Highwoods Properties Annual Report 2001

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FY2001 Annual Report · Highwoods Properties

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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

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%

100%

80%

60%

40%

20%

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Funds From Operations
in dollars per diluted share

Dividend Payout Ratio
percent of funds
from operations

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Dividends
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Highwoods Properties
2001 Annual Report

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

Atlanta
Senior Vice President
Gene Anderson 31

Orlando
Senior Vice President
Mike Beale

Research Triangle
Senior Vice President
Marcus Jackson 16

Memphis
Senior Vice President
Mike Harris

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

Kansas City
Senior Vice President
Barry Brady

Nashville
Vice President
Brian Reames

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.

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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

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.

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

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

(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

Corporate Address
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604

(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

(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.

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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

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