Filings Services JUL 1 4 2006 S N L Financial, LC 1-800-969-4121 - - - - - - - - - - - - - - &Driven 2 0 0 5 A N N U A L R E P O R T - iIsHighwoods P R O P E R T I E S Share hol It is my pleasure and privilege to report to you on the progress of 1-1 We have made great strides over the past two years, focusing our bettcr portfolio of differentiated assets that will cnahle Ilighwoo market absorption trends, iniprovc cash flow and cnhancc shareholder value. 1 To crcatc long-term shareholder value, we created a Stratcgic Management Plan to guide our futurc. Our board and senior rnanagcment team developed the gods for the first three years o f the Plan after a lengthy and deliberate process. This prnccss involved a thorough rcvicw a d analysis of our busiricss and our business practiccs and we vowed that no process, property or person WAS sacrcd. T h e initial thrcc-year goals we cstahlishcd at the beginning of 2005 are coniprehensive in scope a i d encompass a wide rangc of areas. They touch cvcry aspect of our Company, including leasing, development-, internal and external communic:ttions, branding and training. ese concrete, measurable goals inctudc: Ocrup,tncy to XF(% - OOO).ii. Wc will also evaluate opportunities to better leverage best practices xid further improve operating efficiencies. * Irnprovc I’orthlio QiaFiy. We will sell non-diff’erentiating, older and underperforming assets arid devclop high-qual jty properties in prime infill locations. Our initial plan calls for the disposition of between $600 rriillion and $650 million of non-core propcrtics and for starting $300 m i h n to $400 million of new development. 0 Strc~r;;tIit:ri oiir B:d,wicc SIKTI. We will use a significant portion of our disposition proceeds from the sale of non-differentiating properties to reduce our lcvcragc and improve our financial flcxihility. 0 Scll N o ~ i - C o r ~ L.anci. Wc arc taking an aggressive approach in evaluating our land holdings for thcir long-term valuc to our shareholders. We will sell land holdings that arc not core raw materials for our growth. We expect to sell $60 million to $70 niillion of land holdings by the end of 2007. I n 2005, we made significant hcadwdy towards achieving thcsc initial three-year goals. Increascd occuparlcy 410 basis points to 89.1%; Placed $86.5 million of 100% leased developincnt projects into service; Announced $134 million of new development; Sold $380 million of noti-core properties and land; Exitcd thc Charlotte market whcrc we had older, underperforming assets garnering annual G&A savings o f $500,000; and Used $282 million of disposition proceeds to rctirc high coupon debt and prcfcrrcd stock. Our progress is continuing in 2006.111 the first fivc months of the year, we announccd an additional $162 million of dcvclopmrnt starts, sold mother $160 miuion of noli-core assets and retired an additional $95 million of high coupo~i debt and prcfcrred stock. During 2c)05, we also finished a comprehensive review of our histiirical accounting methodologies and included a restatement of prior year financial statements in our 2004 Annual Kcport. This 2005 Annual Report includes financial statcmctits tl-iat have been audited hy Ilcloitte &Touche T,T ,P, our new indcpcnclent registered public accounting firm. I am excited ahout our future and hnpe you arc too. Our entire team is cncrgized and we are confident our strategic vision providcs thc best framework for the long-term, future growth and stability of our Company. Our operating and financial platform :tllows LIS to outpace our competitors by dclivcring superior product and service to our customers. We arc growing our portfolio of high quality, differentiated assets and wc have the flexibility to anticipatc and capitalize on changes iti our business environment. Tliank you for your continucd support md thank you to all of my m-workers atid our Directors for their hard work, fOcus and dcdication to our Cnmpany. 2 0 0 5 F O R M 1 0 - K Share h o I der C Q n tact For shareholder mailings and Company information: Shareholder I nformat Off i ce r :; Edward J. Fritsch” President, Chief Executive Oficer and Director on Board of Directors” Edward J. Frit~ch(’)(~**~ Presidenl and Chief Executive Officer Highwoods Properties, Inc. Attention: Investor Rclations 3100 Smoketree Court, Suite 600 Raleigh, North Carolina 27604 7’ 9 19.8 72.4924 800.256.2963 F 919.876.6929 E HIW-IR@higIiwoods.com W www.highwoods.com An 11 u a I Meet i n g August 3,2006, at 11:OO a.m. Marriott Crahtree Valley 4500 Marrintt Drive Kaleigh, North Carolina 27612 T 919.781.7000 Transfer Ageril For information regxding change of address or other matters concerning your shareholder account, please contact the transfer agent at: American Stock Transfer &Trust Co. Attention: Shareholder Services 6201 15th Avenue Brooklyn, New York 11219 T 800.937.5449 F 718.236.2641 C3 i v i den d Rei rives t men t PI an As provided by the terms of the Dividend Reinvestment and Stock Purchase Plan (the “Plan”), eligible shareholders are able to rein- vest all or a portion of their dividcnds in sharcs of thc Company’s stock. Shareholders arc also ablc to make optional cash payments for the purchase o f additional shares. No bro- kerage commissions or fccs will he charged under either option. For assistance or questions ahout the Plan, contact Highwoods Investor Relations Deprtrnent or the Transfer Agent. Michael E. Harris* Executive Vice President and Chief Operating Officer Terry L. Stevens* Vice President and Chief Financial Officei Gene H. Anderson” Ssnior Vice President and Director. Atlanta, GA Michael F Beale* Senior Vice President, Orlando, FL Barrett Brady Senior Vice President, Kansas Citv. MO S. Hugh Esleeck Treasurer Steven L. Guinn Vice President, Memphis. TN Thomas S. Hill Vice President, Raleigh, NC Julie M. Kelly Vice President, Compliance and internal Audit Paul W Kreckman Wce President, Richmond, VA Carrnan J. Liuzzo Vice President. Investments Stephen A. Meyers Vice President, Tampa, FL Kevin E. Penn Chief Information Olficer and Vice President, Strategy Mack 0. Pridgen Ill* Wce President, General Counsel and Secretary W. Brian Rearnes” Senior Vice President, Nashville, TN Mark W. Shumaker Vice President. Piedmont Triad, NC Tabitha N. Zane Vice President, Investor Relations and Corporate Cotnmunications * Officers subject to the reporting requirerrients of Section 16 of the Securities Exchange Act of 1934 0. Temple Sloan, Jr.(2)(3)(41 Chairman of the Board of Directors, Chairman and Chief Executive Officer, The International Group, Inc. Thomas W. Adler(?)(4) Chairman. PSF Management Gene H. Anderson14) Senior Vice President Kay N. Callison(”J Former Director, J. C Niciiols Company Lawrence S. Kaplan(’**J Former Tax Partner; Ernst & Young LLP Sherry Kellett(’) Former Corporate Controller. BB& T Corporation L. Glenn Orr, Jr.(2)(3**J Former Chairman, President and Chief Executive Officer; Southern National Corporation F. William Vandiver, Jr.(1J(2) Former Corporate Risk Management Executive, Bank of America (I) Audit Committee (2) Executive Cornmiltee (3) Compensation/Governance Committee (4) Investment Committee As of 3.31.06 Denotes Cominiifoe Chair Focused & Driven that is the Highwoods’ difference. Highwoods Properties is one of thc largcst owners and opcrators of suburban office properties in the Southeast. A fully integrated, self- administcrcd real estatc investment trust (“REIT”), IIighwoods providcs leasing, management, development, construction and other customer rclatcd scrviccs for its propcrtics and for third parties. As of December 31, 2005, wc owned or had an intcrcst in 447 offcc, industrial and rctail prop- erties encompassing approximately 37 million square feet and we owned 898 acres of undeveloped land. w w w , h i g h v v o o d s . c o m