Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
 
HIGHWOODS PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
001-13100
56-1871668
 
 
(State or other jurisdiction
of incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification Number)
 
 
HIGHWOODS REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
 
North Carolina
000-21731
56-1869557
 
 
(State or other jurisdiction
of incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification Number)
 
 
3100 Smoketree Court, Suite 600
Raleigh, NC 27604
(Address of principal executive offices) (Zip Code)
919-872-4924
(Registrants’ telephone number, including area code)
______________
 
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.
Highwoods Properties, Inc.  Yes  x    No ¨    Highwoods Realty Limited Partnership  Yes  x    No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Highwoods Properties, Inc.  Yes  x    No ¨    Highwoods Realty Limited Partnership  Yes  x    No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of 'large accelerated filer,' 'accelerated filer' and 'smaller reporting company' in Rule 12b-2 of the Securities Exchange Act.
Highwoods Properties, Inc.
Large accelerated filer x    Accelerated filer ¨      Non-accelerated filer ¨      Smaller reporting company ¨
Highwoods Realty Limited Partnership
Large accelerated filer ¨    Accelerated filer ¨      Non-accelerated filer x      Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
Highwoods Properties, Inc.  Yes  ¨    No x    Highwoods Realty Limited Partnership  Yes  ¨    No x
 
The Company had 98,611,821 shares of Common Stock outstanding as of July 25, 2016.
 




EXPLANATORY NOTE

We refer to Highwoods Properties, Inc. as the “Company,” Highwoods Realty Limited Partnership as the “Operating Partnership,” the Company’s common stock as “Common Stock” or “Common Shares,” the Company’s preferred stock as “Preferred Stock” or “Preferred Shares,” the Operating Partnership’s common partnership interests as “Common Units” and the Operating Partnership’s preferred partnership interests as “Preferred Units.” References to “we” and “our” mean the Company and the Operating Partnership, collectively, unless the context indicates otherwise.

The Company conducts its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

Certain information contained herein is presented as of July 25, 2016, the latest practicable date for financial information prior to the filing of this Quarterly Report.

This report combines the Quarterly Reports on Form 10-Q for the period ended June 30, 2016 of the Company and the Operating Partnership. We believe combining the quarterly reports into this single report results in the following benefits:

combined reports better reflect how management and investors view the business as a single operating unit;

combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;

combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and

combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

Consolidated Financial Statements;

Note 13 to Consolidated Financial Statements - Earnings Per Share and Per Unit;

Item 4 - Controls and Procedures; and

Item 6 - Certifications of CEO and CFO Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.





HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP

QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2016

TABLE OF CONTENTS

 
Page
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
PART II - OTHER INFORMATION
 
ITEM 1A.  RISK FACTORS
ITEM 6. EXHIBITS



2

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HIGHWOODS PROPERTIES, INC.
Consolidated Balance Sheets
(Unaudited and in thousands, except share and per share data)
 
June 30,
2016
 
December 31,
2015
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
448,212

 
$
443,705

Buildings and tenant improvements
4,128,823

 
4,063,328

Development in-process
229,184

 
194,050

Land held for development
75,078

 
68,244

 
4,881,297

 
4,769,327

Less-accumulated depreciation
(1,063,010
)
 
(1,007,104
)
Net real estate assets
3,818,287

 
3,762,223

Real estate and other assets, net, held for sale
2,387

 
240,948

Cash and cash equivalents
2,444

 
5,036

Restricted cash
265,193

 
16,769

Accounts receivable, net of allowance of $850 and $928, respectively
26,671

 
29,077

Mortgages and notes receivable, net of allowance of $75 and $287, respectively
9,971

 
2,096

Accrued straight-line rents receivable, net of allowance of $483 and $257, respectively
162,573

 
150,392

Investments in and advances to unconsolidated affiliates
19,786

 
20,676

Deferred leasing costs, net of accumulated amortization of $129,252 and $115,172, respectively
217,042

 
231,765

Prepaid expenses and other assets, net of accumulated amortization of $19,260 and $17,830,
respectively
40,008

 
26,649

Total Assets
$
4,564,362

 
$
4,485,631

Liabilities, Noncontrolling Interests in the Operating Partnership and Equity:
 
 
 
Mortgages and notes payable, net
$
2,082,207

 
$
2,491,813

Accounts payable, accrued expenses and other liabilities
241,979

 
233,988

Liabilities held for sale

 
14,119

Total Liabilities
2,324,186

 
2,739,920

Commitments and contingencies

 

Noncontrolling interests in the Operating Partnership
151,400

 
126,429

Equity:
 
 
 
Preferred Stock, $.01 par value, 50,000,000 authorized shares;
 
 
 
8.625% Series A Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per share), 28,935 and 29,050 shares issued and outstanding, respectively
28,935

 
29,050

Common Stock, $.01 par value, 200,000,000 authorized shares;
 
 
 
98,570,974 and 96,091,932 shares issued and outstanding, respectively
986

 
961

Additional paid-in capital
2,693,755

 
2,598,242

Distributions in excess of net income available for common stockholders
(640,969
)
 
(1,023,135
)
Accumulated other comprehensive loss
(11,628
)
 
(3,811
)
Total Stockholders’ Equity
2,071,079

 
1,601,307

Noncontrolling interests in consolidated affiliates
17,697

 
17,975

Total Equity
2,088,776

 
1,619,282

Total Liabilities, Noncontrolling Interests in the Operating Partnership and Equity
$
4,564,362

 
$
4,485,631

 
See accompanying notes to consolidated financial statements.

3

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Income
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Rental and other revenues
$
166,860

 
$
148,543

 
$
331,719

 
$
293,779

Operating expenses:
 
 
 
 
 
 
 
Rental property and other expenses
57,515

 
52,370

 
115,095

 
104,884

Depreciation and amortization
55,317

 
47,928

 
108,811

 
94,795

General and administrative
8,327

 
8,665

 
19,464

 
19,908

Total operating expenses
121,159

 
108,963

 
243,370

 
219,587

Interest expense:
 
 
 
 
 
 
 
Contractual
18,674

 
20,857

 
38,389

 
41,299

Amortization of debt issuance costs
811

 
828

 
1,801

 
1,628

Financing obligation

 
162

 

 
162

 
19,485

 
21,847

 
40,190

 
43,089

Other income:
 
 
 
 
 
 
 
Interest and other income
534

 
520

 
1,051

 
1,102

Losses on debt extinguishment

 
(220
)
 

 
(220
)
 
534

 
300


1,051


882

Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
26,750

 
18,033

 
49,210

 
31,985

Gains on disposition of property
5,861

 
2,412

 
10,258

 
3,569

Equity in earnings of unconsolidated affiliates
917

 
1,776

 
2,202

 
3,587

Income from continuing operations
33,528

 
22,221

 
61,670

 
39,141

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations

 
4,670

 
4,097

 
8,585

Net gains on disposition of discontinued operations

 

 
414,496

 

 

 
4,670

 
418,593

 
8,585

Net income
33,528

 
26,891

 
480,263

 
47,726

Net (income) attributable to noncontrolling interests in the Operating Partnership
(939
)
 
(782
)
 
(13,950
)
 
(1,378
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(314
)
 
(328
)
 
(622
)
 
(624
)
Dividends on Preferred Stock
(627
)
 
(626
)
 
(1,253
)
 
(1,253
)
Net income available for common stockholders
$
31,648

 
$
25,155


$
464,438


$
44,471

Earnings per Common Share – basic:
 
 
 
 
 
 
 
Income from continuing operations available for common stockholders
$
0.32

 
$
0.22

 
$
0.60

 
$
0.39

Income from discontinued operations available for common stockholders

 
0.05

 
4.19

 
0.08

Net income available for common stockholders
$
0.32

 
$
0.27

 
$
4.79

 
$
0.47

Weighted average Common Shares outstanding – basic
97,648

 
94,055

 
97,010

 
93,641

Earnings per Common Share – diluted:
 
 
 
 
 
 
 
Income from continuing operations available for common stockholders
$
0.32

 
$
0.22

 
$
0.60

 
$
0.39

Income from discontinued operations available for common stockholders

 
0.05

 
4.18

 
0.08

Net income available for common stockholders
$
0.32

 
$
0.27

 
$
4.78

 
$
0.47

Weighted average Common Shares outstanding – diluted
100,628

 
97,049

 
99,992

 
96,666

Dividends declared per Common Share
$
0.425

 
$
0.425

 
$
0.850

 
$
0.850

Net income available for common stockholders:
 
 
 
 
 
 
 
Income from continuing operations available for common stockholders
$
31,648

 
$
20,626

 
$
58,110

 
$
36,147

Income from discontinued operations available for common stockholders

 
4,529

 
406,328

 
8,324

Net income available for common stockholders
$
31,648

 
$
25,155

 
$
464,438

 
$
44,471

See accompanying notes to consolidated financial statements.

4

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
33,528

 
$
26,891

 
$
480,263

 
$
47,726

Other comprehensive income/(loss):
 
 
 
 
 
 
 
Unrealized gains on tax increment financing bond

 
1

 

 
194

Unrealized gains/(losses) on cash flow hedges
(5,760
)
 
269

 
(9,395
)
 
(2,645
)
Amortization of cash flow hedges
783

 
925

 
1,578

 
1,849

Total other comprehensive income/(loss)
(4,977
)
 
1,195

 
(7,817
)
 
(602
)
Total comprehensive income
28,551

 
28,086

 
472,446

 
47,124

Less-comprehensive (income) attributable to noncontrolling interests
(1,253
)
 
(1,110
)
 
(14,572
)
 
(2,002
)
Comprehensive income attributable to common stockholders
$
27,298

 
$
26,976

 
$
457,874

 
$
45,122


See accompanying notes to consolidated financial statements.



5

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Equity
(Unaudited and in thousands, except share amounts)

 
Number of Common Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accumulated Other Compre-hensive Loss
 
Non-controlling Interests in Consolidated Affiliates
 
Distributions in Excess of Net Income Available for Common Stockholders
 
Total
Balance at December 31, 2015
96,091,932

 
$
961

 
$
29,050

 
$
2,598,242

 
$
(3,811
)
 
$
17,975

 
$
(1,023,135
)
 
$
1,619,282

Issuances of Common Stock, net of issuance costs and tax withholdings
2,324,850

 
23

 

 
104,449

 

 

 

 
104,472

Conversions of Common Units to Common Stock
32,328

 

 

 
1,558

 

 

 

 
1,558

Dividends on Common Stock


 

 

 

 

 

 
(82,272
)
 
(82,272
)
Dividends on Preferred Stock


 

 

 

 

 

 
(1,253
)
 
(1,253
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value


 

 

 
(15,042
)
 

 

 

 
(15,042
)
Distributions to noncontrolling interests in consolidated affiliates


 

 

 

 

 
(900
)
 

 
(900
)
Issuances of restricted stock
130,752

 

 

 

 

 

 

 

Redemptions/repurchases of Preferred Stock
 
 

 
(115
)
 

 

 

 

 
(115
)
Share-based compensation expense, net of forfeitures
(8,888
)
 
2

 

 
4,548

 

 

 

 
4,550

Net (income) attributable to noncontrolling interests in the Operating Partnership


 

 

 

 

 

 
(13,950
)
 
(13,950
)
Net (income) attributable to noncontrolling interests in consolidated affiliates


 

 

 

 

 
622

 
(622
)
 

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 

 

 

 

 

 
480,263

 
480,263

Other comprehensive loss


 

 

 

 
(7,817
)
 

 

 
(7,817
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
472,446

Balance at June 30, 2016
98,570,974

 
$
986

 
$
28,935

 
$
2,693,755

 
$
(11,628
)
 
$
17,697

 
$
(640,969
)
 
$
2,088,776



 
Number of Common Shares
 
Common Stock
 
Series A Cumulative Redeemable Preferred Shares
 
Additional Paid-In Capital
 
Accumulated Other Compre-hensive Loss
 
Non-controlling Interests in Consolidated Affiliates
 
Distributions in Excess of Net Income Available for Common Stockholders
 
Total
Balance at December 31, 2014
92,907,310

 
$
929

 
$
29,060

 
$
2,464,275

 
$
(3,912
)
 
$
18,109

 
$
(957,370
)
 
$
1,551,091

Issuances of Common Stock, net of issuance costs and tax withholdings
1,055,491

 
11

 

 
43,205

 

 

 

 
43,216

Conversions of Common Units to Common Stock
26,820

 

 

 
1,206

 

 

 

 
1,206

Dividends on Common Stock

 

 

 

 

 

 
(79,526
)
 
(79,526
)
Dividends on Preferred Stock

 

 

 

 

 

 
(1,253
)
 
(1,253
)
Adjustment of noncontrolling interests in the Operating Partnership to fair value

 

 

 
11,475

 

 

 

 
11,475

Distributions to noncontrolling interests in consolidated affiliates

 

 

 

 

 
(751
)
 

 
(751
)
Issuances of restricted stock
128,951

 

 

 

 

 

 

 

Redemptions/repurchases of Preferred Stock

 

 
(10
)
 

 

 

 

 
(10
)
Share-based compensation expense, net of forfeitures
(566
)
 
1

 

 
5,066

 

 

 

 
5,067

Net (income) attributable to noncontrolling interests in the Operating Partnership

 

 

 

 

 

 
(1,378
)
 
(1,378
)
Net (income) attributable to noncontrolling interests in consolidated affiliates

 

 

 

 

 
624

 
(624
)
 

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 

 
47,726

 
47,726

Other comprehensive loss

 

 

 

 
(602
)
 

 

 
(602
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47,124

Balance at June 30, 2015
94,118,006

 
$
941

 
$
29,050

 
$
2,525,227

 
$
(4,514
)
 
$
17,982

 
$
(992,425
)
 
$
1,576,261


See accompanying notes to consolidated financial statements.

6

Table of Contents

HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
 
Six Months Ended
June 30,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
480,263

 
$
47,726

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
108,811

 
101,548

Amortization of lease incentives and acquisition-related intangible assets and liabilities
(1,179
)
 
9

Share-based compensation expense
4,550

 
5,067

Allowance for losses on accounts and accrued straight-line rents receivable
1,218

 
1,174

Accrued interest on mortgages and notes receivable
(212
)
 
(268
)
Amortization of debt issuance costs
1,801

 
1,628

Amortization of cash flow hedges
1,578

 
1,849

Amortization of mortgages and notes payable fair value adjustments
(116
)
 
84

Losses on debt extinguishment

 
220

Net gains on disposition of property
(424,754
)
 
(3,569
)
Equity in earnings of unconsolidated affiliates
(2,202
)
 
(3,587
)
Changes in financing obligation

 
162

Distributions of earnings from unconsolidated affiliates
1,095

 
3,438

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(181
)
 
1,723

Prepaid expenses and other assets
(5,297
)
 
(4,365
)
Accrued straight-line rents receivable
(13,600
)
 
(11,417
)
Accounts payable, accrued expenses and other liabilities
(13,970
)
 
(19,127
)
Net cash provided by operating activities
137,805

 
122,295

Investing activities:
 
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(9,058
)
 
(4,277
)
Investments in development in-process
(74,668
)
 
(44,601
)
Investments in tenant improvements and deferred leasing costs
(42,954
)
 
(61,282
)
Investments in building improvements
(31,677
)
 
(23,513
)
Net proceeds from disposition of real estate assets
675,003

 
6,070

Distributions of capital from unconsolidated affiliates
2,118

 
10,077

Investments in mortgages and notes receivable
(7,818
)
 
(1,772
)
Repayments of mortgages and notes receivable
155

 
9,221

Investments in and advances to unconsolidated affiliates
(105
)
 

Changes in restricted cash and other investing activities
(257,181
)
 
(6,741
)
Net cash provided by/(used in) investing activities
253,815

 
(116,818
)
Financing activities:
 
 
 
Dividends on Common Stock
(82,272
)
 
(79,526
)
Redemptions/repurchases of Preferred Stock
(115
)
 
(10
)
Dividends on Preferred Stock
(1,253
)
 
(1,253
)
Distributions to noncontrolling interests in the Operating Partnership
(2,463
)
 
(2,485
)
Distributions to noncontrolling interests in consolidated affiliates
(900
)
 
(751
)
Proceeds from the issuance of Common Stock
110,158

 
47,678

Costs paid for the issuance of Common Stock
(1,629
)
 
(735
)
Repurchase of shares related to tax withholdings
(4,057
)
 
(3,727
)
Borrowings on revolving credit facility
153,800

 
183,900

Repayments of revolving credit facility
(169,800
)
 
(233,900
)
Borrowings on mortgages and notes payable

 
125,000

Repayments of mortgages and notes payable
(394,738
)
 
(41,887
)
Payments on financing obligation

 
(162
)
Changes in debt issuance costs and other financing activities
(943
)
 
(1,512
)
Net cash used in financing activities
(394,212
)
 
(9,370
)
Net decrease in cash and cash equivalents
$
(2,592
)
 
$
(3,893
)
See accompanying notes to consolidated financial statements.

7

Table of Contents


HIGHWOODS PROPERTIES, INC.
Consolidated Statements of Cash Flows – Continued
(Unaudited and in thousands)

 
Six Months Ended
June 30,
 
2016
 
2015
Net decrease in cash and cash equivalents
$
(2,592
)
 
$
(3,893
)
Cash and cash equivalents at beginning of the period
5,036

 
8,832

Cash and cash equivalents at end of the period
$
2,444

 
$
4,939


Supplemental disclosure of cash flow information:
 
 
Six Months Ended
June 30,
 
2016
 
2015
Cash paid for interest, net of amounts capitalized
$
38,222

 
$
40,540


Supplemental disclosure of non-cash investing and financing activities:
 
 
Six Months Ended
June 30,
 
2016
 
2015
Unrealized losses on cash flow hedges
$
(9,395
)
 
$
(2,645
)
Conversions of Common Units to Common Stock
1,558

 
1,206

Changes in accrued capital expenditures
9,227

 
(3,250
)
Write-off of fully depreciated real estate assets
21,948

 
31,011

Write-off of fully amortized debt issuance and leasing costs
11,690

 
17,812

Adjustment of noncontrolling interests in the Operating Partnership to fair value
15,042

 
(11,475
)
Unrealized gains on tax increment financing bond

 
194

Assumption of mortgages and notes payable related to acquisition activities

 
19,277

Contingent consideration in connection with the acquisition of land

 
900


See accompanying notes to consolidated financial statements.

8

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Unaudited and in thousands, except unit and per unit data)
 
June 30,
2016
 
December 31,
2015
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
448,212

 
$
443,705

Buildings and tenant improvements
4,128,823

 
4,063,328

Development in-process
229,184

 
194,050

Land held for development
75,078

 
68,244

 
4,881,297

 
4,769,327

Less-accumulated depreciation
(1,063,010
)
 
(1,007,104
)
Net real estate assets
3,818,287

 
3,762,223

Real estate and other assets, net, held for sale
2,387

 
240,948

Cash and cash equivalents
2,444

 
5,036

Restricted cash
265,193

 
16,769

Accounts receivable, net of allowance of $850 and $928, respectively
26,671

 
29,077

Mortgages and notes receivable, net of allowance of $75 and $287, respectively
9,971

 
2,096

Accrued straight-line rents receivable, net of allowance of $483 and $257, respectively
162,573

 
150,392

Investments in and advances to unconsolidated affiliates
19,786

 
20,676

Deferred leasing costs, net of accumulated amortization of $129,252 and $115,172, respectively
217,042

 
231,765

Prepaid expenses and other assets, net of accumulated amortization of $19,260 and $17,830,
respectively
40,008

 
26,649

Total Assets
$
4,564,362

 
$
4,485,631

Liabilities, Redeemable Operating Partnership Units and Capital:
 
 
 
Mortgages and notes payable, net
$
2,082,207

 
$
2,491,813

Accounts payable, accrued expenses and other liabilities
241,979

 
233,988

Liabilities held for sale

 
14,119

Total Liabilities
2,324,186

 
2,739,920

Commitments and contingencies

 

Redeemable Operating Partnership Units:
 
 
 
Common Units, 2,867,424 and 2,899,752 outstanding, respectively
151,400

 
126,429

Series A Preferred Units (liquidation preference $1,000 per unit), 28,935 and 29,050 units issued and
outstanding, respectively
28,935

 
29,050

Total Redeemable Operating Partnership Units
180,335

 
155,479

Capital:
 
 
 
Common Units:
 
 
 
General partner Common Units, 1,010,296 and 985,829 outstanding, respectively
20,537

 
15,759

Limited partner Common Units, 97,151,869 and 94,697,294 outstanding, respectively
2,033,235

 
1,560,309

Accumulated other comprehensive loss
(11,628
)
 
(3,811
)
Noncontrolling interests in consolidated affiliates
17,697

 
17,975

Total Capital
2,059,841

 
1,590,232

Total Liabilities, Redeemable Operating Partnership Units and Capital
$
4,564,362

 
$
4,485,631


See accompanying notes to consolidated financial statements.

9

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(Unaudited and in thousands, except per unit amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Rental and other revenues
$
166,860

 
$
148,543

 
$
331,719

 
$
293,779

Operating expenses:
 
 
 
 
 
 
 
Rental property and other expenses
57,515

 
52,370

 
115,095

 
104,884

Depreciation and amortization
55,317

 
47,928

 
108,811

 
94,795

General and administrative
8,327

 
8,665

 
19,464

 
19,908

Total operating expenses
121,159

 
108,963

 
243,370

 
219,587

Interest expense:
 
 
 
 
 
 
 
Contractual
18,674

 
20,857

 
38,389

 
41,299

Amortization of debt issuance costs
811

 
828

 
1,801

 
1,628

Financing obligation

 
162

 

 
162

 
19,485

 
21,847

 
40,190

 
43,089

Other income:
 
 
 
 
 
 
 
Interest and other income
534

 
520

 
1,051

 
1,102

Losses on debt extinguishment

 
(220
)
 

 
(220
)
 
534

 
300

 
1,051

 
882

Income from continuing operations before disposition of investment properties and activity in unconsolidated affiliates
26,750

 
18,033

 
49,210

 
31,985

Gains on disposition of property
5,861

 
2,412

 
10,258

 
3,569

Equity in earnings of unconsolidated affiliates
917

 
1,776

 
2,202

 
3,587

Income from continuing operations
33,528

 
22,221

 
61,670

 
39,141

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations

 
4,670

 
4,097

 
8,585

Net gains on disposition of discontinued operations

 

 
414,496

 

 

 
4,670

 
418,593

 
8,585

Net income
33,528

 
26,891

 
480,263

 
47,726

Net (income) attributable to noncontrolling interests in consolidated affiliates
(314
)
 
(328
)
 
(622
)
 
(624
)
Distributions on Preferred Units
(627
)
 
(626
)
 
(1,253
)
 
(1,253
)
Net income available for common unitholders
$
32,587

 
$
25,937

 
$
478,388

 
$
45,849

Earnings per Common Unit – basic:
 
 
 
 
 
 
 
Income from continuing operations available for common unitholders
$
0.33

 
$
0.22

 
$
0.60

 
$
0.39

Income from discontinued operations available for common unitholders

 
0.05

 
4.21

 
0.09

Net income available for common unitholders
$
0.33

 
$
0.27

 
$
4.81

 
$
0.48

Weighted average Common Units outstanding – basic
100,129

 
96,556

 
99,496

 
96,153

Earnings per Common Unit – diluted:
 
 
 
 
 
 
 
Income from continuing operations available for common unitholders
$
0.33

 
$
0.22

 
$
0.60

 
$
0.39

Income from discontinued operations available for common unitholders

 
0.05

 
4.20

 
0.09

Net income available for common unitholders
$
0.33

 
$
0.27

 
$
4.80

 
$
0.48

Weighted average Common Units outstanding – diluted
100,219

 
96,640

 
99,583

 
96,257

Distributions declared per Common Unit
$
0.425

 
$
0.425

 
$
0.850

 
$
0.850

Net income available for common unitholders:
 
 
 
 
 
 
 
Income from continuing operations available for common unitholders
$
32,587

 
$
21,267

 
$
59,795

 
$
37,264

Income from discontinued operations available for common unitholders

 
4,670

 
418,593

 
8,585

Net income available for common unitholders
$
32,587

 
$
25,937

 
$
478,388

 
$
45,849

See accompanying notes to consolidated financial statements.

10

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Comprehensive Income
(Unaudited and in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
33,528

 
$
26,891

 
$
480,263

 
$
47,726

Other comprehensive income/(loss):
 
 
 
 
 
 
 
Unrealized gains on tax increment financing bond

 
1

 

 
194

Unrealized gains/(losses) on cash flow hedges
(5,760
)
 
269

 
(9,395
)
 
(2,645
)
Amortization of cash flow hedges
783

 
925

 
1,578

 
1,849

Total other comprehensive income/(loss)
(4,977
)
 
1,195

 
(7,817
)
 
(602
)
Total comprehensive income
28,551

 
28,086

 
472,446

 
47,124

Less-comprehensive (income) attributable to noncontrolling interests
(314
)
 
(328
)
 
(622
)
 
(624
)
Comprehensive income attributable to common unitholders
$
28,237


$
27,758

 
$
471,824

 
$
46,500


See accompanying notes to consolidated financial statements.


11

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Capital
(Unaudited and in thousands)

 
Common Units
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling
Interests in
Consolidated
Affiliates
 
Total
 
General
Partners’
Capital
 
Limited
Partners’
Capital
 
Balance at December 31, 2015
$
15,759

 
$
1,560,309

 
$
(3,811
)
 
$
17,975

 
$
1,590,232

Issuances of Common Units, net of issuance costs and tax withholdings
1,045

 
103,427

 

 

 
104,472

Distributions paid on Common Units
(844
)
 
(83,543
)
 

 

 
(84,387
)
Distributions paid on Preferred Units
(13
)
 
(1,240
)
 

 

 
(1,253
)
Share-based compensation expense, net of forfeitures
46

 
4,504

 

 

 
4,550

Distributions to noncontrolling interests in consolidated affiliates

 

 

 
(900
)
 
(900
)
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
(253
)
 
(25,066
)
 

 

 
(25,319
)
Net (income) attributable to noncontrolling interests in consolidated affiliates
(6
)
 
(616
)
 

 
622

 

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
4,803

 
475,460

 

 

 
480,263

Other comprehensive loss

 

 
(7,817
)
 

 
(7,817
)
Total comprehensive income
 
 
 
 
 
 
 
 
472,446

Balance at June 30, 2016
$
20,537

 
$
2,033,235

 
$
(11,628
)
 
$
17,697

 
$
2,059,841



 
Common Units
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling
Interests in
Consolidated
Affiliates
 
Total
 
General
Partners’
Capital
 
Limited
Partners’
Capital
 
Balance at December 31, 2014
$
15,078

 
$
1,492,948

 
$
(3,912
)
 
$
18,109

 
$
1,522,223

Issuances of Common Units, net of issuance costs and tax withholdings
432

 
42,784

 

 

 
43,216

Distributions paid on Common Units
(817
)
 
(80,846
)
 

 

 
(81,663
)
Distributions paid on Preferred Units
(13
)
 
(1,240
)
 

 

 
(1,253
)
Share-based compensation expense, net of forfeitures
51

 
5,016

 

 

 
5,067

Distributions to noncontrolling interests in consolidated affiliates

 

 

 
(751
)
 
(751
)
Adjustment of Redeemable Common Units to fair value and contributions/distributions from/to the General Partner
133

 
13,115

 

 

 
13,248

Net (income) attributable to noncontrolling interests in consolidated affiliates
(6
)
 
(618
)
 

 
624

 

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
477

 
47,249

 

 

 
47,726

Other comprehensive loss

 

 
(602
)
 

 
(602
)
Total comprehensive income
 
 
 
 
 
 
 
 
47,124

Balance at June 30, 2015
$
15,335

 
$
1,518,408

 
$
(4,514
)
 
$
17,982

 
$
1,547,211


See accompanying notes to consolidated financial statements.

12

Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
 
Six Months Ended
June 30,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
480,263

 
$
47,726

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
108,811

 
101,548

Amortization of lease incentives and acquisition-related intangible assets and liabilities
(1,179
)
 
9

Share-based compensation expense
4,550

 
5,067

Allowance for losses on accounts and accrued straight-line rents receivable
1,218

 
1,174

Accrued interest on mortgages and notes receivable
(212
)
 
(268
)
Amortization of debt issuance costs
1,801

 
1,628

Amortization of cash flow hedges
1,578

 
1,849

Amortization of mortgages and notes payable fair value adjustments
(116
)
 
84

Losses on debt extinguishment

 
220

Net gains on disposition of property
(424,754
)
 
(3,569
)
Equity in earnings of unconsolidated affiliates
(2,202
)
 
(3,587
)
Changes in financing obligation

 
162

Distributions of earnings from unconsolidated affiliates
1,095

 
3,438

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(181
)
 
1,723

Prepaid expenses and other assets
(5,297
)
 
(4,365
)
Accrued straight-line rents receivable
(13,600
)
 
(11,417
)
Accounts payable, accrued expenses and other liabilities
(13,970
)
 
(19,041
)
Net cash provided by operating activities
137,805

 
122,381

Investing activities:
 
 
 
Investments in acquired real estate and related intangible assets, net of cash acquired
(9,058
)
 
(4,277
)
Investments in development in-process
(74,668
)
 
(44,601
)
Investments in tenant improvements and deferred leasing costs
(42,954
)
 
(61,282
)
Investments in building improvements
(31,677
)
 
(23,513
)
Net proceeds from disposition of real estate assets
675,003

 
6,070

Distributions of capital from unconsolidated affiliates
2,118

 
10,077

Investments in mortgages and notes receivable
(7,818
)
 
(1,772
)
Repayments of mortgages and notes receivable
155

 
9,221

Investments in and advances to unconsolidated affiliates
(105
)
 

Changes in restricted cash and other investing activities
(257,181
)
 
(6,741
)
Net cash provided by/(used in) investing activities
253,815

 
(116,818
)
Financing activities:
 
 
 
Distributions on Common Units
(84,387
)
 
(81,663
)
Redemptions/repurchases of Preferred Units
(115
)
 
(10
)
Distributions on Preferred Units
(1,253
)
 
(1,253
)
Distributions to noncontrolling interests in consolidated affiliates
(900
)
 
(751
)
Proceeds from the issuance of Common Units
110,158

 
47,678

Costs paid for the issuance of Common Units
(1,629
)
 
(735
)
Repurchase of units related to tax withholdings
(4,057
)
 
(3,727
)
Borrowings on revolving credit facility
153,800

 
183,900

Repayments of revolving credit facility
(169,800
)
 
(233,900
)
Borrowings on mortgages and notes payable

 
125,000

Repayments of mortgages and notes payable
(394,738
)
 
(41,887
)
Payments on financing obligation

 
(162
)
Changes in debt issuance costs and other financing activities
(1,291
)
 
(2,052
)
Net cash used in financing activities
(394,212
)
 
(9,562
)
Net decrease in cash and cash equivalents
$
(2,592
)
 
$
(3,999
)
See accompanying notes to consolidated financial statements.

13

Table of Contents


HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - Continued
(Unaudited and in thousands)

 
Six Months Ended
June 30,
 
2016
 
2015
Net decrease in cash and cash equivalents
$
(2,592
)
 
$
(3,999
)
Cash and cash equivalents at beginning of the period
5,036

 
8,938

Cash and cash equivalents at end of the period
$
2,444

 
$
4,939


Supplemental disclosure of cash flow information:
 
 
Six Months Ended
June 30,
 
2016
 
2015
Cash paid for interest, net of amounts capitalized
$
38,222

 
$
40,540


Supplemental disclosure of non-cash investing and financing activities:
 
 
Six Months Ended
June 30,
 
2016
 
2015
Unrealized losses on cash flow hedges
$
(9,395
)
 
$
(2,645
)
Changes in accrued capital expenditures
9,227

 
(3,250
)
Write-off of fully depreciated real estate assets
21,948

 
31,011

Write-off of fully amortized debt issuance and leasing costs
11,690

 
17,812

Adjustment of Redeemable Common Units to fair value
24,971

 
(13,788
)
Unrealized gains on tax increment financing bond

 
194

Assumption of mortgages and notes payable related to acquisition activities

 
19,277

Contingent consideration in connection with the acquisition of land

 
900


See accompanying notes to consolidated financial statements.

14

Table of Contents

HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(tabular dollar amounts in thousands, except per share and per unit data)
(Unaudited)

1.    Description of Business and Significant Accounting Policies

Description of Business

Highwoods Properties, Inc. (the “Company”) is a fully integrated 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 conducts its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At June 30, 2016, we owned or had an interest in 31.1 million rentable square feet of in-service properties, 1.1 million rentable square feet of properties under development and approximately 500 acres of development land.
 
The Company is the sole general partner of the Operating Partnership. At June 30, 2016, the Company owned all of the Preferred Units and 98.2 million, or 97.2%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.9 million Common Units. During the six months ended June 30, 2016, the Company redeemed 32,328 Common Units for a like number of shares of Common Stock.

Common Stock Offerings
 
During the three and six months ended June 30, 2016, the Company issued 1,022,575 and 2,077,071 shares, respectively, of Common Stock under its equity distribution agreements at an average gross sales price of $48.90 and $47.36 per share, respectively, and received net proceeds, after sales commissions, of $49.3 million and $96.9 million, respectively. As a result of this activity and the redemptions discussed above, the percentage of Common Units owned by the Company increased from 97.1% at December 31, 2015 to 97.2% at June 30, 2016.

Basis of Presentation
 
Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Our Consolidated Statements of Income for the three and six months ended June 30, 2015 were retrospectively revised from previously reported amounts to reclassify the operations for those properties classified as discontinued operations. The Company's Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership's Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At June 30, 2016, we had involvement with, but are not the primary beneficiary in, an entity that we concluded to be a variable interest entity. All intercompany transactions and accounts have been eliminated.

The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have condensed or omitted certain notes and other information from the interim Consolidated Financial Statements presented in this Quarterly Report as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2015 Annual Report on Form 10-K.


15

Table of Contents
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)


1.    Description of Business and Significant Accounting Policies – Continued

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Standards

The Financial Accounting Standards Board ("FASB") recently issued an accounting standards update ("ASU") that requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that we identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when we satisfy the performance obligations. We will also be required to disclose information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is required to be adopted in 2018. Retrospective application is required either to all periods presented or with the cumulative effect of initial adoption recognized in the period of adoption. We are in the process of evaluating this ASU.
 
The FASB recently issued an ASU that amended consolidation requirements. The amendments significantly change the consolidation analysis required under GAAP and require companies to reevaluate all previous consolidation conclusions. We adopted the ASU as of January 1, 2016 and there was no impact to consolidated entities included in our Consolidated Financial Statements. However, in reevaluating our previous consolidation conclusions upon adoption of the ASU, we determined our 12.5% equity interest in an unconsolidated affiliate to be an interest in a variable interest entity because certain of its limited partners do not have substantive kick-out or participating rights. We do not qualify as the primary beneficiary since our obligation to absorb losses and receive benefits of the variable interest entity is less than that of the other general partner. Accordingly, the entity is not consolidated. At June 30, 2016, our maximum exposure to loss with respect to this arrangement is limited to the $1.6 million carrying value of our 12.5% investment in the unconsolidated affiliate.
 
The FASB recently issued an ASU that requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets. For debt issuance costs related to revolving credit facilities, the FASB allows the presentation of debt issuance costs as an asset. We adopted the ASU as of January 1, 2016 with retrospective application to our December 31, 2015 Consolidated Balance Sheets. The effect of the adoption was to reclassify debt issuance costs from deferred financing and leasing costs, net of accumulated amortization, as follows: $7.8 million to a contra account as a deduction from the related mortgages and notes payable and $2.1 million to prepaid expenses and other assets. There was no effect on our Consolidated Statements of Income.

The FASB recently issued an ASU which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  The ASU requires lessors to account for leases using an approach that is substantially equivalent to the existing guidance and is effective for reporting periods beginning after December 15, 2018 with early adoption permitted.  We are in the process of evaluating this ASU.

The FASB recently issued an ASU that requires, among other things, the use of a new current expected credit loss ("CECL") model in determining our allowances for doubtful accounts with respect to accounts receivable, accrued straight-line rents receivable and mortgages and notes receivable. The CECL model requires that we estimate our lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. We will also be required to disclose information about how we developed the allowances, including changes in the factors (e.g., portfolio mix, credit trends, unemployment, gross domestic product, etc.) that influenced our estimate of expected credit losses and the reasons for those changes. We will apply the ASU’s provisions as a cumulative-effect adjustment to retained earnings upon adoption in 2020. We are in the process of evaluating this ASU.

16

Table of Contents
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)

 
2.    Real Estate Assets
 
Acquisitions
 
During the second quarter of 2016, we acquired 14 acres of development land in Nashville, TN for a purchase price, including acquisition costs, of $9.1 million.
 
Dispositions
 
During the second quarter of 2016, we sold a building for a sale price of $14.2 million and recorded a gain on disposition of property of $5.9 million.
 
During the first quarter of 2016, we sold:
 
substantially all of our wholly-owned Country Club Plaza assets in Kansas City (which we refer to as the “Plaza assets”) for a sale price of $660.0 million (before closing credits to buyer of $4.8 million). We recorded gains on disposition of discontinued operations of $414.5 million and a gain on disposition of property of $1.3 million related to the land;
 
a 32,000 square foot building for a sale price of $4.7 million (before closing credits to buyer of $0.1 million) and recorded a gain on disposition of property of $1.1 million. The buyer, which leased 79% of the building, is a family business controlled by a director of the Company. The sale price exceeded the value set forth in an appraisal performed by a reputable independent commercial real estate services firm that has no relationship with the director or any of his affiliates; and
 
a building for a sale price of $6.4 million (before closing credits to buyer of $0.5 million) and recorded a gain on disposition of property of $2.0 million.

3.    Mortgages and Notes Receivable
 
Mortgages and notes receivable were $10.0 million and $2.1 million at June 30, 2016 and December 31, 2015, respectively. We evaluate the ability to collect our mortgages and notes receivable by monitoring the leasing statistics and/or market fundamentals of these assets. As of June 30, 2016, our mortgages and notes receivable were not in default and there were no other indicators of impairment.

4.    Investments in and Advances to Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financial policies.
 
The following table sets forth the summarized income statements of our unconsolidated affiliates:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Income Statements:
 
 
 
 
 
 
 
Rental and other revenues
$
11,210

 
$
12,423

 
$
21,982

 
$
24,654

Expenses:
 
 
 
 
 
 
 
Rental property and other expenses
4,573

 
6,031

 
9,288

 
11,698

Depreciation and amortization
2,656

 
3,110

 
5,403

 
6,225

Interest expense
1,342

 
2,032

 
2,719

 
4,181

Total expenses
8,571

 
11,173

 
17,410

 
22,104

Income before disposition of property
2,639

 
1,250

 
4,572

 
2,550

Gains on disposition of property

 
16,054

 
902

 
18,181

Net income
$
2,639

 
$
17,304

 
$
5,474

 
$
20,731


17

Table of Contents
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(tabular dollar amounts in thousands, except per share and per unit data)


4.    Investments in and Advances to Unconsolidated Affiliates - Continued

During the first quarter of 2016, Concourse Center Associates, LLC (a joint venture in which we own a 50.0% interest) sold two buildings and land to an unrelated third party for an aggregate sale price of $11.0 million and recorded losses on disposition of property of $0.1 million. As our cost basis was different from the basis reflected at the joint venture level, we recorded $0.4 million of gains through equity in earnings of unconsolidated affiliates. Simultaneously with the sale, the joint venture repaid all $6.6 million of its secured debt.

During the first quarter of 2016, 4600 Madison Associates, LP (a joint venture in which we own a 12.5% interest) sold land to an unrelated third party for a sale price of $3.4 million and recorded a gain on disposition of property of $1.0 million. We recorded $0.1 million as our share of this gain through equity in earnings of unconsolidated affiliates. Simultaneously with the sale, the joint venture used all of the proceeds to pay down $3.4 million on its secured mortgage loan with an effective interest rate of 6.85%.

5.    Intangible Assets and Below Market Lease Liabilities
 
The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization: