Highwoods Properties
Annual Report 2001

Plain-text annual report

2 0 0 1 A N N U A L R E P O R T C O R P O R A T E P R O F I L E Highwoods is a fully integrated, self-administered real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company owns or has an interest in 595 office, industrial, retail and service center properties encompassing approximately 47 million square feet, including 23 development projects encompassing approximately 2.6 million square feet. The Company also controls more than 1,550 acres of land for future development. Highwoods is based in Raleigh, North Carolina, and its prop- erties and development land are located in Florida, Georgia, Iowa, Kansas, Missouri, North Carolina, South Carolina, Tennessee and Virginia. KANSAS CITY RICHMOND PIEDMONT TRIAD RESEARCH TRIANGLE NASHVILLE MEMPHIS CHARLOTTE GREENVILLE ATLANTA ORLANDO TAMPA 1 Highwoods Properties 2001 Annual Report F I N A N C I A L H I G H L I G H T S 2 0 0 1 2 0 0 0 1 9 9 9 in thousands, except per share amounts and ratios for the years ended December 31. Total Revenue $ 540,615 $ 566,431 $ 584,935 Net Income Available for Common Shareholders Net Income Available for Common Shareholders per Diluted Share Funds From Operations Funds From Operations per Diluted Share Dividends per Share Dividend Payout Ratio Real Estate Assets, at Cost Mortgages and Notes Payable Total Market Capitalization 99,711 1.83 100,907 105,513 1.70 1.71 238,009 251,423 244,232 3.83 2.31 60.3% 3.71 2.25 60.6% 3.45 2.19 63.5% $ 3,665,711 $ 3,408,869 $ 3,911,473 1,719,230 1,587,019 1,766,117 3,661,330 3,625,050 3,815,619 Core Markets percent of total annualized revenue including joint ventures Other 1% Tampa 15% Richmond 9% Research Triangle 13% Piedmont Triad 11% Orlando 3% Atlanta 14% Charlotte 5% Greenville 3% Kansas City 12% Memphis 4% Nashville 10% 4 3 2 1 0 100% 80% 60% 40% 20% 0% ) 1 7 . 2 $ ( 7 9 9 1 ) 2 2 . 3 $ ( 8 9 9 1 ) 5 4 . 3 $ ( 9 9 9 1 ) 1 7 . 3 $ ( 0 0 0 2 ) 3 8 . 3 $ ( 1 0 0 2 ) % 0 . 3 7 ( 7 9 9 1 ) % 2 . 5 6 ( 8 9 9 1 ) % 5 . 3 6 ( 9 9 9 1 ) % 6 . 0 6 ( 0 0 0 2 ) % 3 . 0 6 ( 1 0 0 2 Funds From Operations in dollars per diluted share Dividend Payout Ratio percent of funds from operations 4 3 2 1 0 ) 8 9 . 1 $ ( 7 9 9 1 ) 0 1 . 2 $ ( 8 9 9 1 ) 9 1 . 2 $ ( 9 9 9 1 ) 5 2 . 2 $ ( 0 0 0 2 ) 1 3 . 2 $ ( 1 0 0 2 Dividends in dollars per share Highwoods Properties 2001 Annual Report 2 T O O U R S H A R E H O L D E R S When we reported to you last year, we were proactively taking steps to position our Company for a period of slower growth driven by a very uncertain economy. In 2001 all commercial real estate companies were confronted with declining real estate fundamentals as the dramatic employment growth, which fueled our markets during the period from 1994 to 2000, slowed. As a result, the office real estate markets across the country experienced rising vacancy rates and negative absorption of office space. National office vacancy rates increased by 5.7 percent in 2001, while the vacancy in our office markets increased by 2.8 percent. Our south- eastern markets were soft, but as history has proven, they are expected to be more resilient than their national counterparts. By example, during the 1990–1991 recession, while the national markets took more than 35 months to return to peak employment levels, our southeastern markets returned to peak employment in just 24 months. The leaders of our Company, including the officers who are responsible for our 10 divisions, average 23 years of real estate experience and have performed through several real estate cycles. We have learned from these prior cycles and we believe that a 2001 Highlights: For the year, Funds From Operations of $238 million, or $3.83 per diluted share, were 3.2 percent higher than the prior year’s FFO of $251 million or $3.71 per diluted share. Overall we earned $541 million in revenues for 2001. We completed $157 million of asset repositioning in 2001, including the sale of $120 million of multi-family assets in Kansas City. We continue to concentrate on and improve the quality of our portfolio, while realizing the value we have created. We started $90 million of new development and ended the year with a development pipeline of $285 million com- pared with $336 million for December 31, 2000. The pipeline was 62 percent pre- leased and 79 percent funded at year-end. In 2001, net operating income (excluding the impact of dispositions and properties contributed to joint ventures during 1999, 2000 and 2001) grew by 8 percent from $314 million to $339 million. Our same property net operating income increased by 1.8 percent. We leased 4.4 million square feet of second generation office, industrial and retail space with rental rate growth of 4.7 percent. In 2001, we repurchased 5.9 million shares and units of our common stock at an average price of $24.99. Over the course of our share repurchase program, which began in the fourth quarter of 1999, we have repurchased 11.3 million shares at a total investment of $273 million. “It’s time we steered by the stars and not by the lights of each passing ship.” — G E N E R A L O M A R N . B R A D L E Y The leaders of our Company average 23 years of real estate experience, and we believe that a downturn will provide Highwoods with an excellent opportunity to create value. Years of Experience CEO Ron Gibson COO Ed Fritsch 29 20 Atlanta Senior Vice President Gene Anderson 31 Orlando Senior Vice President Mike Beale 24 Research Triangle Senior Vice President Marcus Jackson 16 Memphis Senior Vice President Mike Harris 23 Piedmont Triad Vice President Mark Shumaker 18 Tampa Vice President Steve Meyers Richmond Vice President Paul Kreckman 29 Charlotte/Greenville Senior Vice President Tom Cochran 25 Kansas City Senior Vice President Barry Brady 32 Nashville Vice President Brian Reames 17 15 5 Highwoods Properties 2001 Annual Report downturn will provide Highwoods with an excellent opportunity to create value. This past year and the one ahead will allow “real estate cycle- tested” management teams—like Highwoods—to demonstrate their operating strengths. We are proud of and have extreme confidence in our real estate professionals throughout the organization. At the core of our operating strategy is an ongoing commitment to our customers, shareholders and employees. We continue to implement this strategy with a unique blend of centralized control and entrepreneurial spirit that is characterized by an alignment of management and shareholder interests. This strategy is clearly focused on increasing shareholder value and providing a secure, growing dividend. 6% 4% 2% 0% ) % 8 . 2 ( s t e k r a M r u O ) % 7 . 5 ( l a n o i t a N ) % 2 . 2 ( s d o o w h g i H 1,000 800 600 400 200 0 ) 0 $ ( 7 9 9 1 ) 0 $ ( 8 9 9 1 ) 8 3 8 $ ( 9 9 9 1 ) 1 0 8 $ ( 0 0 0 2 ) 7 5 1 $ ( 1 0 0 2 800 600 400 200 0 ) 0 9 2 $ ( 7 9 9 1 ) 3 6 7 $ ( 8 9 9 1 ) 9 7 5 $ ( 9 9 9 1 ) 6 3 3 $ ( 0 0 0 2 ) 5 8 2 $ ( 1 0 0 2 Increase in Office Vacancy Rates 2000–2001 Source: REIS and Company Reports Asset Repositioning Volume in millions of dollars Development Pipeline in millions of dollars (at December 31) Highwoods Properties experienced a significantly lower increase in vacancy rates than the national average during 2001. Highwoods Properties 2001 Annual Report 6 This year will be a challenging one for our industry and for Highwoods. We expect sluggish economic conditions to continue through midyear; however, we anticipate an economic recovery in our core markets in the third and fourth quarters. Highwoods is well prepared for this economy given our solid base of long-term customers, our preleased development pipeline, strong balance sheet and, as highlighted earlier, our cycle-tested real estate team. The great American general, Omar N. Bradley, encouraged his troops to remain focused on a strategy that would lead to victory in World War II when he said, “It’s time we steered by the stars and not by the lights of each passing ship.” In 2002 we will continue to navigate by the stars and will concentrate on: • Securing occupancy through aggressive leasing efforts; • Limiting new development starts unless a project contains significant preleasing; • Containing our costs through process improvement and technology, and; • Continuing our capital recycling aimed at realizing value and improving the quality of the portfolio, while generating capital to invest in opportunistic, franchise- strengthening investments. 77 Highwoods Properties 2001 Annual Report In guiding our Company, we will: Continue to build an organi- zation of skilled professionals that places customer satis- faction and customer service at the top of our list of priorities. Expand and leverage our market leading positions and utilize our local market expertise to provide superior customer service. Provide our customers with quality choices of properties that fit a multitude of busi- ness space needs. Continue to reposition our real estate to create value for our customers and growth for our shareholders. Maintain a conservative and flexible capital structure so we can make opportunistic investments. It is our privilege to work with a dedicated team of loyal professionals who are excited about conquering the challenges before them, and we thank our employees for their continued commitment to Highwoods and to our communities. We also thank our board of directors for its guidance and support. Most importantly, we say thank you to our valued customers and shareholders. We look forward to a productive 2002 and to sharing our progress with you throughout the year. Ronald P. Gibson President and Chief Executive Officer O. Temple Sloan, Jr. Chairman of the Board Highwoods Properties 2001 Annual Report 8 B O A R D O F D I R E C T O R S S E N I O R O F F I C E R S Ronald P. Gibson President and Chief Executive Officer O. Temple Sloan, Jr. Thomas W. Adler Gene H. Anderson Chairman of the Board of Directors Chairman of the Board of Directors of General Parts, Inc. Chairman of PSF Management Senior Vice President Kay N. Callison Past Director of J.C. Nichols Company and Community Volunteer Edward J. Fritsch Executive Vice President, Chief Operating Officer and Secretary William E. Graham, Jr. Lawrence S. Kaplan Senior Counsel, Hunton & Williams and Past Vice Chairman of Carolina Power and Light Past Tax Partner of Ernst & Young LLP L. Glenn Orr, Jr. Director and Past Chairman, President and Chief Executive Officer of Southern National Corporation Willard H. Smith Jr. Past Managing Director of Merrill Lynch John L. Turner Vice Chairman of the Board of Directors Ronald P. Gibson* President, Chief Executive Officer and Director Edward J. Fritsch* Executive Vice President, Chief Operating Officer, Director and Secretary Gene H. Anderson* Senior Vice President and Director Michael F. Beale* Senior Vice President Barrett Brady Senior Vice President Thomas F. Cochran Senior Vice President Michael E. Harris* Senior Vice President Marcus H. Jackson* Senior Vice President Paul W. Kreckman Vice President Carman J. Liuzzo* Vice President, Chief Financial Officer and Treasurer Stephen A. Meyers Vice President Mack D. Pridgen III* Vice President, General Counsel and Assistant Secretary W. Brian Reames Vice President W. Mark Shumaker Vice President *Officers subject to the reporting require- ments of Section 16 of the Securities Exchange Act of 1934. S H A R E H O L D E R I N F O R M A T I O N Shareholder Contact For shareholder mailings and Company information: Highwoods Properties, Inc. Attention: Investor Relations 3100 Smoketree Court, Suite 600 Raleigh, North Carolina 27604 T (919) 872-4924 (800) 256-2963 (919) 876-6929 F E websitemail@highwoods.com Annual Meeting May 20, 2002, at 11:00 a.m. Marriott Crabtree Valley 4500 Marriott Drive Raleigh, North Carolina (919) 781-7000 T Corporate Address 3100 Smoketree Court, Suite 600 Raleigh, North Carolina 27604 T (919) 872-4924 (919) 873-0088 F w www.highwoods.com M A R K E T I N F O R M A T I O N Transfer Agent For information regarding change of address or other matters concerning your shareholder account, please contact the transfer agent at: First Union National Bank Shareholder Services Group 1525 West W.T. Harris Boulevard, 3C2 Charlotte, North Carolina 28288-1153 T F (800) 829-8432 (704) 590-0394 Dividend Reinvestment Plan As provided by the terms of the Dividend Reinvestment and Stock Purchase Plan (the “Plan”), eligible shareholders are able to reinvest all or a portion of their dividends in shares of the Company’s stock. Shareholders are also able to make optional cash payments for the purchase of additional shares. No brokerage commissions or fees will be charged under either option. For assistance or questions about the Plan, please contact Highwoods’ Investor Relations Coordinator at the Corporate Office. . c n I , s e i t r e p o r P s d o o w h g i H 2 0 0 2 © C N , h g i e l a R , n g i s e D y e n r u B y b d e n g i s e D The Common Stock has been traded on the New York Stock Exchange (“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 as reported on the NYSE for the periods indicated and distributions paid per share during each such period. 2 0 0 1 2 0 0 0 QUARTER ENDED HIGH LOW DISTRIBUTION HIGH LOW DISTRIBUTION March 31 June 30 September 30 December 31 $ 25.99 $ 24.00 $ 0.57 $ 23.50 $ 20.25 $ 0.555 26.65 26.67 26.42 24.15 23.45 23.52 0.57 25.94 0.585 27.19 0.585 24.94 21.31 23.50 21.25 0.555 0.57 0.57 On February 26, 2002, the last reported stock price of the Common Stock on the NYSE was $26.70 per share, and the Company had 1,474 stockholders of record. Highwoods Properties, Inc. 3100 Smoketree Court, Suite 600 Raleigh, North Carolina 27604 (919) 872-4924 www.highwoods.com 

Continue reading text version or see original annual report in PDF format above