h.) Represents the net adjustment to interest expense to reflect interest
costs on $391 million in borrowings under the Revolving Loan at an
assumed rate of 6.5% (the capped interest rate based on a 30-day
LIBOR rate of 5.5% plus 100 basis points) and $90 million in assumed
debt at a weighted average interest rate of 8.27%.
(i.) Represents the net adjustment to minority interest to reflect the pro
forma minority interest percentage of 17.9%.
(j.) Represents the estimated interest expense savings on $166.9 million
of the Revolving Loan repaid with the proceeds of the Preferred Stock
Offering.
(k.) Represents the 8% dividend on the shares issued in the Preferred
Stock Offering.
(l.) Represents the estimated interest expense savings on $223.9 million
of the Revolving Loan repaid with the proceeds of the Common Stock
Offering.
F-5
HIGHWOODS PROPERTIES, INC
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE)
CENTURY CENTER ACP
CROCKER 1996 AND ANDERSON OTHER PORTFOLIO
HISTORICAL (A) TRANSACTION (B) EAKIN & SMITH (C) OFFERINGS (D) TRANSACTIONS OFFERINGS (H) HISTORICAL (I)
REVENUE:
Rental
property.. $130,848 $47,892 $ 3,000 $ -- $ 27,128(e) $ -- $ 59,513
Other
Income... 7,078 (1,424) 512 -- -- 1,615
137,926 46,468 3,512 -- 27,128 -- 61,128
OPERATING
EXPENSES:
Rental
property.. 35,313 15,709 957 -- 18,218(e) -- 32,195
Depreciation
and
amortization... 22,095 9,048 453 -- 5,722(f) -- --
INTEREST
EXPENSE
Contractual... 24,699 13,048 1,207 (4,504) 10,861(g) (7,421) --
Amortization
of
deferred
financing
costs... 1,911 374 -- 1,059 -- -- --
26,610 13,422 1,207 (3,445) 10,861 (7,421) --
General and
administrative.. 5,666 271 200 -- -- -- --
Income
before
minority
interest... 48,242 8,018 695 3,445 (7,673) 7,421 28,933
Minority
interest.. (6,782) -- -- -- -- -- --
Income
before
extraordinary
item and
dividends
on
preferred
shares... 41,460 8,018 695 3,445 (7,673) 7,421 28,933
Dividends
on 8 5/8%
Series A
Redeemable
Preferred
Shares... -- -- -- -- -- (10,781) --
Dividends on
8% Series
B
Redeemable
Preferred
Shares.... -- -- -- -- -- -- --
Net Income
available
for
common
shareholders
before
extraordinary
item..... $ 41,460 $ 8,018 $ 695 $ 3,445 $ (7,673) $ (3,360) $ 28,933
Net income
per
common
share.... $ 1.59
Weighed
average
shares... 26,111
1997 PREFERRED COMMON
PENDING PRO FORMA STOCK STOCK
ACQUISITIONS (J) ADJUSTMENTS OFFERING OFFERING PRO FORMA
REVENUE:
Rental
property.. $ 13,689 $ 3,605(k) $ -- $ -- $285,675
Other
Income... 300 -- -- -- 8,081
13,989 3,605 -- -- 293,756
OPERATING
EXPENSES:
Rental
property.. 6,388 -- -- -- 108,780
Depreciation
and
amortizat -- 12,025(l) -- -- 49,343
INTEREST
EXPENSE
Contractu -- 32,877(m) (10,850)(o) (14,551)(q) 45,366
Amortization
of
deferred
financing
costs... -- -- -- -- 3,344
-- 32,877 (10,850) (14,551) 48,710
General and
administr -- -- -- -- 6,137
Income
before
minority
interest... 7,601 (41,297) 10,850 14,551 80,786
Minority
interest.. -- (3,347)(n) (1,727)(n) (2,605)(n) (14,461 )
Income
before
extraordi
item and
dividends
on
preferred
shares... 7,601 (44,644) 9,123 11,946 66,325
Dividends
on 8 5/8%
Series A
Redeemable
Preferred
Shares... -- -- -- -- (10,781 )
Dividends on
8% Series
B
Redeemable
Preferred
Shares.... -- -- (13,800)(p) -- (13,800 )
Net Income
available
for
common
shareholders
before
extraordi
item..... $ 7,601 $(44,644) $ (4,677) $ 11,946 $ 41,744
Net income
per
common
share.... $ .90
Weighed
average
shares... 46,537
F-6
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combining statement of
operations is presented as if the following transactions had been consummated on
January 1, 1996:
(a.) the acquisition of 70 properties and the business operations of
Crocker Realty Trust, Inc. and its affiliates (the "Crocker
Transaction");
(b.) the acquisition of seven properties and 18 acres of development land,
a 103,000-square foot suburban office development project and the
business operations of Eakin & Smith, Inc. (collectively, the "Eakin
& Smith Transaction");
(c.) the Company's 1996 offerings including: (i) $100 million of 6 3/4%
Notes due December 1, 2003 and $110 million of 7% Notes due December
1, 2006, (ii) $125 million of 8 5/8% Series A Cumulative Redeemable
Preferred Shares, (iii) 2,250,000 shares of Common Stock at $29.50
per share and (iv) 1,093,577 shares of Common Stock at prices of
$29.16, $29.01, and $28.86 for 137,198, 344,753 and 611,626 shares,
respectively (collectively, the "1996 Offerings");
(d.) the completion of the Anderson and Century Center Transactions,
(e.) the completion of the Other Offerings;
(f.) the completion of the Merger;
(g.) the completion of the 1997 Pending Acquisitions; and
(h.) the completion of the Common Stock Offering.
(i.) the completion of the Preferred Stock Offering.
This unaudited pro forma condensed combining statement of operations should
be read in conjunction with the pro forma condensed combining balance sheet of
the Company as of June 30, 1997, the consolidated financial statements and
related notes of the Company included in its Annual Report on Form 10-K for the
year ended December 31, 1996, the unaudited financial statements and related
notes of the Company included in its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, and the financial statements
and related notes of Associated Capital Properties Portfolio and 1997 Pending
Acquisitions included herein.
The pro forma condensed combining statement of operations is unaudited and
is not necessarily indicative of what the Company's actual results would have
been had the aforementioned transactions actually occurred on January 1, 1996
nor does it purport to represent the future operating results of the Company.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(a.) Represents the Company's historical statement of operations contained
in its Annual Report on Form 10-K for the year ended December 31,
1996.
(b.) Reflects the historical operations of Crocker Realty Trust, Inc.
adjusted on a pro forma basis for interest expense, depreciation
expense and other items, for the period of time during 1996 prior to
its acquisition by the Company.
(c.) Reflects the historical operations of Eakin & Smith, adjusted on a
pro forma basis for interest expense, depreciation expense and other
items, for the period of time during 1996 prior to its acquisition by
the Company.
(d.) Reflects the pro forma effects of the 1996 Offerings.
(e.) Reflects the historical statement of operations of Century Center and
Anderson Properties for the year ended December 31, 1996.
(f.) Reflects the estimated depreciation expense based upon an assumed
allocation of the purchase price to land, buildings and development
in process and building depreciation computed on a straight-line
basis using an estimated life of 40 years.
F-7
HIGHWOODS PROPERTIES, INC.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS -- CONTINUED
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- Continued
(g.) Reflects the estimated interest expense on the assumed mortgages and
notes payable at an average interest rate of 7.15% assumed in the
Century Center Transaction and 8.78% for those assumed in the
Anderson Transaction and incremental borrowings under the Revolving
Loan at an average interest rate of 7%.
(h.) Reflects the estimated interest expense savings on $127.5 million of
the Revolving Loan and $63.1 million of other loans repaid with the
proceeds of the Other Offerings and the dividends incurred on the
Company's 8 5/8% Series A Cumulative Redeemable Preferred Stock.
(i.) Represents the historical revenues and operating expenses of the ACP
Portfolio, for the year ended December 31, 1996, the historical
statement of operations from January 1, 1996 to the date of
acquisition of the properties that were acquired by ACP in 1996 and
the historical statement of operations for the 12 months ended
December 31, 1996 of the properties that were acquired by ACP in
1997.
(j.) Reflects the historical revenues and operating expenses of 1997
Pending Acquisitions for the year ended December 1996.
(k.) Reflects incremental rental revenue for significant leases signed
during 1997 related to buildings acquired that were owner-occupied
prior to December 31, 1996.
(l.) Represents the net adjustment of depreciation expense based upon an
assumed allocation of the purchase price to land, buildings and
development in process. Building depreciation is computed on a
straight-line basis using an estimated life of 40 years.
(m.) Represents the net adjustment to interest expense to reflect interest
costs on $391 million in borrowings under the Revolving Loan at an
assumed rate of 6.5% capped (the effective interest rate based on a
30-day LIBOR rate of 5.5% plus 100 basis points) and $90 million in
assumed debt at a weighted average interest rate of 8.25%.
(n.) Represents the net adjustment to minority interest to reflect the pro
forma minority interest percentage of 17.9%.
(o.) Represents the estimated interest expense savings on $166.9 million
of the Revolving Loan repaid with the proceeds of the Preferred Stock
Offering.
(p.) Represents the 8% dividend on the shares issued in the Preferred
Stock Offering.
(q.) Represents the estimated interest expense savings on $223.9 million
of the Revolving Loan repaid with the proceeds of the Common Stock
Offering.
F-8
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
HIGHWOODS PROPERTIES, INC.
We have audited the accompanying combined statement of revenue and certain
operating expenses of the Associated Capital Properties Portfolio (as described
in Note 1) for the year ended December 31, 1996. This combined statement of
revenue and certain operating expenses is the responsibility of the management
of the Associated Capital Properties Portfolio. Our responsibility is to express
an opinion on the combined statement of revenue and certain operating expenses
based on our audit.
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 statement of revenue and certain
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. 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.
The accompanying combined statement of revenue and certain operating
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission, as described in Note 1
for real estate operations acquired by Highwoods Properties, Inc. and is not
intended to be a complete presentation of the revenue and expenses of the
property and may not be comparable to those resulting from the proposed future
operations of the property.
In our opinion, the combined statement of revenue and certain operating
expenses presents fairly, in all material respects, the combined revenue and
certain operating expenses, as defined above, of the Associated Capital
Properties Portfolio for the year ended December 31, 1996 in conformity with
generally accepted accounting principals.
COOPERS & LYBRAND LLP
Memphis, Tennessee
September 12, 1997
F-9
ASSOCIATED CAPITAL PROPERTIES PORTFOLIO
COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 (NOTE 1)
(IN THOUSANDS)
SIX MONTHS
ENDED
1996 JUNE 30, 1997
(UNAUDITED)
Revenue:
Rental............................................................................................ $50,026 $30,115
Tenant reimbursements............................................................................. 9,487 4,576
Other............................................................................................. 1,615 998
Total revenue.................................................................................. 61,128 35,689
Certain operating expenses:
Property operating and maintenance................................................................ 22,831 11,238
Property management............................................................................... 2,270 1,419
Real estate taxes................................................................................. 5,660 3,116
Insurance......................................................................................... 668 314
Ground rent....................................................................................... 766 362
Total certain operating expenses............................................................... 32,195 16,449
Excess of revenue over certain operating expenses................................................. $28,933 $19,240
See accompanying notes to statements of revenue and certain operating expenses.
F-10
ASSOCIATED CAPITAL PROPERTIES PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined statements of revenue and certain operating
expenses include the combined operations of certain commercial office properties
(the "ACP Portfolio") located in Florida which are to be acquired from
Associated Capital Properties, Inc. and its affiliates ("ACP"). The properties
are to be acquired by Highwoods Properties, Inc. ("Highwoods" or the "Company")
pursuant to a Master Agreement of Merger and Acquisition between Highwoods and
ACP dated August 27, 1997.
The ACP Portfolio consists of 77 office properties with approximately 5.4
million rentable square feet located in the Jacksonville, Orlando, South
Florida, Tampa and Ft. Myers markets.
BASIS OF PRESENTATION
Associated Capital Properties Portfolio is not a legal entity but rather a
combination of the operations of certain properties to be acquired by the
Company. The accompanying statements were prepared to comply with the rules and
regulations of the Securities and Exchange Commission for real estate operations
to be acquired by the Company. The accompanying statements were prepared on a
combined basis as the properties being acquired are under common control or
management and are being acquired under a single agreement of merger and
acquisition.
The accompanying statements are not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
ACP Portfolio have been excluded. Excluded expenses consist of interest,
depreciation and amortization and general and administrative costs.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM STATEMENT
In the opinion of management, the unaudited combined financial statement
for the six months ended June 30, 1997 reflects all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
results of the respective interim period. The revenue and certain operating
expenses for the interim period is not necessarily indicative of the ACP
Portfolio's future revenue and certain operating expenses for a full year.
PROPERTY MANAGEMENT
Property management expenses include the direct property management costs
incurred by ACP and, for periods prior to ACP management, the fees charged by
third-party property managers.
F-11
ASSOCIATED CAPITAL PROPERTIES PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING
EXPENSES -- CONTINUED
NOTE 2. LEASES
Office space in the ACP Portfolio is generally leased to tenants under
lease terms that provide for the tenants to pay for increases in operating
expenses in excess of specified amounts.
The future minimum lease payments to be received under the existing
operating leases as of December 31, 1996 are as follows (in thousands):
1997.......................................................................... $ 46,244
1998.......................................................................... 37,551
1999.......................................................................... 30,489
2000.......................................................................... 23,925
2001.......................................................................... 17,306
Thereafter.................................................................... 68,871
The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.
Certain properties were substantially occupied by their former owners. The
accompanying combined statements of revenues and certain operating expenses does
not include any imputed revenues from the former owners up through the dates of
acquisition by ACP.
The following is a summary of these properties and the approximate annual
rental rate under lease agreements with the former owner occupants:
APPROXIMATE
DATE ANNUAL
PROPERTY NAME ACQUIRED RENTAL
Fireman's Fund Building October 1996 $ 485,000
Independent Square April 1997 2,160,000
Campus Crusade May 1997 900,000
Gray Street May 1997 60,000
F-12
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
HIGHWOODS PROPERTIES, INC.
We have audited the accompanying combined statement of revenue and certain
operating expenses of the 1997 Pending Acquisitions (as described in Note 1) for
the year ended December 31, 1996. This combined statement of revenue and certain
operating expenses is the responsibility of the owners and property management
of the 1997 Pending Acquisitions. Our responsibility is to express an opinion on
the statement of revenue and certain operating expenses based on our audit.
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 statement of revenue and certain
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. 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.
The accompanying combined statement of revenue and certain operating
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission, as described in Note 1,
for real estate operations acquired by Highwoods Properties, Inc. and is not
intended to be a complete presentation of the revenue and expenses of the
properties and may not be comparable to those resulting from the proposed future
operations of the properties.
In our opinion, the combined statement of revenue and certain expenses
presents fairly, in all material respects, the combined revenue and certain
operating expenses, as described in Note 1, of the 1997 Pending Acquisitions for
the year ended December 31, 1996, in conformity with generally accepted
accounting principals.
COOPERS & LYBRAND LLP
Memphis, Tennessee
September 12, 1997
F-13
1997 PENDING ACQUISITIONS
COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 (NOTE 1)
(IN THOUSANDS)
SIX MONTHS
ENDED
1996 JUNE 30, 1997
(UNAUDITED)
Revenue:
Rental............................................................................................ $11,676 $ 6,262
Tenant reimbursements............................................................................. 1,868 977
Parking........................................................................................... 145 66
Other............................................................................................. 300 71
Total revenue.................................................................................. 13,989 7,376
Certain operating expenses:
Property operating and maintenance................................................................ 3,960 1,965
Property management............................................................................... 615 333
Real estate taxes................................................................................. 1,545 784
Insurance......................................................................................... 268 134
Total certain operating expenses............................................................... 6,388 3,216
Excess of revenue over certain operating expenses................................................. $ 7,601 $ 4,160
See accompanying notes to statement of revenue and certain operating expenses.
F-14
1997 PENDING ACQUISITIONS
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING
EXPENSES -- CONTINUED
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined statements of revenue and certain operating
expenses include the combined operations of certain commercial office properties
located in Florida that are pending acquisition in 1997 (the "1997 Pending
Acquisitions") by Associated Capital Properties, Inc. and its affiliates ("ACP")
from third parties. The properties are to be acquired by Highwoods Properties,
Inc. ("Highwoods" or the "Company") pursuant to a Master Agreement of Merger and
Acquisition between Highwoods and ACP dated August 27, 1997.
The 1997 Pending Acquisitions consist of 7 office properties with
approximately 1.0 million rentable square feet located in the Orlando and South
Florida markets.
BASIS OF PRESENTATION
The accompanying statements were prepared to comply with the rules and
regulations of the Securities and Exchange Commission for real estate operations
to be acquired by the Company. The accompanying statements were prepared on a
combined basis as they are to be acquired by Highwoods pursuant to a single
agreement of merger and acquisition. There are no interproperty accounts to be
eliminated. The accompanying statements are not representative of the actual
operations for the periods presented as certain expenses that may not be
comparable to the expenses expected to be incurred by the Company in the future
operations of the 1997 Pending Acquisitions have been excluded.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
PROPERTY MANAGEMENT
Property management expenses include fees charged by third parties under
property management agreements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM STATEMENT
In the opinion of management, the unaudited combined financial statement
for the six months ended June 30, 1997 reflects all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
results of the respective interim period. The revenue and certain operating
expenses for the interim period are not necessarily indicative of the 1997
Pending Acquisitions' future revenue and certain operating expenses for a full
year.
NOTE 2. LEASES
Office space in the 1997 Pending Acquisitions is generally leased to
tenants under lease terms which provide for the tenants to pay for increases in
operating expenses in excess of specified amounts.
The future minimum lease payments to be received under the existing
operating leases as of December 31, 1996 are as follows (in thousands):
1997........................................................................... $11,055
1998........................................................................... 9,189
1999........................................................................... 6,900
2000........................................................................... 4,799
2001........................................................................... 3,527
Thereafter..................................................................... 13,006
The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.
F-15