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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K

AMENDMENT NO. 1



|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



OR



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 000-21731



HIGHWOODS REALTY LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|North Carolina                                                 |  | 56-1869557                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



3100 Smoketree
Court, Suite 600

Raleigh, N.C. 27604

(Address of principal executive offices) (Zip Code)



919-872-4924

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of Each Exchange on Which Registered
|7% Notes due December 1, 2006 |  | New York Stock Exchange                  



Securities
registered pursuant to Section 12(g) of the Act:



NONE



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. Yes x No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form
10-K. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Securities Exchange Act). Yes ̈No x



The aggregate value of the Common Units held by nonaffiliates of the registrant (based on the closing price on the New York Stock Exchange of a share of
Common Stock of Highwoods Properties, Inc., the general partner of the registrant) on June 30, 2004 was $109,114,965.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the Proxy Statement of Highwoods Properties, Inc. in connection with its Annual Meeting of Stockholders held May 18, 2004, are incorporated by
reference in Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 of the Form 10-K.



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EXPLANATORY NOTE



Highwoods Realty Limited Partnership (the Operating
Partnership) is filing this amended Annual Report on Form 10-K for the year ended December 31, 2003 to restate its previously reported financial results for fiscal years 2001 through 2003. These restatements are primarily due to adjustments
relating to the accounting for a limited number of the Operating Partnerships prior real estate sales transactions with continuing involvement occurring between 1999 and 2003, reclassifications related to discontinued operations, accounting
for a debt retirement transaction, and other items. For more details, see Note 18 to the Consolidated Financial Statements contained herein.



Management of Highwoods Properties Inc. (the Company), sole general partner of the Operating Partnership, is ultimately responsible for
preparing and presenting the Operating Partnerships financial statements in accordance with GAAP. As part of these processes, we consulted with Ernst & Young LLP in their capacity as our independent auditors regarding the application of
GAAP. In particular, we consulted with Ernst & Young LLP regarding certain of the real estate sales transactions with continuing involvement, accounting for the MOPPRS debt extinguishment in 2003 and accounting for the compensation costs to be
recognized in 2004 in connection with the retirement of the Companys former CEO.



Real Estate Sales Transactions. As part of its previously disclosed capital recycling program, the Operating Partnership has completed a significant number of real estate sales transactions during the last five
years. Certain transactions involved sales where the Operating Partnership retained a partial ownership interest or had continuing involvement with the properties. The forms of continuing involvement included guarantees of a return on investment,
guarantees of rental income from specific tenants, seller financing, or, in one instance, a 97.0% fair-market-value put option granted to the buyer.



In the Operating Partnerships historical financial statements, these transactions were accounted for as sales, and a portion or all of the resultant
gains from these transactions were deferred because of the continuing involvement. The nature of all material continuing involvement was disclosed in the Operating Partnerships quarterly and annual regulatory and financial filings with the
Securities and Exchange Commission and the Operating Partnerships annual reports.



Adjustments have been made with respect to the accounting treatment for certain of those transactions where the Operating Partnership had some form of continuing involvement to comply with the guidance of Statement of
Financial Accounting Standards (SFAS) No. 66, Accounting for Sales of Real Estate. For three of the transactions, the largest of which is the sale in late 2000 of properties into the previously disclosed MG-HIW, LLC joint
venture, the Operating Partnership has adjusted its Consolidated Financial Statements to account for these three transactions as financing and/or profit-sharing arrangements rather than as sales. Accordingly, the assets, related liabilities and
operations are now included in the Operating Partnerships Consolidated Financial Statements. In the other instances, the transactions have continued to be reported as sales, but the timing and amount of gain recognition changed due to the
Operating Partnerships continuing involvement. This is in accordance with SFAS No. 66.



Discontinued Operations. Certain properties were sold to joint ventures where the Operating Partnership retained a minority interest. In addition, in other sales transactions the Operating Partnership was
retained by the buyer to perform management and leasing services. Since January 1, 2002, the Operating Partnership applied discontinued operations presentation under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets for the operations of those sold properties for the periods prior to the date of sale. Due to the partial interest retained through joint ventures and the continuing management fee income earned from such sold properties, the properties
do not require discontinued operations presentation under SFAS No. 144. Accordingly, the Operating Partnership has adjusted its Consolidated Statements of Income for 2001 through 2003 to classify such items as continuing operations; these
reclassifications do not impact net income or FFO.



Accounting for MOPPRS Debt Retirement. This transaction, which occurred in early February 2003, is described in detail in Note 5. The Operating Partnership had previously accounted for the transaction as an exchange of indebtedness
under EITF 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments, and recorded $14.7 million in deferred financing costs, representing the excess of amounts paid to retire the MOPPRS and the related
remarketing option over the MOPPRS net carrying value and related deferred credits. The Operating Partnership has now determined that this transaction should have been accounted for as a debt extinguishment under



2



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EITF 96-19. Accordingly, the $14.7 million has been charged to loss on debt extinguishment in the first quarter of 2003 rather than as deferred financing
costs as previously recorded. In addition, the amortization expense related to the previous net deferred financing costs, which aggregated approximately $250,000 in the first quarter of 2003 and approximately $370,000 per quarter thereafter, has
been reversed in the restated Consolidated Financial Statements.



Other Matters. In addition to the above, the Operating Partnership identified several other matters that have been adjusted, as described in Note 18 to the Consolidated Financial Statements.



Impact on Financial Statements. The impact of the restatements on the
Operating Partnerships Consolidated Balance Sheets as of December 31, 2003 and 2002 and Statements of Income for the three years in the period ended December 31, 2003 is shown in tables in Note 18 to the Consolidated Financial Statements.



3



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HIGHWOODS REALTY LIMITED
PARTNERSHIP



TABLE OF CONTENTS



|         |  |                                                                                                |  |         
|-------- |  | ---------------------------------------------------------------------------------------------- |  | --------
|Item No. |  |                                                                                                |  | Page No.
|         |  |                                                                                               
|         |  | PART I                                                                                         |  |         
|         |  |                                                                                               
|1.       |  | Business                                                                                       |  | 5       
|2.       |  | Properties                                                                                     |  | 13      
|3.       |  | Legal Proceedings                                                                              |  | 18      
|4.       |  | Submission of Matters to a Vote of Security Holders                                            |  | 18      
|X.       |  | Executive Officers of the Registrant                                                           |  | 19      
|         |  |                                                                                               
|         |  | PART II                                                                                        |  |         
|         |  |                                                                                               
|5.       |  | Market for Registrants Common Stock and Related Stockholder Matters                           |  | 21      
|6.       |  | Selected Financial Data                                                                        |  | 22      
|7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 23      
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 52      
|8.       |  | Financial Statements and Supplementary Data                                                    |  | 53      
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 53      
|9A.      |  | Controls and Procedures                                                                        |  | 53      
|         |  |                                                                                               
|         |  | PART III                                                                                       |  |         
|         |  |                                                                                               
|10.      |  | Directors and Executive Officers of the Registrant                                             |  | 56      
|11.      |  | Executive Compensation                                                                         |  | 56      
|12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 57      
|13.      |  | Certain Relationships and Related Transactions                                                 |  | 57      
|14.      |  | Principal Accountant Fees and Services                                                         |  | 57      
|         |  |                                                                                               
|         |  | PART IV                                                                                        |  |         
|         |  |                                                                                               
|15.      |  | Exhibits and Reports on Form 8-K                                                               |  | 58      



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PART I



We refer to (1) Highwoods Properties, Inc. as the Company, (2)
Highwoods Realty Limited Partnership as the Operating Partnership, (3) the Companys common stock as Common Stock, (4) the Companys preferred stock as Preferred Stock, (5) the Operating
Partnerships common partnership interests as Common Units, (6) the Operating Partnerships preferred partnership interests as Preferred Units and (7) in-service properties (excluding apartment units) to which the
Operating Partnership has title and 100.0% ownership rights as the Wholly Owned Properties.



ITEM 1. BUSINESS



General



The Operating Partnership is managed by its sole general partner, the
Company, a self-administered and self-managed equity REIT that began operations through a predecessor in 1978. Since the Companys initial public offering in 1994, we have evolved into one of the largest owners and operators of suburban office,
industrial and retail properties in the southeastern and midwestern United States. At December 31, 2003, we:



| |  | wholly owned 465 in-service office, industrial and retail properties, encompassing approximately 34.9 million rentable square feet and 213 apartment units;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | owned an interest (50.0% or less) in 65 in-service office and industrial properties, encompassing approximately 6.8 million rentable square feet and 418 apartment units. Six of the
in-service properties are consolidated at December 31, 2003 as a result of our continuing involvement with these properties in accordance with SFAS No. 66. See Note 1 to the Consolidated Financial Statements for further description of the Operating
Partnerships accounting policy for investments in joint ventures;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | wholly owned 1,305 acres of undeveloped land, that is suitable to develop approximately 14.3 million rentable square feet of office, industrial and retail space; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | were developing an additional seven properties, which will encompass 959,000 rentable square feet (including three properties encompassing 357,000 rentable square feet that we are
developing with a 50.0% joint venture partner).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company conducts substantially all of its activities through, and substantially all of its interests in the properties are held directly or indirectly by, the Operating Partnership. At December 31, 2003, the Company owned 100.0% of the
preferred partnership interests (Preferred Units) and 89.5% of the common partnership interests (Common Units) in the Operating Partnership. The remaining 10.5% of the Common Units (Redeemable Common Units) are
owned by limited partners (including certain officers and directors of the Company). In 2003, the Company redeemed in cash from limited partners 453,635 Redeemable Common Units and converted 318,249 Common Units to shares of Common Stock. These
transactions increased the percentage of Common Units owned by the Company from 88.4% at December 31, 2002 to 89.5% at December 31, 2003. The three series of Preferred Units in the Operating Partnership were issued to the Company in connection with
the Companys three preferred stock offerings in 1997 and 1998. The net proceeds raised from each of the three Preferred Stock issuances were contributed by the Company to the Operating Partnership in exchange for the Preferred Units. The terms
of each series of Preferred Units generally parallel the terms of the respective Preferred Stock as to dividends, liquidation and redemption rights as more fully described in Note 9.



The Company was incorporated in Maryland in 1994. The Operating Partnership was formed in North Carolina in 1994. Our
executive offices are located at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and our telephone number is (919) 872-4924. We maintain offices in each of our primary markets.



The business of the Operating Partnership is the acquisition, development and
operation of rental real estate properties. The Operating Partnership operates office, industrial and retail properties and apartment units. There are no material inter-segment transactions. See Note 17 to the Consolidated Financial Statements for a
summary of the rental income, net operating income and assets for each reportable segment.



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In addition to this amended Annual Report, we and the Company file quarterly and special reports, proxy
statements and other information with the SEC. All documents that the Company files with the SEC are made available as soon as reasonably practicable free of charge on its corporate website, which is http://www.highwoods.com. The information on the
website is not and should not be considered part of this amended Annual Report on Form 10-K and is not incorporated by reference in this document. This website is only intended to be an inactive textual reference. You may read and copy any document
that we file at the public reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 25049. Please call the SEC at (800) 732-0330 for further information about the public reference facilities. These documents also may be accessed
through the SECs electronic data gathering, analysis and retrieval system (EDGAR) via electronic means, including the SECs home page on the Internet (http://www.sec.gov).



Customers



The following table sets forth information concerning the 20 largest customers of our Wholly Owned Properties as of December
31, 2003:



|                          |  |                   |  |                              |        |                                              |       |   |                                     |     
|------------------------- |  | ----------------- |  | ---------------------------- | ------ | -------------------------------------------- | ----- | - | ----------------------------------- | ----
|Customer                  |  | RentalSquare Feet |  | AnnualizedRental Revenue (1) |        | Percent of TotalAnnualizedRental Revenue (1) |       |   | AverageRemaining LeaseTerm in Years
|                          |  |                   |  | (in thousands)               |        |                                              |       |   |                                    
|Federal Government        |  | 639,883           |  | $                            | 13,971 |                                              | 3.34  | % |                                     | 6.6 
|AT&T                      |  | 612,092           |  |                              | 11,493 |                                              | 2.74  |   |                                     | 3.6 
|PricewaterhouseCoopers    |  | 297,795           |  |                              | 6,957  |                                              | 1.66  |   |                                     | 6.3 
|State of Georgia          |  | 359,565           |  |                              | 6,858  |                                              | 1.64  |   |                                     | 5.4 
|Sara Lee                  |  | 1,198,534         |  |                              | 4,697  |                                              | 1.12  |   |                                     | 3.6 
|IBM                       |  | 194,934           |  |                              | 4,097  |                                              | 0.98  |   |                                     | 1.9 
|Northern Telecom          |  | 246,000           |  |                              | 3,651  |                                              | 0.87  |   |                                     | 4.2 
|Volvo                     |  | 267,717           |  |                              | 3,431  |                                              | 0.82  |   |                                     | 5.5 
|Lockton Companies         |  | 132,718           |  |                              | 3,294  |                                              | 0.79  |   |                                     | 11.2
|US Airways (2)            |  | 295,046           |  |                              | 3,217  |                                              | 0.77  |   |                                     | 4.0 
|BB&T                      |  | 241,075           |  |                              | 3,186  |                                              | 0.76  |   |                                     | 7.2 
|ITC Deltacom (3)          |  | 147,379           |  |                              | 2,947  |                                              | 0.70  |   |                                     | 1.4 
|Hartford Insurance        |  | 129,641           |  |                              | 2,861  |                                              | 0.68  |   |                                     | 2.2 
|T-Mobile USA              |  | 120,561           |  |                              | 2,801  |                                              | 0.67  |   |                                     | 2.5 
|WorldCom and Affiliates   |  | 144,623           |  |                              | 2,787  |                                              | 0.67  |   |                                     | 2.5 
|Bank of America           |  | 146,842           |  |                              | 2,705  |                                              | 0.65  |   |                                     | 5.3 
|IKON                      |  | 181,361           |  |                              | 2,531  |                                              | 0.60  |   |                                     | 3.9 
|Carlton Fields            |  | 95,771            |  |                              | 2,435  |                                              | 0.58  |   |                                     | 0.5 
|Ford Motor Company        |  | 125,989           |  |                              | 2,426  |                                              | 0.58  |   |                                     | 6.1 
|CHS Professional Services |  | 145,781           |  |                              | 2,380  |                                              | 0.57  |   |                                     | 3.3 
|                          |  |                   |  |                              |        |                                              |       |   |                                     |     
|Total                     |  | 5,723,307         |  | $                            | 88,725 |                                              | 21.19 | % |                                     | 4.7 
|                          |  |                   |  |                              |        |                                              |       |   |                                     |     

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|(1) | Annualized Rental Revenue is December 2003 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(2) | In August 2002, US Airways filed voluntary petitions for reorganization under Chapter 11 of the US Bankruptcy Code. US Airways emerged from Chapter 11 bankruptcy protection in March
2003. On September 12, 2004, US Airways again filed voluntary petitions for reorganization under Chapter 11. No action has been taken to date with respect to the Operating Partnerships leases with US Airways.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | ITC Deltacom (formerly Business Telecom) leases space in a property that, as of December 31, 2003, is under contract for sale. Although no assurances can be made, the sale is
expected to close in early 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating Strategy



Efficient, Customer Service-Oriented Organization.
We provide a complete line of real estate services to our tenants and third parties. We believe that our in-house development, acquisition, construction management, leasing and property management services allow us to respond to the many demands of
our existing and potential tenant base. We provide our tenants with cost-effective services such as build-to-suit construction and space modification, including tenant improvements and expansions. In addition, the breadth of our capabilities and
resources provides us with market information not generally available. We believe that the operating efficiencies achieved through our fully integrated organization also provide a competitive advantage in setting our lease rates and pricing other
services.



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Capital Recycling Program. Our strategy has been to focus our real estate activities in markets
where we believe our extensive local knowledge gives us a competitive advantage over other real estate developers and operators. Through our capital recycling program, we generally seek to:



| |  | engage in the development of office and industrial projects in our existing geographic markets, primarily in suburban business parks;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | acquire selective suburban office and industrial properties in our existing geographic markets at prices below replacement cost that offer attractive returns; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | selectively dispose of non-core properties or other properties in order to use the net proceeds for investments or other purposes.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



Our capital recycling activities benefit from our local market presence and
knowledge. Our division officers have significant real estate experience in their respective markets. Based on this experience, we believe that we are in a better position to evaluate capital recycling opportunities than many of our competitors. In
addition, our relationships with our tenants and those tenants at properties for which we conduct third-party fee-based services may lead to development projects when these tenants seek new space.



The following summarizes the change in our Wholly Owned Properties during the
three years ended December 31, 2003:



|                                                                                 |  |        |   |  |        |   |  |        |  
|-------------------------------------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | -
|                                                                                 |  | 2003   |   |  | 2002   |   |  | 2001   |  
|Office, Industrial and Retail Properties: (rentable square feet in thousands)    |  |        |   |  |        |   |  |        |  
|Dispositions (includes 225 in 2002 related to the Eastshore transaction)         |  | (3,298 | ) |  | (2,270 | ) |  | (268   | )
|Contributions to Joint Ventures (includes 205 to SF-HIW Harborview, LLP in 2002) |  | (291   | ) |  | (205   | ) |  | (118   | )
|Developments Placed In-Service                                                   |  | 191    |   |  | 2,214  |   |  | 1,351  |  
|Redevelopment                                                                    |  | (221   | ) |  | (52    | ) |  |       |  
|Acquisitions (including 1,319 and 205 from MG-HIW, LLC in 2003 and 2002)         |  | 1,429  |   |  | 205    |   |  | 72     |  
|                                                                                 |  |        |   |  |        |   |  |        |  
|Net Change of In-Service Wholly Owned Properties                                 |  | (2,190 | ) |  | (108   | ) |  | 1,037  |  
|                                                                                 |  |        |   |  |        |   |  |        |  
|Apartment Properties: (in units)                                                 |  |        |   |  |        |   |  |        |  
|Dispositions                                                                     |  |       |   |  |       |   |  | (1,672 | )
|                                                                                 |  |        |   |  |        |   |  |        |  



Flexible Capital
Structure. We are committed to maintaining a flexible capital structure that: (1) allows growth through development and acquisition opportunities; (2) promotes future earnings growth; and (3) provides access to the private and public equity and
debt markets on favorable terms. Accordingly, we expect to meet our long-term liquidity requirements through a combination of any one or more of:



| |  | cash flow from operating activities;
| | - | ------------------------------------



| |  | borrowings under our unsecured and secured revolving credit facilities;
| | - | -----------------------------------------------------------------------



| |  | the issuance of unsecured debt;
| | - | -------------------------------



| |  | the issuance of secured debt;
| | - | -----------------------------



| |  | the issuance of equity securities by both the Company and the Operating Partnership;
| | - | ------------------------------------------------------------------------------------



| |  | the selective disposition of non-core properties or other properties; and
| | - | -------------------------------------------------------------------------



| |  | private equity capital raised from unrelated joint venture partners that may involve the sale or contribution of our Wholly Owned Properties, development projects and development
land to joint ventures formed with unrelated investors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Geographic Diversification. Since the Companys initial public offering in 1994, we have
significantly reduced our dependence on any particular market. We initially owned a limited number of office properties located in North Carolina, most of which were in the Research Triangle. Today, including our various joint ventures, our
portfolio consists primarily of office properties throughout the Southeast and retail and office properties in Kansas City, Missouri including one significant mixed retail and office property.



Competition



Our properties compete for tenants with similar properties located in our markets primarily on the basis of location, rent,
services provided and the design and condition of the facilities. We also compete with other REITs, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire, develop and operate properties.



Employees



As of December 31, 2003, the Operating Partnership employed 548 persons.



Risk Factors



An investment in our securities involves various risks. All investors should
carefully consider the following risk factors in conjunction with the other information contained in this amended Annual Report before trading in our securities. If any of these risks actually occur, our business, operating results, prospects and
financial condition could be harmed.



Our performance is
subject to risks associated with real estate investment. We are a real estate company that derives most of our income from the ownership and operation of our properties. There are a number of factors that may adversely affect the income that our
properties generate, including the following:



| |  | Economic Downturns. Downturns in the national economy, particularly in the Southeast, generally will negatively impact the demand for our properties.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Oversupply of Space. An oversupply of space in our markets would typically cause rental rates and occupancies to decline, making it more difficult for us to lease space at
attractive rental rates.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Competitive Properties. If our properties are not as attractive to tenants (in terms of rents, services or location) as other properties that are competitive with ours, we
could lose tenants to those properties or suffer lower rental rates.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Renovation Costs. In order to maintain the quality of our properties and successfully compete against other properties, we periodically have to spend money to maintain,
repair and renovate our properties.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Customer Risk. Our performance depends on our ability to collect rent from our customers. While no customer in our wholly owned portfolio accounted for more than 3.4% of the
annualized rental revenue of these respective properties at December 31, 2003, our financial position may be adversely affected by financial difficulties experienced by a major customer, or by a number of smaller customers, including bankruptcies,
insolvencies or general downturns in business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reletting Costs. As leases expire, we try to either relet the space to an existing customer or attract a new customer to occupy the space. In either case, we likely will
incur significant costs in the process, including potentially substantial tenant improvement expense. In addition, if market rents have declined since the time the expiring lease was executed, the terms of any new lease signed likely will not be as
favorable to us as the terms of the expiring lease, thereby reducing the income earned from that space.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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| |  | Regulatory Costs. There are a number of government regulations, including zoning, tax and accessibility laws that apply to the ownership and operation of office buildings.
Compliance with existing and newly adopted regulations may require us to spend a significant amount of money on our properties.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Fixed Nature of Costs. Most of the costs associated with owning and operating our properties are not necessarily reduced when circumstances such as market factors and
competition cause a reduction in rental revenues from the property.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Environmental Problems. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of
real property to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. The clean up can be costly. The presence of or failure to clean up contamination may adversely affect our ability to sell or lease
a property or to borrow funds using a property as collateral.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Competition. A number of other major real estate investors with significant capital compete with us. These competitors include publicly-traded REITs, private REITs, private
real estate investors and private institutional investment funds.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Future acquisitions and development properties may fail to perform in accordance with our expectations and may require development and renovation costs exceeding our estimates. In the normal course of business,
we typically evaluate potential acquisitions, enter into non-binding letters of intent, and may, at any time, enter into contracts to acquire additional properties. However, changing market conditions, including competition from others, may diminish
our opportunities for making attractive acquisitions. Once made, our investments may fail to perform in accordance with our expectations. In addition, the renovation and improvement costs we incur in bringing an acquired property up to market
standards may exceed our estimates. Although we anticipate financing future acquisitions and renovations through a combination of advances under our revolving loan (see Note 5 to the Consolidated Financial Statements) and other forms of secured or
unsecured financing, no assurance can be given that we will have the financial resources to make suitable acquisitions or renovations.



In addition to acquisitions, we periodically consider developing and constructing properties. Risks associated with development and construction
activities include:



| |  | the unavailability of favorable financing;
| | - | ------------------------------------------



| |  | construction costs exceeding original estimates;
| | - | ------------------------------------------------



| |  | construction and lease-up delays resulting in increased debt service expense and construction costs; and
| | - | --------------------------------------------------------------------------------------------------------



| |  | insufficient occupancy rates and rents at a newly completed property causing a property to be unprofitable.
| | - | -----------------------------------------------------------------------------------------------------------



If new developments are financed through construction loans, there is a risk
that, upon completion of construction, permanent financing for newly developed properties will not be available or will be available only on disadvantageous terms. Development activities are also subject to risks relating to our inability to obtain,
or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental and utility company authorizations.



Because holders of our Common Units, including some of the Companys officers and directors, may suffer adverse tax consequences upon the sale of
some of our properties, it is possible that we may sometimes make decisions that are not in the best interest of certain unitholders. Holders of Common Units may suffer adverse tax consequences upon the Operating Partnerships sale of
certain properties. Therefore, holders of Common Units, including certain of the Companys officers and directors, may have different objectives than other unitholders regarding the appropriate pricing and timing of a propertys sale.
Although the Company is the sole general partner of the Operating Partnership and have the exclusive authority to sell all of our individual Wholly Owned Properties, officers and directors of the Company who hold Common Units may influence us not to
sell certain properties even if such sale might be financially advantageous to unitholders or influence us to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in the best interests of
the Operating Partnership.



9



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The success of our joint venture activity depends upon our ability to work effectively with
financially sound partners.Instead of owning properties directly, we have in some cases invested, and may continue to invest, as a partner or a co-venturer. Under certain circumstances, this type of investment may involve risks not otherwise
present, including the possibility that a partner or co-venturer might become bankrupt or that a partner or co-venturer might have business interests or goals inconsistent with ours. Also, such a partner or co-venturer may take action contrary to
our instructions or requests or contrary to provisions in our joint venture agreements that could harm us.



Our insurance coverage on our properties may be inadequate. We carry comprehensive insurance on all of our properties, including insurance for
liability, fire and flood. Insurance companies currently, however, limit coverage against certain types of losses, such as losses due to terrorist acts, named windstorms and toxic mold. Thus we may not have insurance coverage, or sufficient
insurance coverage, against certain types of losses and/or there may be decreases in the limits of insurance available. Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have
invested in a property or properties, as well as the anticipated future revenue from the property or properties. If any of our properties were to experience a catastrophic loss, it could disrupt our operations, delay revenue and result in large
expenses to repair or rebuild the property. Such events could adversely affect our ability to make distributions to our unitholders. Our existing insurance policies were renewed in June 2004 and expire on June 30, 2005. We anticipate renewing or
replacing these policies at that time.



Our use of debt to
finance our operations could have a material adverse effect on our cash flow and ability to make distributions.We are subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet required payment
obligations, difficulty in complying with financial ratios and other covenants and the inability to refinance existing indebtedness. If we fail to comply with the financial ratios and other covenants, including our Revolving Loan, we would likely
not be able to borrow any further amounts under the Revolving Loan, which could adversely affect our ability to fund our operations, and our lenders could accelerate outstanding debt. If our debt cannot be paid, refinanced or extended at maturity,
in addition to our failure to repay our debt, we may not be able to make distributions to unitholders at expected levels or at all. Furthermore, if any refinancing is done at higher interest rates, the increased interest expense could adversely
affect our cash flow and ability to make distributions to unitholders. Any such refinancing could also impose tighter financial ratios and other covenants that could restrict our ability to take actions that could otherwise be in our
unitholders best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions. If we do not meet our mortgage financing obligations, any properties securing such
indebtedness could be foreclosed on, which would have a material adverse effect on our cash flow and ability to make distributions.



The Company may be subject to taxation as a regular corporation if the Company fails to maintain its REIT status. The Companys failure to
qualify as a REIT would have serious adverse consequences to our unitholders. Many of the requirements for taxation as a REIT, however, are highly technical and complex. The determination that the Company is a REIT requires an analysis of various
factual matters and circumstances that may not be totally within its control. For example, to qualify as a REIT, at least 95.0% of its gross income must come from certain sources that are itemized in the REIT tax laws. Because the Company is a REIT,
our partnership agreement requires us to distribute at least enough cash for the Company to be able to distribute to its stockholders at least 90.0% of its REIT taxable income, excluding capital gains. The fact that the Company holds its assets
through us and our subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize the Companys REIT status. Furthermore, Congress and the IRS might change the tax laws and
regulations and the courts might issue new rulings that make it more difficult, or impossible, for the Company to remain qualified as a REIT.



If the Company fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates. Also, unless the IRS granted the Company
relief under certain statutory provisions, the Company would remain disqualified as a REIT for four years following the year the Company first failed to qualify. If the Company failed to qualify as a REIT, it would have to pay significant income
taxes and would, therefore, have less cash available for investments or to pay dividends to stockholders. This would likely have a significant adverse effect on the value or the Companys securities. In addition, the Company would no longer be
required to pay dividends to stockholders.



10



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Because provisions contained in Maryland law, the Companys charter and its bylaws may have an
anti-takeover effect, unitholders may be prevented from receiving a control premium for their units. Provisions contained in the Companys charter and bylaws as well as Maryland general corporation law may have anti-takeover
effects that delay, defer or prevent a takeover attempt, and thereby prevent unitholders from receiving a control premium for their units. For example, these provisions may defer or prevent tender offers for the Companys Common
Stock or purchases of large blocks of its Common Stock, thus limiting the opportunities for our unitholders to receive a premium for their Common Units over then-prevailing market prices. These provisions include the following:



| |  | Ownership limit.The Companys charter prohibits direct or constructive ownership by any person of more than 9.8% of its outstanding capital stock. Any attempt to own or
transfer shares of its capital stock in excess of the ownership limit without the consent of the Companys Board of Directors will be void.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Preferred stock. The Companys charter authorizes its Board of Directors to issue Preferred Stock in one or more classes and to establish the preferences and rights of
any class of Preferred Stock issued. These actions can be taken without soliciting stockholder approval. The issuance of Preferred Stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control
were in our unitholders best interest.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Staggered board. The Companys Board of Directors is divided into three classes. As a result each director generally serves for a three-year term. This staggering of its
Board may discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our unitholders.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Maryland control share acquisition statute. Maryland law limits the voting rights of control shares of a corporation in the event of a control share
acquisition.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Maryland unsolicited takeover statute. Under Maryland law, the Companys Board of Directors could adopt various anti-takeover provisions without the consent of
stockholders. The adoption of such measures could discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our unitholders.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Anti-Takeover protections of Operating Partnership agreement. Upon a change in control of the Company, our limited partnership agreement contains provisions that require
certain acquirors to maintain an UPREIT structure with terms at least as favorable to the limited partners as are currently in place. For instance, the acquiror would be required to preserve the limited partners right to continue to hold
tax-deferred partnership interests that are redeemable for capital stock of the acquiror. These provisions may make a change of control transaction more complicated and therefore might limit the possibility of such a transaction occurring, even if
such a transaction would be in the best interest of our unitholders.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Dilutive effect of Stockholder rights plan. The Company currently has in effect a stockholder rights plan pursuant to which its existing stockholders would have the ability
to acquire additional Common Stock at a significant discount in the event a person or group attempts to acquire us on terms of which the Companys Board of Directors does not approve. These rights are designed to deter a hostile takeover by
increasing the takeover cost. As a result, such rights could discourage offers for us or make an acquisition of us more difficult, even when an acquisition is in the best interest of our unitholders. The rights plan should not interfere with any
merger or other business combination the board of Directors approves since the Company may generally terminate the plan at any time at nominal cost.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SEC communications. As part of the implementation of the Sarbanes-Oxley Act of 2002 and other related SEC rulemaking,
the SECs Division of Corporation Finance has undertaken to routinely review the annual reports of public companies every two to three years. The Company received such a letter from the SECs Division of Corporation Finance providing
comments on its 2003 Annual Report on Form 10-K. One of the comments from the SECs Division of Corporation Finance regarding the accounting treatment of sales transactions with continuing involvement under SFAS No. 66 led us to review
substantially all of our sales transactions during the past five years. As a result, we subsequently determined that it was appropriate to restate our historical financial statements by making certain adjustments thereto as more fully described
under Explanatory Note and in the restated Consolidated Financial Statements included under Item 15 herein. During subsequent communications with the



11



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SECs Division of Corporation Finance, we shared with the Staff our conclusions regarding the appropriate methodology for these transactions and shared
with them language designed to enhance our accounting policy disclosures, which we have made in this amended Form 10-K and which we intend to include in future filings.



On August 4, 2004, we announced that we intended to delay the release of our second quarter financial results because we
expected to restate our previously reported financial results. Prior to this announcement, the SECs Division of Corporation Finance notified us that we had satisfactorily responded to its comments on the Companys 2003 Annual Report on
Form 10-K.



Subsequent to our August 4, 2004 announcement, the
Company received a non-public, informal inquiry letter from the SECs Division of Enforcement asking the Company for its voluntary assistance in providing them with documentation regarding its review of real estate transactions undertaken as a
result of the initial letter from the SECs Division of Corporation Finance and all documents relating to communications with our independent auditor in connection therewith. Even though the Company is cooperating fully, we cannot assure you
that the SECs Division of Enforcement will not take any action that would adversely affect us.



12



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ITEM 2. PROPERTIES



General



As of December 31, 2003, we owned 100.0% of 465 in-service office,
industrial and retail properties, encompassing approximately 34.9 million rentable square feet, and 213 apartment units. The following table sets forth information about our Wholly Owned Properties at December 31, 2003:



|                     |  |                     |            |  |           |            |  |                                             |        |  |     |       |  |     |   |  |       |  
|-------------------- |  | ------------------- | ---------- |  | --------- | ---------- |  | ------------------------------------------- | ------ |  | --- | ----- |  | --- | - |  | ----- | -
|Market               |  | RentableSquare Feet |            |  | Occupancy |            |  | Percentage of Annualized Rental Revenue (1) |       
|                     |  |                     | Office (2) |  |           | Industrial |  |                                             | Retail |  |     | Total | 
|Research Triangle(3) |  | 4,706,000           |            |  | 80.8      | %          |  | 15.7                                        | %      |  | 0.2 | %     |  |    |   |  | 15.9  | %
|Atlanta              |  | 6,919,000           |            |  | 78.4      |            |  | 11.5                                        |        |  | 3.3 |       |  |    |   |  | 14.8  |  
|Tampa                |  | 4,441,000           |            |  | 63.4      | (4)        |  | 13.0                                        |        |  |    |       |  |    |   |  | 13.0  |  
|Kansas City          |  | 2,433,000           | (5)        |  | 92.7      |            |  | 4.1                                         |        |  |    |       |  | 8.6 | % |  | 12.7  |  
|Nashville            |  | 2,869,000           |            |  | 91.5      |            |  | 11.2                                        |        |  |    |       |  |    |   |  | 11.2  |  
|Piedmont Triad (6)   |  | 6,688,000           |            |  | 90.0      |            |  | 6.4                                         |        |  | 4.0 |       |  |    |   |  | 10.4  |  
|Richmond             |  | 1,852,000           |            |  | 91.5      |            |  | 7.1                                         |        |  |    |       |  |    |   |  | 7.1   |  
|Charlotte            |  | 1,655,000           |            |  | 79.6      |            |  | 4.4                                         |        |  | 0.3 |       |  |    |   |  | 4.7   |  
|Memphis              |  | 1,216,000           |            |  | 81.0      |            |  | 4.6                                         |        |  |    |       |  |    |   |  | 4.6   |  
|Greenville           |  | 1,318,000           |            |  | 80.2      |            |  | 3.7                                         |        |  | 0.1 |       |  |    |   |  | 3.8   |  
|Columbia             |  | 426,000             |            |  | 57.9      |            |  | 0.8                                         |        |  |    |       |  |    |   |  | 0.8   |  
|Orlando              |  | 299,000             |            |  | 44.9      |            |  | 0.6                                         |        |  |    |       |  |    |   |  | 0.6   |  
|Other                |  | 100,000             |            |  | 64.1      |            |  | 0.4                                         |        |  |    |       |  |    |   |  | 0.4   |  
|                     |  |                     |            |  |           |            |  |                                             |        |  |     |       |  |     |   |  |       |  
|Total                |  | 34,922,000          |            |  | 81.5      | %(7)       |  | 83.5                                        | %      |  | 7.9 | %     |  | 8.6 | % |  | 100.0 | %
|                     |  |                     |            |  |           |            |  |                                             |        |  |     |       |  |     |   |  |       |  

---

|(1) | Annualized Rental Revenue is December 2003 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(2) | Substantially all of our office properties are located in suburban areas.
|--- | -------------------------------------------------------------------------



|(3) | Includes properties located in the Raleigh/Durham metropolitan area.
|--- | --------------------------------------------------------------------



|(4) | Tampas occupancy would be 77.8% if the 816,000 square foot Highwoods Preserve campus where Intermedia (WorldCom) rejected its lease was excluded.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Excludes basement space of 418,000 square feet.
|--- | -----------------------------------------------



|(6) | Includes properties located in the Greensboro/Winston-Salem metropolitan area.
|--- | ------------------------------------------------------------------------------



|(7) | Total occupancy would have been 83.4% if the 816,000 square foot Highwoods Preserve campus where Intermedia (WorldCom) rejected its lease was excluded.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



13



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The following table sets forth information about our Wholly Owned Properties and our development
properties as of December 31, 2003 and 2002:



|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|---------------------------- |  | ------------------- |  | -------------------------- | ----------------- |  | ------------------- |  | ------------------------- | ----
|                             |  | December 31, 2003   |  |                            | December 31, 2002 | 
|                             |  | RentableSquare Feet |  | Percent Leased/Pre- Leased |                   |  | RentableSquare Feet |  | PercentLeased/ Pre-Leased |     
|In-Service:                  |  |                     |  |                            |                   |  |                     |  |                           |     
|Office                       |  | 25,303,000          |  | 79.2                       | %                 |  | 25,342,000          |  | 82.3                      | %(1)
|Industrial                   |  | 8,092,000           |  | 85.7                       |                   |  | 10,242,000          |  | 86.2                      |     
|Retail (2)                   |  | 1,527,000           |  | 96.3                       |                   |  | 1,528,000           |  | 97.0                      |     
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|Total or Weighted Average    |  | 34,922,000          |  | 81.5                       | %                 |  | 37,112,000          |  | 84.0                      | %(1)
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|Development:                 |  |                     |  |                            |                   |  |                     |  |                           |     
|CompletedNot Stabilized (3) |  |                     |  |                            |                   |  |                     |  |                           |     
|Office                       |  | 140,000             |  | 36.0                       | %                 |  | 231,000             |  | 61.3                      | %   
|Industrial                   |  |                    |  |                           |                   |  | 60,000              |  | 50.0                      |     
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|Total or Weighted Average    |  | 140,000             |  | 36.0                       | %                 |  | 291,000             |  | 59.0                      | %   
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|In Process                   |  |                     |  |                            |                   |  |                     |  |                           |     
|Office                       |  | 112,000             |  | 100.0                      | %                 |  | 40,000              |  | 0.0                       | %   
|Industrial                   |  | 350,000             |  | 100.0                      |                   |  |                    |  |                          |     
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|Total or Weighted Average    |  | 462,000             |  | 100.0                      | %                 |  | 40,000              |  | 0.0                       | %   
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|Total:                       |  |                     |  |                            |                   |  |                     |  |                           |     
|Office                       |  | 25,555,000          |  |                            |                   |  | 25,613,000          |  |                           |     
|Industrial                   |  | 8,442,000           |  |                            |                   |  | 10,302,000          |  |                           |     
|Retail (2)                   |  | 1,527,000           |  |                            |                   |  | 1,528,000           |  |                           |     
|                             |  |                     |  |                            |                   |  |                     |  |                           |     
|Total or Weighted Average    |  | 35,524,000          |  |                            |                   |  | 37,443,000          |  |                           |     
|                             |  |                     |  |                            |                   |  |                     |  |                           |     

---

|(1) | The occupancy percentages have been reduced as a result of the rejection of the 816,000 square foot Intermedia (WorldCom) lease on December 31, 2002. The impact of the rejection on
Office occupancy and Total occupancy in 2002 was 3.2% and 2.2%, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Excludes basement space of 418,000 square feet.
|--- | -----------------------------------------------



|(3) | Not stabilized is defined as less than 95.0% occupied or a year from completion.
|--- | --------------------------------------------------------------------------------



Development Land



We estimate that we can develop approximately 14.3 million square feet of office, industrial and retail space on our development land that was wholly
owned as of December 31, 2003. All of this development land is zoned and available for office, industrial or retail development, substantially all of which has utility infrastructure already in place. We believe that our commercially zoned and
unencumbered land in existing business parks gives us a development advantage over other commercial real estate development companies in many of our markets. Any future development, however, is dependent on the demand for office, industrial or
retail space in the area, the availability of favorable financing and other factors, and no assurance can be given that any construction will take place on the development land. In addition, if construction is undertaken on the development land, we
will be subject to the risks associated with construction activities, including the risks that occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable, construction costs may exceed original
estimates and construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction expense. We may also dispose of certain parcels of development land that do not meet our development criteria and
we may develop properties other than office, industrial and retail on certain parcels with unrelated joint venture partners.



14



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Other Properties



As of December 31, 2003, we owned an interest (50.0% or less) in 65 in-service office and industrial properties, of which six are consolidated as a result
of our continuing involvement with the properties. The properties encompass approximately 6.8 million rentable square feet and 418 apartment units. The following table sets forth information about these properties at December 31, 2003:



|                  |  |                     |        |  |           |            |  |                                                            |        |  |     |              |  |     |       |  |     |   |  |       |  
|----------------- |  | ------------------- | ------ |  | --------- | ---------- |  | ---------------------------------------------------------- | ------ |  | --- | ------------ |  | --- | ----- |  | --- | - |  | ----- | -
|Market            |  | RentableSquare Feet |        |  | Occupancy |            |  | Percentage of Annualized Revenue HighwoodsShare Only (1) |       
|                  |  |                     | Office |  |           | Industrial |  |                                                            | Retail |  |     | Multi-Family |  |     | Total | 
|Des Moines        |  | 2,245,000           | (2)    |  | 95.3      | %(3)       |  | 33.5                                                       | %      |  | 4.2 | %            |  | 1.2 | %     |  | 4.3 | % |  | 43.2  | %
|Orlando           |  | 1,764,000           |        |  | 85.6      |            |  | 17.9                                                       |        |  |    |              |  |    |       |  |    |   |  | 17.9  |  
|Atlanta           |  | 650,000             |        |  | 86.7      |            |  | 11.8                                                       |        |  |    |              |  |    |       |  |    |   |  | 11.8  |  
|Research Triangle |  | 455,000             |        |  | 98.7      |            |  | 4.2                                                        |        |  |    |              |  |    |       |  |    |   |  | 4.2   |  
|Kansas City       |  | 427,000             |        |  | 87.6      |            |  | 4.2                                                        |        |  |    |              |  |    |       |  |    |   |  | 4.2   |  
|Piedmont Triad    |  | 364,000             |        |  | 100.0     |            |  | 4.7                                                        |        |  |    |              |  |    |       |  |    |   |  | 4.7   |  
|Tampa             |  | 205,000             |        |  | 92.1      |            |  | 2.5                                                        |        |  |    |              |  |    |       |  |    |   |  | 2.5   |  
|Charlotte         |  | 148,000             |        |  | 100.0     |            |  | 1.0                                                        |        |  |    |              |  |    |       |  |    |   |  | 1.0   |  
|Richmond          |  | 412,000             |        |  | 99.0      |            |  | 9.9                                                        |        |  |    |              |  |    |       |  |    |   |  | 9.9   |  
|Other             |  | 110,000             |        |  | 100.0     |            |  | 0.6                                                        |        |  |    |              |  |    |       |  |    |   |  | 0.6   |  
|                  |  |                     |        |  |           |            |  |                                                            |        |  |     |              |  |     |       |  |     |   |  |       |  
|Total             |  | 6,780,000           |        |  | 92.2      | %          |  | 90.3                                                       | %      |  | 4.2 | %            |  | 1.2 | %     |  | 4.3 | % |  | 100.0 | %
|                  |  |                     |        |  |           |            |  |                                                            |        |  |     |              |  |     |       |  |     |   |  |       |  

---

|(1) | Annualized Rental Revenue is December 2003 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(2) | Excludes Des Moines apartment units.
|--- | -------------------------------------



|(3) | Excludes Des Moines apartment occupancy percentage of 90.0%.
|--- | -------------------------------------------------------------



15



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Lease Expirations



The following tables set forth scheduled lease expirations for existing leases at our Wholly Owned Properties (excluding apartment units) as of December
31, 2003. The table includes the effects of any early renewals exercised by tenants as of December 31, 2003.



Office Properties:



|                       |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|---------------------- |  | ------------------------------------------- |  | -------------------------------------------------------------- | - |  | ------------------------------------------------ | ------- | ----------------------------------------------------- | - | ------------------------------------------------------------------ |  | ----- | -
|Lease Expiring (1)     |  | RentableSquare FeetSubject toExpiringLeases |  | Percentage ofLeasedSquare FootageRepresented byExpiring Leases |   |  | AnnualizedRental RevenueUnder ExpiringLeases (2) |         | AverageAnnualRental RatePer SquareFoot forExpirations |   | Percent ofAnnualizedRental RevenueRepresented byExpiringLeases (2) | 
|                       |  |                                             |  |                                                                |   |  | ($ in thousands)                                 |         |                                                       |   |                                                                    | 
|2004(3)                |  | 2,803,876                                   |  | 14.0                                                           | % |  | $                                                | 51,010  |                                                       | $ | 18.19                                                              |  | 14.6  | %
|2005                   |  | 3,538,106                                   |  | 17.6                                                           |   |  |                                                  | 63,790  |                                                       |   | 18.03                                                              |  | 18.1  |  
|2006                   |  | 3,095,699                                   |  | 15.4                                                           |   |  |                                                  | 56,911  |                                                       |   | 18.38                                                              |  | 16.3  |  
|2007                   |  | 1,779,659                                   |  | 8.9                                                            |   |  |                                                  | 29,637  |                                                       |   | 16.65                                                              |  | 8.5   |  
|2008                   |  | 3,117,531                                   |  | 15.5                                                           |   |  |                                                  | 48,556  |                                                       |   | 15.58                                                              |  | 13.9  |  
|2009                   |  | 1,802,308                                   |  | 9.0                                                            |   |  |                                                  | 28,596  |                                                       |   | 15.87                                                              |  | 8.2   |  
|2010                   |  | 1,243,677                                   |  | 6.2                                                            |   |  |                                                  | 24,500  |                                                       |   | 19.70                                                              |  | 7.0   |  
|2011                   |  | 1,092,047                                   |  | 5.4                                                            |   |  |                                                  | 20,816  |                                                       |   | 19.06                                                              |  | 5.9   |  
|2012                   |  | 522,042                                     |  | 2.6                                                            |   |  |                                                  | 10,738  |                                                       |   | 20.57                                                              |  | 3.1   |  
|2013                   |  | 548,879                                     |  | 2.7                                                            |   |  |                                                  | 9,266   |                                                       |   | 16.88                                                              |  | 2.6   |  
|Thereafter             |  | 543,880                                     |  | 2.7                                                            |   |  |                                                  | 6,191   |                                                       |   | 11.38                                                              |  | 1.8   |  
|                       |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                       |  | 20,087,704                                  |  | 100.0                                                          | % |  | $                                                | 350,011 |                                                       | $ | 17.42                                                              |  | 100.0 | %
|                       |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                       |  |                                             |  |                                                                |  
|Industrial Properties: |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                       |  |                                             |  |                                                                |  
|Lease Expiring (1)     |  | RentableSquare FeetSubject toExpiringLeases |  | Percentage ofLeasedSquare FootageRepresented byExpiring Leases |   |  | AnnualizedRental RevenueUnder ExpiringLeases (2) |         | AverageAnnualRental RatePer SquareFoot forExpirations |   | Percent ofAnnualizedRental RevenueRepresented byExpiringLeases (2) | 
|                       |  |                                             |  |                                                                |   |  | ($ in thousands)                                 |         |                                                       |   |                                                                    | 
|2004(4)                |  | 1,652,551                                   |  | 23.8                                                           | % |  | $                                                | 7,970   |                                                       | $ | 4.82                                                               |  | 24.2  | %
|2005                   |  | 1,289,760                                   |  | 18.6                                                           |   |  |                                                  | 5,926   |                                                       |   | 4.59                                                               |  | 18.0  |  
|2006                   |  | 887,007                                     |  | 12.8                                                           |   |  |                                                  | 4,447   |                                                       |   | 5.01                                                               |  | 13.5  |  
|2007                   |  | 1,677,694                                   |  | 24.2                                                           |   |  |                                                  | 7,283   |                                                       |   | 4.34                                                               |  | 22.2  |  
|2008                   |  | 384,012                                     |  | 5.5                                                            |   |  |                                                  | 1,862   |                                                       |   | 4.85                                                               |  | 5.7   |  
|2009                   |  | 380,349                                     |  | 5.5                                                            |   |  |                                                  | 2,408   |                                                       |   | 6.33                                                               |  | 7.3   |  
|2010                   |  | 104,570                                     |  | 1.5                                                            |   |  |                                                  | 432     |                                                       |   | 4.13                                                               |  | 1.3   |  
|2011                   |  | 66,342                                      |  | 1.0                                                            |   |  |                                                  | 356     |                                                       |   | 5.37                                                               |  | 1.1   |  
|2012                   |  | 44,447                                      |  | 0.6                                                            |   |  |                                                  | 261     |                                                       |   | 5.87                                                               |  | 0.8   |  
|2013                   |  | 102,384                                     |  | 1.5                                                            |   |  |                                                  | 612     |                                                       |   | 5.98                                                               |  | 1.9   |  
|Thereafter             |  | 348,394                                     |  | 5.0                                                            |   |  |                                                  | 1,301   |                                                       |   | 3.73                                                               |  | 4.0   |  
|                       |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                       |  | 6,937,510                                   |  | 100.0                                                          | % |  | $                                                | 32,858  |                                                       | $ | 4.74                                                               |  | 100.0 | %
|                       |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  

---

|(1) | Includes effects of any early renewals exercised by tenants on or before December 31, 2003.
|--- | -------------------------------------------------------------------------------------------



|(2) | Annualized Rental Revenue is December 2003 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(3) | Includes 96,000 square feet of leases that are on a month to month basis or 0.4% of total annualized rental revenue.
|--- | --------------------------------------------------------------------------------------------------------------------



|(4) | Includes 165,000 square feet of leases that are on a month to month basis or 0.2% of total annualized rental revenue.
|--- | ---------------------------------------------------------------------------------------------------------------------



16



---

Retail Properties:



|                   |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|------------------ |  | ------------------------------------------- |  | -------------------------------------------------------------- | - |  | ------------------------------------------------ | ------- | ----------------------------------------------------- | - | ------------------------------------------------------------------ |  | ----- | -
|Lease Expiring (1) |  | RentableSquare FeetSubject toExpiringLeases |  | Percentage ofLeasedSquare FootageRepresented byExpiring Leases |   |  | AnnualizedRental RevenueUnder ExpiringLeases (2) |         | AverageAnnualRental RatePer SquareFoot forExpirations |   | Percent ofAnnualizedRental RevenueRepresented byExpiringLeases (2) | 
|                   |  |                                             |  |                                                                |   |  | ($ in thousands)                                 |         |                                                       |   |                                                                    | 
|2004(3)            |  | 201,846                                     |  | 13.7                                                           | % |  | $                                                | 2,697   |                                                       | $ | 13.36                                                              |  | 7.5   | %
|2005               |  | 152,280                                     |  | 10.4                                                           |   |  |                                                  | 2,929   |                                                       |   | 19.23                                                              |  | 8.2   |  
|2006               |  | 91,821                                      |  | 6.3                                                            |   |  |                                                  | 2,239   |                                                       |   | 24.38                                                              |  | 6.2   |  
|2007               |  | 92,813                                      |  | 6.3                                                            |   |  |                                                  | 2,390   |                                                       |   | 25.75                                                              |  | 6.7   |  
|2008               |  | 144,700                                     |  | 9.9                                                            |   |  |                                                  | 4,585   |                                                       |   | 31.69                                                              |  | 12.8  |  
|2009               |  | 169,809                                     |  | 11.6                                                           |   |  |                                                  | 4,881   |                                                       |   | 28.74                                                              |  | 13.6  |  
|2010               |  | 85,386                                      |  | 5.8                                                            |   |  |                                                  | 2,343   |                                                       |   | 27.44                                                              |  | 6.5   |  
|2011               |  | 57,783                                      |  | 3.9                                                            |   |  |                                                  | 1,869   |                                                       |   | 32.35                                                              |  | 5.2   |  
|2012               |  | 97,132                                      |  | 6.6                                                            |   |  |                                                  | 2,233   |                                                       |   | 22.99                                                              |  | 6.2   |  
|2013               |  | 132,377                                     |  | 9.0                                                            |   |  |                                                  | 3,355   |                                                       |   | 25.34                                                              |  | 9.3   |  
|Thereafter         |  | 242,083                                     |  | 16.5                                                           |   |  |                                                  | 6,372   |                                                       |   | 26.32                                                              |  | 17.8  |  
|                   |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                   |  | 1,468,030                                   |  | 100.0                                                          | % |  | $                                                | 35,893  |                                                       | $ | 24.45                                                              |  | 100.0 | %
|                   |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                   |  |                                             |  |                                                                |  
|Total:             |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                   |  |                                             |  |                                                                |  
|Lease Expiring (1) |  | RentableSquare FeetSubject toExpiringLeases |  | Percentage ofLeasedSquare FootageRepresented byExpiring Leases |   |  | AnnualizedRental RevenueUnder ExpiringLeases (2) |         | AverageAnnualRental RatePer SquareFoot forExpirations |   | Percent ofAnnualizedRental RevenueRepresented byExpiringLeases (2) | 
|                   |  |                                             |  |                                                                |   |  | ($ in thousands)                                 |         |                                                       |   |                                                                    | 
|2004(4)            |  | 4,658,273                                   |  | 16.3                                                           | % |  | $                                                | 61,677  |                                                       | $ | 13.24                                                              |  | 14.7  | %
|2005               |  | 4,980,146                                   |  | 17.4                                                           |   |  |                                                  | 72,645  |                                                       |   | 14.59                                                              |  | 17.3  |  
|2006               |  | 4,074,527                                   |  | 14.3                                                           |   |  |                                                  | 63,597  |                                                       |   | 15.61                                                              |  | 15.2  |  
|2007               |  | 3,550,166                                   |  | 12.5                                                           |   |  |                                                  | 39,310  |                                                       |   | 11.07                                                              |  | 9.4   |  
|2008               |  | 3,646,243                                   |  | 12.8                                                           |   |  |                                                  | 55,003  |                                                       |   | 15.08                                                              |  | 13.1  |  
|2009               |  | 2,352,466                                   |  | 8.3                                                            |   |  |                                                  | 35,885  |                                                       |   | 15.25                                                              |  | 8.6   |  
|2010               |  | 1,433,633                                   |  | 5.0                                                            |   |  |                                                  | 27,275  |                                                       |   | 19.03                                                              |  | 6.5   |  
|2011               |  | 1,216,172                                   |  | 4.3                                                            |   |  |                                                  | 23,041  |                                                       |   | 18.95                                                              |  | 5.5   |  
|2012               |  | 663,621                                     |  | 2.3                                                            |   |  |                                                  | 13,232  |                                                       |   | 19.94                                                              |  | 3.2   |  
|2013               |  | 783,640                                     |  | 2.8                                                            |   |  |                                                  | 13,233  |                                                       |   | 16.89                                                              |  | 3.2   |  
|Thereafter         |  | 1,134,357                                   |  | 4.0                                                            |   |  |                                                  | 13,864  |                                                       |   | 12.22                                                              |  | 3.3   |  
|                   |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  
|                   |  | 28,493,244                                  |  | 100.0                                                          | % |  | $                                                | 418,762 |                                                       | $ | 14.70                                                              |  | 100.0 | %
|                   |  |                                             |  |                                                                |   |  |                                                  |         |                                                       |   |                                                                    |  |       |  

---

|(1) | Includes effects of any early renewals exercised by tenants on or before December 31, 2003.
|--- | -------------------------------------------------------------------------------------------



|(2) | Annualized Rental Revenue is December 2003 rental revenue (base rent plus operating expense pass-throughs) multiplied by 12.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(3) | Includes 34,000 square feet of leases that are on a month to month basis or 0.1% of total annualized rental revenue.
|--- | --------------------------------------------------------------------------------------------------------------------



|(4) | Includes 295,000 square feet of leases that are on a month to month basis or 0.7% of total annualized rental revenue.
|--- | ---------------------------------------------------------------------------------------------------------------------



17



---



ITEM 3. LEGAL PROCEEDINGS



We are a
party to a variety of legal proceedings arising in the ordinary course of our business. We believe that we are adequately covered by insurance and indemnification agreements. Accordingly, none of such proceedings are expected to have a material
adverse effect on our business, financial condition and results of operations.



We accrued $2.7 million in 2002 for litigation expenses related to various legal proceedings from previously completed mergers and acquisitions. These claims were fully settled by early 2003.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



18



---



ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT



The Company is the sole general partner of the Operating Partnership. The following table sets forth information with respect to the Companys executive officers:



|                    |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                |  | Age |  | Position and Background                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Edward J. Fritsch   |  | 45  |  | Director, President and Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                    |  |    
|                    |  |     |  | Mr. Fritsch joined us in 1982. He was a partner of our predecessor. Mr. Fritsch served as our chief operating officer from January 1998 until December 2003 when he became president and chief
operating officer. He became chief executive officer in July 2004.                                                                                                                                                                                                                                                                                                                                                            
|                    |  |    
|Michael E. Harris   |  | 55  |  | Executive Vice President and Chief Operating Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                    |  |     |  | Mr. Harris became chief operating officer in July 2004. Prior to that, Mr. Harris was a senior vice president and responsible for our operations in Tennessee, Missouri, Kansas and Charlotte.
Mr. Harris was executive vice president of Crocker Realty Trust prior to its merger with us in 1996. Before joining Crocker Realty Trust, Mr. Harris served as senior vice president, general counsel and chief financial officer of Towermarc
Corporation, a privately owned real estate development firm. Mr. Harris is a member of the Advisory Board of Directors at SouthTrust Bank of Memphis, and Allen & Hoshall, Inc.
|                    |  |    
|Gene H. Anderson    |  | 59  |  | Director and Senior Vice President.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                    |  |    
|                    |  |     |  | Mr. Anderson manages the operations of our Georgia properties and the Piedmont Triad division of North Carolina. Mr. Anderson was the founder and president of Anderson Properties, Inc. prior
to its merger with the Company in 1997.                                                                                                                                                                                                                                                                                                                                                                                       
|                    |  |    
|Michael F. Beale    |  | 51  |  | Senior Vice President.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                    |  |    
|                    |  |     |  | Mr. Beale is responsible for our operations in Florida. Prior to joining us in 2000, Mr. Beale was vice president of Koger Equity, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                    |  |    
|Robert G. Cutlip    |  | 55  |  | Senior Vice President and Regional Manager.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                    |  |    
|                    |  |     |  | Prior to joining us in September 2003, Mr. Cutlip was vice president of real estate for Progress Energy, a public company, where he was responsible for the development and facilities
management in North Carolina, South Carolina, and Florida. Before joining Progress Energy, Mr. Cutlip was executive vice president for the Carolinas and Tennessee Region of Duke-Weeks Realty, a Real Estate Investment Trust. Mr. Cutlip is
chairman-elect of the National Association of Industrial and Office Properties, an industry association for commercial real estate with over 11,000 members nationwide.                 
|                    |  |    
|Carman J. Liuzzo    |  | 43  |  | Vice President of Investments and Strategic Analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                    |  |    
|                    |  |     |  | Mr. Liuzzo served as our vice president, chief financial officer and treasurer from 1994 until November 2003. Prior to joining us, Mr. Liuzzo was vice president and chief accounting officer
for Boddie-Noell Enterprises, Inc. and Boddie-Noell Restaurant Properties, Inc.                                                                                                                                                                                                                                                                                                                                                
|                    |  |    
|Mack D. Pridgen III |  | 55  |  | Vice President, General Counsel and Secretary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                    |  |    
|                    |  |     |  | Prior to joining us in 1997, Mr. Pridgen was a partner with Smith Helms Mullis & Moore, L.L.P. and prior to that a partner with Arthur Andersen & Co. Mr. Pridgen is an attorney and a
certified public accountant.                                                                                                                                                                                                                                                                                                                                                                                                          
|                    |  |    
|W. Brian Reames     |  | 41  |  | Senior Vice President and Regional Manager.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                    |  |    
|                    |  |     |  | Mr. Reames became senior vice president and regional manager in August 2004 and has responsibility for our operations in Nashville, Memphis, Charlotte, Greenville and Columbia. Prior to that,
Mr. Reames was vice president responsible for the Nashville division, a position held since 1996. Mr. Reames was a partner and owner at Eakin & Smith, Inc., a Nashville based office real estate development, leasing and management firm from 1989
until the merger with Highwoods Properties in April 1996.                                                                                                               



19



---

|                 |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------------- |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  |   
|Terry L. Stevens |  | 56 |  | Vice President, Chief Financial Officer and Treasurer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                 |  |   
|                 |  |    |  | Prior to joining us in December 2003, Mr. Stevens was executive vice president, chief financial officer and trustee for Crown American Realty Trust, a public company. Before joining Crown
American Realty Trust, Mr. Stevens was director of financial systems development at AlliedSignal, Inc., a large multi-national manufacturer. Mr. Stevens was also an audit partner with Price Waterhouse. Mr. Stevens currently serves as trustee,
chairman of the Audit Committee and member of the Compensation Committee of First Potomac Realty Trust, a public company.



20



---



PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS



Market Information and Distributions



There is no established public trading market for the Common Units. The following table sets forth the cash distributions paid per Common Unit during each quarter.



|              |  |                   |      |                   |   |     
|------------- |  | ----------------- | ---- | ----------------- | - | ----
|Quarter Ended |  | 2003Distributions |      | 2002Distributions
|March 31      |  | $                 | .585 |                   | $ | .585
|June 30       |  |                   | .425 |                   |   | .585
|September 30  |  |                   | .425 |                   |   | .585
|December 31   |  |                   | .425 |                   |   | .585



To maintain its
qualifications as a REIT, the Company must distribute to its stockholders at least 90.0% of REIT taxable income. The following factors will affect cash flows from operating activities and, accordingly, influence the decisions of the Companys
board of directors regarding distributions by the Operating Partnership:



| |  | debt service requirements after taking into account debt covenants and the repayment and restructuring of certain indebtedness;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | scheduled increases in base rents of existing leases;
| | - | -----------------------------------------------------



| |  | changes in rents attributable to the renewal of existing leases or replacement leases;
| | - | --------------------------------------------------------------------------------------



| |  | changes in occupancy rates at existing properties and execution of leases for newly acquired or developed properties; and
| | - | -------------------------------------------------------------------------------------------------------------------------



| |  | operating expenses and capital replacement needs.
| | - | -------------------------------------------------



As of December 14, 2004, there were 157 holders of record of Common Units (other than the Company).



The section under the heading entitled Equity Compensation Plan
Information of the Companys Proxy Statement is incorporated herein by reference, except as noted in Item 11.



21



---



ITEM 6. SELECTED FINANCIAL DATA



The following selected financial data as of December 31, 2003 and 2002 and for the three years ended December 31, 2003 is derived from the Operating Partnerships audited Consolidated Financial Statements included elsewhere herein. The
selected financial data as of December 31, 2001, 2000 and 1999 and for the two years ended December 31, 2000 is derived from previously issued financial statements adjusted for revisions related to the restatements discussed below.



The Operating Partnership has restated its results for the five-year period
from 1999 through 2003. These restatements resulted from adjustments related to the accounting for a limited number of its prior real estate sales transactions occurring between 1999 and 2003, reclassifications for discontinued operations,
accounting for a debt retirement, and other items. Refer to Note 18 to the Consolidated Financial Statements for further discussion of the restatement adjustments. The information in the following table should be read in conjunction with the
Operating Partnerships audited Consolidated Financial Statements and related notes included herein (in thousands, except per unit amounts):



|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | -------- | - | ------- | -------- |  | - | -------- | - |  | -------- | ------- | - |  | - | ------- | -
|                                                                                                              |  | Year Ended December 31, |        
|                                                                                                              |  | 2003 (1)                |         |   | 2002 (1) |   |         | 2001 (1) |  |   | 2000 (1) |   |  | 1999 (1) |        
|Rental and other revenues                                                                                     |  | $                       | 504,453 |   |          | $ | 521,627 |          |  | $ | 535,233  |   |  | $        | 525,997 |   |  | $ | 554,861 |  
|Operating expenses:                                                                                           |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Rental property and other expenses                                                                            |  |                         | 177,897 |   |          |   | 168,727 |          |  |   | 168,613  |   |  |          | 155,446 |   |  |   | 172,870 |  
|Depreciation and amortization                                                                                 |  |                         | 142,073 |   |          |   | 140,788 |          |  |   | 127,574  |   |  |          | 114,061 |   |  |   | 107,199 |  
|Impairment of assets held for use                                                                             |  |                         |        |   |          |   | 9,919   |          |  |   |         |   |  |          |        |   |  |   |        |  
|General and administrative                                                                                    |  |                         | 24,641  |   |          |   | 25,227  |          |  |   | 23,082   |   |  |          | 25,211  |   |  |   | 24,857  |  
|Litigation expense                                                                                            |  |                         |        |   |          |   | 2,700   |          |  |   |         |   |  |          |        |   |  |   |        |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Total operating expenses                                                                                      |  |                         | 344,611 |   |          |   | 347,361 |          |  |   | 319,269  |   |  |          | 294,718 |   |  |   | 304,926 |  
|Interest expense:                                                                                             |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Contractual                                                                                                   |  |                         | 119,165 |   |          |   | 119,167 |          |  |   | 118,198  |   |  |          | 107,847 |   |  |   | 110,063 |  
|Amortization of deferred financing costs                                                                      |  |                         | 4,405   |   |          |   | 3,470   |          |  |   | 4,038    |   |  |          | 3,196   |   |  |   | 3,505   |  
|Financing obligations                                                                                         |  |                         | 17,691  |   |          |   | 12,488  |          |  |   | 11,841   |   |  |          | 1,773   |   |  |   | 1,065   |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Total interest expense                                                                                        |  |                         | 141,261 |   |          |   | 135,125 |          |  |   | 134,077  |   |  |          | 112,816 |   |  |   | 114,633 |  
|Other income/expense:                                                                                         |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Interest and other income                                                                                     |  |                         | 6,025   |   |          |   | 7,688   |          |  |   | 13,745   |   |  |          | 9,744   |   |  |   | 9,788   |  
|Loss on debt extinguishments                                                                                  |  |                         | (14,653 | ) |          |   | (378    | )        |  |   | (714     | ) |  |          | (4,711  | ) |  |   | (7,341  | )
|Gain on extinguishment of co-venture obligation                                                               |  |                         | 16,301  |   |          |   |        |          |  |   |         |   |  |          |        |   |  |   |        |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Total other income/expense                                                                                    |  |                         | 7,673   |   |          |   | 7,310   |          |  |   | 13,031   |   |  |          | 5,033   |   |  |   | 2,447   |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Income before disposition of property, co-venture expense and equity in earnings of unconsolidated affiliates |  |                         | 26,254  |   |          |   | 46,451  |          |  |   | 94,918   |   |  |          | 123,496 |   |  |   | 137,749 |  
|Gains on disposition of property, net                                                                         |  |                         | 12,316  |   |          |   | 22,695  |          |  |   | 21,935   |   |  |          | 3,396   |   |  |   | 5,793   |  
|Co-venture expense                                                                                            |  |                         | (4,588  | ) |          |   | (7,730  | )        |  |   | (6,859   | ) |  |          | (158    | ) |  |   |        |  
|Equity in earnings of unconsolidated affiliates                                                               |  |                         | 4,680   |   |          |   | 5,282   |          |  |   | 7,005    |   |  |          | 2,051   |   |  |   | 443     |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Income from continuing operations                                                                             |  |                         | 38,662  |   |          |   | 66,698  |          |  |   | 116,999  |   |  |          | 128,785 |   |  |   | 143,985 |  
|Discontinued operations                                                                                       |  |                         | 11,757  |   |          |   | 23,866  |          |  |   | 13,900   |   |  |          | 13,910  |   |  |   | 10,027  |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net income                                                                                                    |  |                         | 50,419  |   |          |   | 90,564  |          |  |   | 130,899  |   |  |          | 142,695 |   |  |   | 154,012 |  
|Distributions on preferred units                                                                              |  |                         | (30,852 | ) |          |   | (30,852 | )        |  |   | (31,500  | ) |  |          | (32,580 | ) |  |   | (32,580 | )
|Excess of preferred stock carrying value over repurchase value                                                |  |                         |        |   |          |   |        |          |  |   | 1,012    |   |  |          |        |   |  |   |        |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net income available for common unitholders                                                                   |  | $                       | 19,567  |   |          | $ | 59,712  |          |  | $ | 100,411  |   |  | $        | 100,115 |   |  | $ | 121,432 |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net income per common unit  basic:                                                                           |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Income from continuing operations                                                                             |  | $                       | 0.13    |   |          | $ | 0.60    |          |  | $ | 1.41     |   |  | $        | 1.43    |   |  | $ | 1.59    |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net income                                                                                                    |  | $                       | 0.33    |   |          | $ | 1.00    |          |  | $ | 1.64     |   |  | $        | 1.64    |   |  | $ | 1.73    |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net income per common unit  diluted:                                                                         |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Income from continuing operations                                                                             |  | $                       | 0.13    |   |          | $ | 0.59    |          |  | $ | 1.40     |   |  | $        | 1.43    |   |  | $ | 1.59    |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net income                                                                                                    |  | $                       | 0.33    |   |          | $ | 0.99    |          |  | $ | 1.62     |   |  | $        | 1.64    |   |  | $ | 1.73    |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Distributions declared per common unit                                                                        |  | $                       | 1.86    |   |          | $ | 2.34    |          |  | $ | 2.31     |   |  | $        | 2.25    |   |  | $ | 2.19    |  
|                                                                                                              |  |                         |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  



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|                                             |  |                         |            |          |   |            |  |          |            |          |   |            |  |   |           
|-------------------------------------------- |  | ----------------------- | ---------- | -------- | - | ---------- |  | -------- | ---------- | -------- | - | ---------- |  | - | ----------
|                                             |  | Year Ended December 31,
|                                             |  | 2003 (1)                |            | 2002 (1) |   | 2001 (1)   |  | 2000 (1) |            | 1999 (1)
|Balance Sheet Data:                          |  |                         |            |          |   |            |  |          |            |          |   |            |  |   |           
|Net real estate assets                       |  | $                       | 3,212,280  |          | $ | 3,335,008  |  | $        | 3,516,974  |          | $ | 3,366,579  |  | $ | 3,599,591 
|Total assets                                 |  | $                       | 3,527,058  |          | $ | 3,718,848  |  | $        | 3,913,425  |          | $ | 3,993,008  |  | $ | 3,993,221 
|Total mortgages and notes payable            |  | $                       | 1,708,765  |          | $ | 1,754,260  |  | $        | 1,914,470  |          | $ | 1,806,586  |  | $ | 1,719,117 
|Financing obligations                        |  | $                       | 124,063    |          | $ | 121,012    |  | $        | 76,089     |          | $ | 73,620     |  | $ | 22,651    
|Co-venture obligation                        |  | $                       |           |          | $ | 43,511     |  | $        | 40,482     |          | $ | 36,046     |  | $ |          
|Redeemable Operating Partnership Units       |  | $                       | 377,445    |          | $ | 377,445    |  | $        | 377,445    |          | $ | 397,500    |  | $ | 397,500   
|Number of wholly owned in-service properties |  |                         | 465        |          |   | 493        |  |          | 498        |          |   | 493        |  |   | 563       
|Total rentable square feet                   |  |                         | 34,922,000 |          |   | 37,112,000 |  |          | 37,221,000 |          |   | 36,183,000 |  |   | 38,976,000

---

|(1) | In October 2001, the FASB issued SFAS No. 144 which requires assets classified as held for sale or sold as a result of disposal activities initiated subsequent to January 1, 2002
and whereby the operations and cash flows have been or will be eliminated from the ongoing operations of the Operating Partnership and we will not have any significant continuing involvement in the operations after the disposal transaction to be
reported as discontinued operations. Thus, in all periods presented above, we have reclassified to discontinued operations the operations and/or gain/(loss) from disposal of those properties that qualify for such treatment under SFAS No. 144.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



You should read the following discussion and analysis in conjunction with the accompanying Consolidated Financial Statements and related notes contained
elsewhere in this amended Annual Report on Form 10-K.



DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS



Some of the information in this amended Annual Report on Form 10-K may contain forward-looking statements. Such statements include, in particular,
statements about our plans, strategies and prospects under this section and under the heading Business. You can identify forward-looking statements by our use of forward-looking terminology such as may, will,
expect, anticipate, estimate, continue or other similar words. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that our plans, intentions or expectations will be achieved. When considering such forward-looking statements, you should keep in mind the following important factors that could cause our actual results to differ
materially from those contained in any forward-looking statement:



| |  | speculative development activity by our competitors in our existing markets could result in an excessive supply of office, industrial and retail properties relative to tenant
demand;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the financial condition of our tenants could deteriorate;
| | - | ---------------------------------------------------------



| |  | we may not be able to complete development, acquisition, reinvestment, disposition or joint venture projects as quickly or on as favorable terms as anticipated;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may not be able to lease or release space quickly or on as favorable terms as old leases;
| | - | --------------------------------------------------------------------------------------------



| |  | an unexpected increase in interest rates would increase our debt service costs;
| | - | -------------------------------------------------------------------------------



| |  | we may not be able to continue to meet our long-term liquidity requirements on favorable terms;
| | - | -----------------------------------------------------------------------------------------------



| |  | we could lose key executive officers; and
| | - | -----------------------------------------



| |  | our southeastern and midwestern markets may suffer additional declines in economic growth.
| | - | ------------------------------------------------------------------------------------------



This list of risks and uncertainties, however, is not intended to be exhaustive. You should also review the other cautionary
statements we make in Business  Risk Factors set forth elsewhere in this amended Annual Report.



23



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Given these uncertainties, you should not place undue reliance on forward-looking statements. We
undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances or to reflect the occurrence of unanticipated events.



OVERVIEW



The Operating Partnership is managed by its sole general partner, the
Company, a self-administered and self-managed equity REIT that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. As of December 31, 2003, we own or have an interest
in 530 in-service office, industrial and retail properties encompassing approximately 41.7 million square feet. As of that date, we also owned 1,305 acres of development land which is suitable to develop approximately 14.3 million rentable square
feet of office, industrial and retail space. We are based in Raleigh, North Carolina, and our properties and development land are located in Florida, Georgia, Iowa, Kansas, Maryland, Missouri, North Carolina, South Carolina, Tennessee and Virginia.



The Company conducts substantially all of its activities
through and substantially all of its interests in the properties are held directly or indirectly by, the Operating Partnership. At December 31, 2003, the Company owned 89.5% of the Common Units in the Operating Partnership.



Management of the Company is ultimately responsible for preparing and
presenting the Operating Partnerships financial statements in accordance with GAAP. As part of these processes, we consulted with Ernst & Young LLP in their capacity as our independent auditors regarding the application of GAAP. In
particular, we consulted with Ernst & Young LLP regarding certain of the real estate sales transactions with continuing involvement, accounting for the MOPPRS debt extinguishment in 2003 and accounting for the compensation costs to be recognized
in 2004 in connection with the retirement of the Companys former CEO.



Results of Operations



During 2003,
approximately 84% of our rental revenue was derived from our office properties. As a result, while we own and operate a limited number of industrial and retail properties, our operating results depend heavily on successfully leasing our office
properties. Furthermore, since most of our office properties are located in Florida, Georgia and North Carolina, employment growth in those states is and will continue to be an important determinative factor in predicting our future operating
results.



The key components affecting our revenue stream are
average occupancy and rental rates. During the past several years, as the average occupancy of our portfolio has decreased, our same property rental revenue has declined. Average occupancy generally increases during times of improving economic
growth, as our ability to lease space outpaces vacancies that occur upon the expirations of existing leases, while average occupancy generally declines during times of slower economic growth, when new vacancies tend to outpace our ability to lease
space. Asset acquisitions and dispositions also impact our rental revenues and could impact our average occupancy, depending upon the occupancy percentage of the properties that are acquired or sold.



Whether or not our rental revenue tracks average occupancy proportionally
depends upon whether rents under new leases are higher or lower than the rents under the previous leases. During 2003, the average straight-lined rate per square foot on new leases signed in our Wholly Owned Properties was 0.7% lower than the
average straight-lined rate per square foot on the expiring leases. A further indicator of the predictability of future revenues is the expected lease expirations of our portfolio. Our average office lease term, excluding renewal periods is 4.5
years. At December 31, 2003, the occupancy rate for our Wholly Owned Properties was 81.5%, and during 2004, leases on approximately 4.7 million square feet of space will expire that have not been renewed as of December 31, 2003. This square footage
represents approximately 15% of our annualized rental revenue. As of September 30, 2004, based on our leasing efforts since December 31, 2003 and on other activity such as early lease terminations, the occupancy rate for our Wholly Owned Properties
improved to 83.2%. As a result, in addition to seeking to increase our average occupancy by leasing current vacant space, we also must concentrate our leasing efforts on renewing leases on expiring space. For more information regarding our lease
expirations, see Properties  Lease Expirations.



24



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Our expenses primarily consist of depreciation and amortization, general and administrative expenses,
rental property expenses and interest expense. Depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year, unless we buy or sell assets, since we
depreciate our properties on a straight-line basis. General and administrative expenses, net of amounts capitalized, consist primarily of management and employee salaries and other personnel costs, corporate overhead and long-term incentive
compensation. Rental property expenses are expenses associated with our ownership and operation of rental properties and include variable expenses, such as common area maintenance and utilities, and fixed expenses, such as property taxes and
insurance. Some of these variable expenses may be lower as our average occupancy declines, while the fixed expenses remain constant regardless of average occupancy. Interest expense depends upon the amount of our borrowings, the weighted average
interest rates on our debt and the amount capitalized on development projects.



We also record income from our investments in unconsolidated affiliates, which are our joint ventures except for two joint ventures which are included in our Consolidated Financial Statements as a result of our
continuing involvement with the properties  see Note 3 to the Consolidated Financial Statements. We record in equity in earnings of unconsolidated affiliates our proportionate share of the unconsolidated joint ventures net
income or loss. During 2003, income earned from these unconsolidated joint ventures aggregated $4.7 million, which represented approximately 9.3% of our total net income.



Additionally, SFAS No. 144 requires us to record net income received from properties sold or held for sale that qualify as
discontinued operations under SFAS No. 144 separately as income from discontinued operations. As a result, we separately record revenues and expenses from those qualifying properties. During 2003, income, including gains and losses from
the sale of properties, from discontinued operations accounted for approximately 23.3% of our total net income.



Liquidity and Capital Resources



We incur capital expenditures to lease space to our customers and to maintain the quality of our properties to successfully compete against other
properties. Tenant improvements are the costs required to customize the space for the specific needs of the customer. Lease commissions are costs incurred to find the customer for the space. Building improvements are recurring capital costs not
related to a customer to maintain the buildings. As leases expire, we either attempt to relet the space to an existing customer or attract a new customer to occupy the space. Generally, customer renewals require lower leasing capital expenditures
than reletting to new customers. However, market conditions such as supply of available space on the market, as well as demand for space, drive not only customer rental rates but also tenant improvement costs. Leasing capital expenditures are
amortized over the term of the lease and building improvements are depreciated over the appropriate useful life of the assets acquired. Both are included in depreciation and amortization in results of operations.



Because the Company is a REIT, our partnership agreement requires us to
distribute at least enough cash for the Company to be able to distribute at least 90.0% of its REIT taxable income to its stockholders. We generally use rents received from customers to fund our operating expenses, recurring capital expenditures and
common and preferred unit distributions. To fund property acquisitions, development activity or building renovations, we incur debt from time to time. As of December 31, 2003, we had $982.8 million of secured debt outstanding and $735.0 million of
unsecured debt outstanding. Our debt consists of mortgage debt, unsecured debt securities and borrowings under our Revolving Loan. As of December 31, 2004, we have $78.8 million of additional borrowing availability under our Revolving Loan.



Our Revolving Loan and the indenture governing our outstanding
long-term unsecured debt securities each require us to satisfy various operating and financial covenants and performance ratios. As a result, to ensure that we do not violate the provisions of these debt instruments, we may from time to time be
limited in undertaking certain activities that may otherwise be in our best interest, such as repurchasing partnership units, acquiring additional assets, increasing the total amount of our debt, or increasing stockholder dividends. We review our
current and expected operating results, financial condition and planned strategic actions on an ongoing basis for the purpose of monitoring our continued compliance with these covenants and ratios. While we are currently in compliance with these
covenants and ratios and expect to remain so for the foreseeable future, we cannot provide any assurance of such continued compliance and any failure to remain in compliance could result in an acceleration of some or all of our debt, severely
restrict our ability to incur additional debt to fund short- and long-term cash needs, or result in higher interest expense. See Note 5 to the Consolidated Financial Statements for disclosure regarding a waiver of and amendments to these covenants
in 2004.



25



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To generate additional capital to fund our growth and other strategic initiatives and to lessen the
ownership risks typically associated with owning 100.0% of a property, we may sell some of our properties or contribute them to joint ventures. When we create a joint venture with a strategic partner, we usually contribute one or more properties
that we own and/or vacant land to a newly formed entity in which we retain an interest of 50.0% or less. In exchange for our equal or minority interest in the joint venture, we generally receive cash from the partner and retain all of the management
income relating to the properties in the joint venture. The joint venture itself will frequently borrow money on its own behalf to finance the acquisition of and/or leverage the return upon the properties being acquired by the joint venture or to
build or acquire additional buildings. Such borrowings are typically on a non-recourse or limited recourse basis. We generally are not liable for the debts of our joint ventures, except to the extent of our equity investment, unless we have directly
guaranteed any of that debt. In most cases, we and/or our strategic partners are required to guarantee customary exceptions to non-recourse liability in non-recourse loans. See Note 15 to the Consolidated Financial Statements for additional
information on certain debt guarantees.



We have historically
also sold additional common or preferred equity to fund additional growth or to reduce our debt, but have limited those efforts during the past five years because funds generated from our capital recycling program in recent years have provided
sufficient funds. In addition, we used funds from our capital recycling to repurchase common equity in 2003, 2002 and 2001 and preferred equity in 2001.



Managements Analysis



We believe that funds from operations (FFO) and FFO per share are beneficial to management and investors and are important indicators of the
performance of any equity REIT. Because FFO and FFO per share calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of real estate (which can vary among owners of identical assets in
similar conditions based on historical cost accounting and useful life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that historical cost accounting for real estate
assets in accordance with Accounting Principles Generally Accepted in the United States (GAAP) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or
fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, management
believes that the use of FFO and FFO per share, together with the required GAAP presentations, provide a more complete understanding of the Companys performance relative to its competitors and a more informed and appropriate basis on which to
make decisions involving operating, financing and investing activities. See Funds From Operations.



26



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RESULTS
OF OPERATIONS



On January 1,
2002, we adopted SFAS No. 144. As described in Note 12 to the Consolidated Financial Statements, we reclassified the operations and/or gain/(loss) from disposal of certain properties to discontinued operations for all periods presented if the
operations and cash flows have been or will be eliminated from our ongoing operations and we will not have any significant continuing involvement in the operations after the disposal transaction and the properties were either sold during 2003 and
2002 or were held for sale at December 31, 2003. Accordingly, the operations and gain/(loss) from those properties disposed of during 2001 and certain properties disposed of during 2002 were not reclassified to discontinued operations.



As more fully described in Note 18 to the Consolidated Financial
Statements, three of our prior real estate sales transactions are accounted for as financing and/or profit-sharing arrangements. Although the rental revenues and operating expenses of these properties are recorded in our Consolidated Financial
Statements, the net income excluding depreciation that is allocated to our partner or the third party buyer (to the extent of their ownership interest) is reclassified as interest expense for a financing arrangement or co-venture expense for a
profit-sharing arrangement.



Comparison of 2003 to 2002



The following table sets forth information regarding our restated results of
operations for the years ended December 31, 2003 and 2002 ($ in millions):



|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ------------------- | - | ----- | ---------- |  | - | ----- | - |  | -------- | --
|                                                                                                              |  | Year Ended December 31, |       |   | 2003to 2002$ Change |   |       | % ofChange | 
|                                                                                                              |  | 2003                    |       |   | 2002                |   |       |           
|Rental and other revenues                                                                                     |  | $                       | 504.5 |   |                     | $ | 521.6 |            |  | $ | (17.1 | ) |  | (3.3     | )%
|Operating expenses:                                                                                           |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Rental property and other expenses                                                                            |  |                         | 177.9 |   |                     |   | 168.7 |            |  |   | 9.2   |   |  | 5.5      |   
|Depreciation and amortization                                                                                 |  |                         | 142.1 |   |                     |   | 140.8 |            |  |   | 1.3   |   |  | 0.9      |   
|Impairment of assets held for use                                                                             |  |                         |      |   |                     |   | 9.9   |            |  |   | (9.9  | ) |  | (100.0   | ) 
|General and administrative                                                                                    |  |                         | 24.6  |   |                     |   | 25.2  |            |  |   | (0.6  | ) |  | (2.4     | ) 
|Litigation expense                                                                                            |  |                         |      |   |                     |   | 2.7   |            |  |   | (2.7  | ) |  | (100.0   | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Total operating expenses                                                                                      |  |                         | 344.6 |   |                     |   | 347.3 |            |  |   | (2.7  | ) |  | (0.8     | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Interest expense:                                                                                             |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Contractual                                                                                                   |  |                         | 119.1 |   |                     |   | 119.1 |            |  |   |      |   |  |         |   
|Amortization of deferred financing costs                                                                      |  |                         | 4.4   |   |                     |   | 3.4   |            |  |   | 1.0   |   |  | 29.4     |   
|Financing obligations                                                                                         |  |                         | 17.7  |   |                     |   | 12.5  |            |  |   | 5.2   |   |  | 41.6     |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|                                                                                                              |  |                         | 141.2 |   |                     |   | 135.0 |            |  |   | 6.2   |   |  | 4.6      |   
|Other income/expense:                                                                                         |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Interest and other income                                                                                     |  |                         | 6.1   |   |                     |   | 7.7   |            |  |   | (1.6  | ) |  | (20.8    | ) 
|Loss on debt extinguishments                                                                                  |  |                         | (14.7 | ) |                     |   | (0.4  | )          |  |   | (14.3 | ) |  | (3,575.0 | ) 
|Gain on extinguishment of co-venture obligation                                                               |  |                         | 16.3  |   |                     |   |      |            |  |   | 16.3  |   |  | 100.0    |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|                                                                                                              |  |                         | 7.7   |   |                     |   | 7.3   |            |  |   | 0.4   |   |  | 5.5      |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Income before disposition of property, co-venture expense and equity in earnings of unconsolidated affiliates |  |                         | 26.4  |   |                     |   | 46.6  |            |  |   | (20.2 | ) |  | (43.3    | ) 
|Gains on disposition of property, net                                                                         |  |                         | 12.3  |   |                     |   | 22.7  |            |  |   | (10.4 | ) |  | (45.8    | ) 
|Co-venture expense                                                                                            |  |                         | (4.6  | ) |                     |   | (7.7  | )          |  |   | 3.1   |   |  | 40.3     |   
|Equity in earnings of unconsolidated affiliates                                                               |  |                         | 4.7   |   |                     |   | 5.2   |            |  |   | (0.5  | ) |  | (9.6     | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Income from continuing operations                                                                             |  |                         | 38.8  |   |                     |   | 66.8  |            |  |   | (28.0 | ) |  | (41.9    | ) 
|Discontinued operations:                                                                                      |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Income from discontinued operations                                                                           |  |                         | 2.9   |   |                     |   | 10.7  |            |  |   | (7.8  | ) |  | (72.9    | ) 
|Gain on sale of discontinued operations                                                                       |  |                         | 8.8   |   |                     |   | 13.1  |            |  |   | (4.3  | ) |  | (32.8    | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|                                                                                                              |  |                         | 11.7  |   |                     |   | 23.8  |            |  |   | (12.1 | ) |  | (50.8    | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Net income                                                                                                    |  |                         | 50.5  |   |                     |   | 90.6  |            |  |   | (40.1 | ) |  | (44.3    | ) 
|Distributions on preferred units                                                                              |  |                         | (30.9 | ) |                     |   | (30.9 | )          |  |   |      |   |  |         |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   
|Net income available for Class A common unitholders                                                           |  | $                       | 19.6  |   |                     | $ | 59.7  |            |  | $ | (40.1 | ) |  | (67.2    | )%
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |          |   



27



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Rental and Other Revenues



The decrease in rental and other revenues from continuing operations was primarily the result of (1) a decrease in average
occupancy rates in our Wholly Owned Properties from 86.4% for the year ended December 31, 2002 to 82.7% for the year ended December 31, 2003, and (2) from the effect of properties sold in 2003 and 2002 that were not accounted for as discontinued
operations. The decrease in average occupancy rates was primarily a result of the disposition of certain properties and the bankruptcies of WorldCom and US Airways, which decreased average occupancy rates by 2.8% and rental and other revenues from
continuing operations by $15.4 million. Amounts partly offsetting these decreases were (1) during 2002, approximately $3.1 million of straight-line rental income was written off in connection with the bankruptcy of WorldCom; (2) 2.0 million square
feet of development properties were placed in-service and, as a result, increased rental and other revenues from continuing operations by approximately $8.6 million; and (3) rental revenues in 2002 only included a partial year of rental revenues
from the Harborview Plaza transaction which occurred in June 2002, increasing 2003 rental revenues by approximately $3.8 million. In addition, construction income increased from 2002 to 2003, as a result of the development of certain office
condominiums in 2003. Recovery income from certain operating expenses have decreased in the year ended December 31, 2003 due to lower occupancy.



During the year ended December 31, 2003, 954 second generation leases representing 7.6 million square feet of office, industrial and retail space were
executed in our Wholly Owned Properties. The average rate per square foot on a GAAP basis over the lease term for leases executed in the year ended December 31, 2003 was 0.7% lower than the rent paid by previous customers.



As of the date of this filing, we are beginning to see a modest improvement
in employment trends in several of our markets and an improving economic climate in the Southeast. There has been modest positive absorption of office space in most of our markets during the last five quarters. Occupancy in our Wholly Owned
Properties increased to 83.2% at September 30, 2004 from 81.5% at December 31, 2003. We expect occupancy to increase modestly during the remainder of 2004.



Operating Expenses



The increase in rental and other operating expenses from continuing operations (real estate taxes, utilities, insurance, repairs and maintenance and other
property-related expenses) primarily resulted from (1) general inflationary increases particularly compensation, utility costs, real estate taxes and insurance and (2) the fact that certain fixed operating expenses do not vary with net changes in
our occupancy percentages, such as real estate taxes, insurance and utility rate changes. In addition, we had 2.0 million square feet of development properties placed in service during 2002 that resulted in an increase in rental and other operating
expenses from continuing operations. Partly offsetting these increases was a decrease in rental and other operating expenses from continuing operations of properties sold in 2003 and 2002 that were not accounted for as discontinued operations.



Rental and other operating expenses as a percentage of rental
and other revenue increased from 32.3% for the year ended December 31, 2002 to 35.3% for the year ended December 31, 2003. The increase was a result of the increases in rental and other operating expenses as described above and a decrease in rental
and other revenues, primarily due to lower average occupancy, as described above.



Excluding the effects of property acquisitions or dispositions, we expect property and other operating expenses to increase slightly in 2004 due to inflationary increases along with increases in certain fixed
operating expenses that do not vary with occupancy such as real estate taxes and utility rate changes.



The increase in depreciation and amortization from continuing operations in 2003 related to $14.0 million in depreciation from buildings, leasing
commissions and tenant improvement expenditures for properties placed in-service during 2002 and $4.5 million from the write-off of deferred leasing costs and tenant improvements for customers who vacated their space prior to lease expiration.
Partly offsetting these increases was a decrease in depreciation and amortization from continuing operations of properties sold in 2003 and 2002 that were not accounted for as discontinued operations.



Because there were no properties held for use with indicators of impairment
and with carrying value exceeding the sum of their undiscounted future cash flows, no impairment loss related to properties held for use was



28



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recognized during the year ended December 31, 2003. For the year ended December 31, 2002, the impairment loss on properties held for use with a carrying
value exceeding the sum of their undiscounted future cash flows was $0.8 million. We also recognized a $9.1 million impairment loss related to one office property, which had a carrying value in excess of the sum of the propertys undiscounted
future cash flows, that has been demolished and may be redeveloped into a class A suburban office property in the future.



General and administrative expenses, net of amounts capitalized, decreased $0.6 million for the year ended December 31, 2003 compared to the year ended
December 31, 2002. The decrease occurred because 2002 included $3.7 million of stock option expense related to option exercises; there was no corresponding expense in 2003. This decrease was offset by a decrease in 2003 of capitalization of certain
general and administrative costs due to the decrease in development and leasing activity, an increase in long-term incentive compensation expense as a result of the issuance of restricted and phantom stock during 2003 and 2002, and higher expenses
related to employee compensation from normal salary increases.



We accrued $2.7 million in the year ended December 31, 2002 for litigation expense related to various legal proceedings from previously completed mergers and acquisitions. These claims were fully paid and settled by early 2003.



In 2004, general and administrative expenses are expected to increase
significantly due to inflationary increases in compensation, benefits and other expenses related to the implementation of the Sarbanes-Oxley Act, costs associated with the retirement package for the Companys Chief Executive Officer,
professional fees and other costs related to consideration of a strategic transaction that were incurred largely in the third quarter 2004, and professional fees and other costs related to the restatement of our financial statements.



Interest Expense



As a result of decreased development activity in 2003, capitalized interest decreased from $7.0 million for the year ended
December 31, 2002 to $1.2 million for the year ended December 31, 2003, resulting in an increase in interest expense from continuing operations in 2003. Offsetting this increase was a decrease in interest caused by a decrease of $95.0 million in the
average outstanding debt balances in 2003 compared to 2002.



Interest expense for the years ended December 31, 2003 and 2002 included $4.4 million and $3.4 million, respectively, of amortization of deferred financing costs.



Interest expense on financing obligations increased by $5.2 million in 2003  see Note 3 to the Consolidated Financial
Statements for additional information on our financing transactions. Of the total $5.2 million increase, $4.6 million occurred because 2002 only included a partial year of interest expense on financing obligations from the Harborview and Eastshore
transactions which closed in September 2002 and in November 2002, respectively. The remainder of the increase relates to interest on the MG-HIW Orlando financing transaction.



Total interest expense is expected to decline in 2004 primarily due to (1) the December 1, 2003 refinancing of certain
long-term debt with new borrowings that have lower interest rates, (2) the June 2004 refinancing of the Put Option Notes with borrowings on the Revolving Loan which currently has lower floating rate interest, (3) purchase of our partners
interest in the Orlando City Group properties in MG-HIW, LLC in March 2004 which eliminated interest on the $62.5 million financing obligation, and (4) selling a 60.0% interest in these Orlando properties in June 2004 into a joint venture and the
resultant elimination of interest from the related $136.2 million of secured debt. These transactions are discussed in the footnotes to the Consolidated Financial Statements.



Other Income/Expense



The decrease in interest and other income in 2003 is primarily related to the collection of a legal settlement amounting to $1.6 million recorded as other
income in the year ended December 31, 2002 related to previously completed mergers and acquisitions offset by a decrease in interest income due to the collection of notes receivable during the years ended December 31, 2002 and 2003 and lower
interest rates earned on cash reserves.



Loss on debt
extinguishments increased $14.3 million from 2002 to 2003 due primarily to the $14.7 million loss recorded in early 2003 related to the MOPPRS debt retirement transaction described in Note 5 to the Consolidated Financial Statements.



29



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In July 2003, we acquired our partners interest in the MG-HIW, LLC non-Orlando City Group
properties and recognized a $16.3 million gain upon settlement of the $44.5 million co-venture obligation that was recorded on our books. As described in Note 3 to the Consolidated Financial Statements, the non-Orlando City Group properties in
MG-HIW, LLC were accounted for as a profit sharing arrangement.



Gains on
Disposition of Property; Co-venture Expense; Equity in Earnings of Unconsolidated Affiliates



In 2003, gain on disposition of properties was comprised of a (1) $8.7 million net gain related primarily to the disposition of approximately 1.0 million
square feet of office properties that did not meet certain conditions to be classified as discontinued operations, (2) $3.8 million net gain related to the disposition of 108.5 acres of land, which includes a gain of approximately $1.0 million
related to the condemnation of 4.0 acres of land and an impairment loss of $0.5 million related to three land parcels held for sale at December 31, 2003, and (3) a $0.2 million impairment loss on depreciable properties. In 2002, gain on disposition
of properties was comprised of a $15.5 million net gain related to the disposition of 533,263 square feet of office properties, that did not meet certain conditions to be classified as discontinued operations, and a $7.2 million net gain related to
the disposition of 112.7 acres of land.



Co-venture expense
relates to the operations of the MG-HIW, LLC non-Orlando City Group properties accounted for as a profit-sharing arrangement, as more fully described in Note 3 to the Consolidated Financial Statements. The decrease of $3.1 million in co-venture
expense in 2003 is largely due to our acquisition of our partners interest in the non-Orlando City Group properties in July 2003 and the resultant elimination of recording co-venture expense as of that date.



The decrease in equity in earnings from continuing operations of
unconsolidated affiliates was primarily a result of lower occupancy in 2003 for certain joint ventures. Partly offsetting this decrease was an increase of $0.5 million in equity in earnings in 2003 related to a charge taken by a certain joint
venture in 2002 related to an early extinguishment of debt loss resulting in a decrease in equity in earnings of $0.3 million in 2002 and an increase in equity in earnings in 2003 of $0.2 million as a result of a gain recognized by a certain joint
venture related to the disposition of land in 2003.



Discontinued
Operations



In accordance with SFAS No. 144, we
classified net income of $11.7 million and $23.8 million as discontinued operations for the year ended December 31, 2003 and 2002, respectively. These amounts pertained to 2.3 million square feet of property and 7.8 acres of revenue-producing land
sold during 2002 and 2003 and 274,744 square feet of property and 88 apartment units held for sale at December 31, 2003. These amounts include gain on the sale of these properties, net of impairment charges related to discontinued operations, of
$8.8 million and $13.1 million in 2003 and 2002, respectively.



Preferred
Unit Distributions



We recorded $30.9 million in
Preferred Unit distributions in each of the years ended December 31, 2003 and 2002.



Net Income



We recorded net income in
2003 of $50.5 million, which was a 44.3% decrease from net income of $90.6 million in 2002, primarily due to a decrease in rental revenues as a result of lower occupancy and the bankruptcies of WorldCom and US Airways, the effects on continuing and
discontinued operations from being a net seller in 2003 and 2002 of operating properties under our capital recycling plan, an increase in interest expense and increased loss on debt extinguishments in 2003. These decreases were offset by the
contribution of development properties placed in service during 2003 and by the gain on settlement of the co-venture obligation related to the MG-HIW, LLC non-Orlando properties. In 2004, we expect net income to be lower as compared with 2003 due to
flat average occupancy and pressure on rental rates, higher depreciation and amortization, higher property operating costs, loss on extinguishment of the Exercisable Put Option Notes on June 15, 2004, and higher general and administrative costs
(including costs associated with the Companys CEOs retirement package, professional fees and other costs related to consideration of a strategic transaction and professional fees and other costs related to the restatement of



30



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our financial statements), which amounts should be offset by lower interest expense and settlement of our bankruptcy claim against WorldCom as more fully
described in Note 20 to the Consolidated Financial Statements.



Comparison
of 2002 to 2001



The following table sets forth
information regarding our restated results of operations for the years ended December 31, 2002 and 2001 ($ in millions):



|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ------------------- | - | ----- | ---------- |  | - | ----- | - |  | ------ | --
|                                                                                                              |  | Year Ended December 31, |       |   | 2002to 2001$ Change |   |       | % ofChange | 
|                                                                                                              |  | 2002                    |       |   | 2001                |   |       |           
|Rental and other revenues                                                                                     |  | $                       | 521.6 |   |                     | $ | 535.2 |            |  | $ | (13.6 | ) |  | (2.5   | )%
|Operating expenses:                                                                                           |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Rental property and other expenses                                                                            |  |                         | 168.7 |   |                     |   | 168.6 |            |  |   | 0.1   |   |  | 0.1    |   
|Depreciation and amortization                                                                                 |  |                         | 140.8 |   |                     |   | 127.6 |            |  |   | 13.2  |   |  | 10.3   |   
|Impairment of assets held for use                                                                             |  |                         | 9.9   |   |                     |   |      |            |  |   | 9.9   |   |  | 100.0  |   
|General and administrative                                                                                    |  |                         | 25.2  |   |                     |   | 23.1  |            |  |   | 2.1   |   |  | 9.1    |   
|Litigation expense                                                                                            |  |                         | 2.7   |   |                     |   |      |            |  |   | 2.7   |   |  | 100.0  |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Total operating expenses                                                                                      |  |                         | 347.3 |   |                     |   | 319.3 |            |  |   | 28.0  |   |  | 8.8    |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Interest expense:                                                                                             |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Contractual                                                                                                   |  |                         | 119.1 |   |                     |   | 118.1 |            |  |   | 1.0   |   |  | 0.8    |   
|Amortization of deferred financing costs                                                                      |  |                         | 3.4   |   |                     |   | 4.0   |            |  |   | (0.6  | ) |  | (15.0  | ) 
|Financing obligations                                                                                         |  |                         | 12.5  |   |                     |   | 11.9  |            |  |   | 0.6   |   |  | 5.0    |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|                                                                                                              |  |                         | 135.0 |   |                     |   | 134.0 |            |  |   | 1.0   |   |  | 0.8    |   
|Other income/expense:                                                                                         |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Interest and other income                                                                                     |  |                         | 7.7   |   |                     |   | 13.7  |            |  |   | (6.0  | ) |  | (43.8  | ) 
|Loss on debt extinguishments                                                                                  |  |                         | (0.4  | ) |                     |   | (0.7  | )          |  |   | 0.3   |   |  | 42.9   |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|                                                                                                              |  |                         | 7.3   |   |                     |   | 13.0  |            |  |   | (5.7  | ) |  | (43.8  | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Income before disposition of property, co-venture expense and equity in earnings of unconsolidated affiliates |  |                         | 46.6  |   |                     |   | 94.9  |            |  |   | (48.3 | ) |  | (50.9  | ) 
|Gains on disposition of property, net                                                                         |  |                         | 22.7  |   |                     |   | 21.9  |            |  |   | 0.8   |   |  | 3.7    |   
|Co-venture expense                                                                                            |  |                         | (7.7  | ) |                     |   | (6.8  | )          |  |   | (0.9  | ) |  | (13.2  | ) 
|Equity in earnings of unconsolidated affiliates                                                               |  |                         | 5.2   |   |                     |   | 7.0   |            |  |   | (1.8  | ) |  | (25.7  | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Income from continuing operations                                                                             |  |                         | 66.8  |   |                     |   | 117.0 |            |  |   | (50.2 | ) |  | (42.9  | ) 
|Discontinued operations:                                                                                      |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Income from discontinued operations                                                                           |  |                         | 10.7  |   |                     |   | 13.9  |            |  |   | (3.2  | ) |  | (23.0  | ) 
|Gain on sale of discontinued operations                                                                       |  |                         | 13.1  |   |                     |   |      |            |  |   | 13.1  |   |  | 100.0  |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|                                                                                                              |  |                         | 23.8  |   |                     |   | 13.9  |            |  |   | 9.9   |   |  | 71.2   |   
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Net income                                                                                                    |  |                         | 90.6  |   |                     |   | 130.9 |            |  |   | (40.3 | ) |  | (30.8  | ) 
|Distributions on preferred units                                                                              |  |                         | (30.9 | ) |                     |   | (31.5 | )          |  |   | 0.6   |   |  | (1.9   | ) 
|Excess of preferred unit carrying value over repurchase value                                                 |  |                         |      |   |                     |   | 1.0   |            |  |   | (1.0  | ) |  | (100.0 | ) 
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   
|Net income available for Class A common unitholders                                                           |  | $                       | 59.7  |   |                     | $ | 100.4 |            |  | $ | (40.7 | ) |  | (40.5  | )%
|                                                                                                              |  |                         |       |   |                     |   |       |            |  |   |       |   |  |        |   



Rental and Other Revenues



The decrease in rental and other revenues from
continuing operations was primarily due to a decrease in average occupancy rates in our Wholly Owned Properties from 91.8% for the year ended December 31, 2001 to 86.4% for the year ended December 31, 2002. The average occupancy decreased primarily
due to tenant rollover and early lease terminations at various properties where vacant space was not re-leased due to the lack of demand for office space coupled with an increasing supply of competitive space. During 2002, approximately 2.0 million
square feet of development properties were placed in-service that leased-up slower than expected and, as a result, have also adversely affected the occupancy of our overall portfolio. Rental and other revenues also decreased due to (1) the impact of
dispositions during 2002 and 2001 that were not classified as discontinued operations; (2) a $3.1 million write off of straight line rental income in 2002 related to the bankruptcy of WorldCom; and (3) a decrease in leasing and development fee
income in 2002. Partly offsetting these decreases was an increase in recovery income from certain operating expenses in 2002 and an increase in lease termination fees in 2002.



During the year ended December 31, 2002, 840 second generation leases representing 5.6 million square feet of office,
industrial and retail space were executed at an average rate per square foot on a GAAP basis that was 5.5% lower than the average rate per square foot on the expired leases.



31



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Operating Expenses



The increase in rental and other operating expenses from continuing
operations (real estate taxes, utilities, insurance, repairs and maintenance and other property-related expenses) primarily resulted from (1) general inflationary increases particularly salaries, benefits, utility costs, real estate taxes and
insurance and (2) the fact that certain fixed operating expenses do not vary with net changes in our occupancy percentages, such as real estate taxes, insurance and utility rate changes. In addition, we had 3.3 million square feet of development
properties placed in service during 2002 and 2001 that resulted in a $3.4 million increase in rental and other operating expenses from continuing operations. Partly offsetting these increases was a decrease due to the impact of the dispositions
during 2002 and 2001 that were not classified as discontinued operations.



The increase in depreciation and amortization from continuing operations was due to an increase in amortization related to leasing commissions and tenant improvement expenditures for properties placed in-service
during 2001 and 2002 and the write-off of $5.8 million of deferred leasing costs primarily related to the leases rejected by WorldCom at December 31, 2002. These increases were partially offset by a decrease in depreciation for properties disposed
of during 2002 and 2001 that are not classified as discontinued operations.



For the year ended December 31, 2002, the impairment loss on properties held for use with a carrying value exceeding the sum of their undiscounted future cash flows was $0.8 million. We also recognized a $9.1 million
impairment loss related to one office property, which had a carrying value in excess of the sum of the propertys undiscounted future cash flows, that has been demolished and may be redeveloped into a class A suburban office property in the
future. There were no impairments on assets held for use recorded in 2001.



General and administrative expenses, net of amounts capitalized, increased $2.1 million in 2002. Included in general and administrative expenses in 2002 was a compensation charge of $3.7 million related to the
exercise of options compared to $1.2 million for such option expense in 2001. Such exercises were recorded as compensation expense under FASB Interpretation No. 44 (Accounting For Certain Transactions Involving Stock Options, An Interpretation
of APB Opinion No. 25) as described in Note 14 to the Consolidated Financial Statements.



We accrued $2.7 million in the year ended December 31, 2002 for litigation expense related to various legal proceedings from previously completed mergers and acquisitions. These claims were fully paid and settled in
early 2003.



Interest Expense



Contractual interest expense increased by $1.0 million from 2001 to 2002.
This net increase resulted from a decrease in average interest rates from 7.2% in 2001 to 6.6% in 2002, offset by (1) a decrease in capitalized interest from $16.9 million in 2001 to $7.0 million in 2002, which increased interest expense from
continuing operations by $9.9 million and (2) an increase in the average outstanding debt balances of $21.3 million in 2002 compared to 2001.



Interest expense on financing obligations increased by $0.6 million in 2002  see Note 3 to the Consolidated Financial Statements for additional
information on real estate sales that are accounted for as financing transactions.



Other Income/Expense



The decrease in
interest and other income from continuing operations primarily resulted from a decrease in interest income in the year ended December 31, 2002 due to the collection of notes receivable during 2001 and 2002. Partly offsetting this decrease is a legal
settlement amounting to $1.6 million recorded as other income in 2002.



32



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Gain on Disposition of Property;
Co-venture Expense; Equity in Earnings of Unconsolidated Affiliates



In 2002, gain on disposition of properties was comprised of a $15.5 million net gain related to the disposition of 533,263 square feet of office properties, that did not meet certain conditions to be classified as
discontinued operations and a $7.2 million net gain related to the disposition of 112.7 acres of land. In 2001, gain on disposition of properties was comprised of a $17.2 million net gain related to the disposition of 1,672 apartment units and from
other property sales, and a $4.7 million net gain related to the disposition of 180.3 acres of land.



Co-venture expense relates to the operations of the MG-HIW, LLC non-Orlando City Group properties accounted for as a profit-sharing arrangement, as more
fully described in Note 3 to the Consolidated Financial Statements. The increase in co-venture expense is due to a decline in interest rates from 2001 to 2002, which increased the net operating income of the non-Orlando City Group properties, 80.0%
of which is reflected as co-venture expense. Slightly offsetting this increase is the decrease in base rent as a result of two tenants in the non-Orlando City Group properties vacating space mid-year in 2002.



The decrease in equity in earnings of unconsolidated affiliates was primarily
a result of lower lease termination fees and lower property operating expense reimbursements in 2002. The decrease in earnings was partly offset by lower interest expense incurred during 2002 as a result of lower weighted average borrowing rates and
earnings from certain joint ventures formed with unrelated investors during 2002.



Discontinued Operations



In accordance
with SFAS No. 144, we classified net income of $23.8 million and $13.9 million as discontinued operations for the years ended December 31, 2002 and 2001, respectively, which pertained to 2.3 million square feet of property and 7.8 acres of
revenue-producing land sold during 2002 and 2003 and 274,744 square feet of property and 88 apartment units held for sale at December 31, 2003. Included in the 2002 amounts was a gain on the sale of these properties of $17.2 million offset by
impairment charges of $4.1 million.



Preferred Unit Distributions and
Repurchases



We recorded $30.9 million and $31.5
million in Preferred Unit distributions in the years ended December 31, 2002 and 2001, respectively. The decrease resulted from the Companys repurchase of $20.1 million of its Preferred Units at carrying value during 2001 for total cash
consideration of $18.5 million. This repurchase was recorded in accordance with Emerging Issues Task Force Topic D-42, The Effect on Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. As a
result, in 2001, we classified the excess of the original net proceeds received for the Preferred Units over the repurchase value as an increase in the income available to common unitholders. There were no Preferred Unit repurchases in 2002.



Net Income



We recorded net income in 2002 of $90.6 million, which was a 30.8% decrease
from net income of $130.9 million in 2001, primarily due to a decrease in rental revenues as a result of lower occupancy and the bankruptcies of WorldCom and US Airways, the net effects on continuing and discontinued operations from being a net
seller in 2002 of operating properties under our capital recycling plan, an increase in rental property operating expenses, an increase in depreciation and amortization and a decrease in gain on the disposition of land and depreciable assets.



33



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LIQUIDITY
AND CAPITAL RESOURCES



Statement of Cash Flows



As required by GAAP,
we report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table sets forth the changes in the Operating Partnerships restated cash flows from 2002 to 2003 ($ in thousands):



|                                      |  |                         |          |   |      |   |          |        |  |   |         |  
|------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ------ |  | - | ------- | -
|                                      |  | Year Ended December 31, |          |   |      |  
|                                      |  | 2003                    |          |   | 2002 |   |          | Change | 
|Cash Provided By Operating Activities |  | $                       | 162,090  |   |      | $ | 216,212  |        |  | $ | (54,122 | )
|Cash Provided By Investing Activities |  |                         | 92,364   |   |      |   | 112,373  |        |  |   | (20,009 | )
|Cash Used in Financing Activities     |  |                         | (248,634 | ) |      |   | (316,468 | )      |  |   | 67,834  |  
|                                      |  |                         |          |   |      |   |          |        |  |   |         |  
|Total Cash Flows                      |  | $                       | 5,820    |   |      | $ | 12,117   |        |  | $ | (6,297  | )
|                                      |  |                         |          |   |      |   |          |        |  |   |         |  



In calculating cash
flow from operating activities, GAAP requires us to add depreciation and amortization, which are non-cash expenses, back to net income. As a result, we have historically generated a significant positive amount of cash from operating activities. From
period to period, cash flow from operations depends primarily upon changes in our net income, as discussed more fully above under Results of Operations, changes in receivables and payables, and net additions or decreases in our overall
portfolio, which affect the amount of depreciation and amortization expense.



Cash provided by or used in investing activities generally relates to capitalized costs incurred for leasing and major building improvements, and our acquisition, development, disposition and joint venture activity.
During periods of significant net acquisition and/or development activity, our cash used in such investing activities will generally exceed cash provided by investing activities, which typically would consist of cash received upon the sale of
properties or distributions from our joint ventures. During 2003 and 2002, since our disposition and joint venture activity slightly outpaced our acquisition activity, we recorded positive cash flow from investing activities in both years.



Cash used in financing activities generally relates to
unitholder distributions, incurrence and repayment of debt and sales or repurchases of Common Units and Preferred Units. As discussed previously, we use a significant amount of our cash to fund unitholder dividends. Whether or not we incur
significant new debt during a period depends generally upon the net effect of our acquisition, disposition, development and joint venture activity. We use our Revolving Loan for working capital purposes, which means that during any given period, in
order to minimize interest expense associated with balances outstanding under the Revolving Loan, we will likely record significant repayments and borrowings under the Revolving Loan.



The decrease of $54.1 million in cash provided by operating activities was primarily a result of lower net income due to the
disposition of certain properties under our capital recycling program, a decrease in average occupancy rates for our wholly owned portfolio and the bankruptcies of WorldCom and US Airways. In addition, the level of net cash provided by operating
activities is affected by the timing of receipt of revenues and payment of expenses.



The decrease of $20.0 million in cash provided by investing activities was primarily a result of a decrease in proceeds from dispositions of real estate assets of approximately $9.9 million, a decrease in
distributions/repayments from unconsolidated affiliates of approximately $4.1 million and a decrease in investments in notes receivable of approximately $2.5 million for the year ended December 31, 2003.



The decrease of $67.8 million in cash used in financing activities was
primarily a result of a decrease of $138.1 million in net repayments on the unsecured Revolving Loan, mortgages and notes payable and a decrease of $29.4 million in distributions paid on Common Units, for the year ended December 31, 2003. This
decrease was partly offset by an increase of $14.7 million for the repurchase of Common Units, a decrease of $41.2 million in borrowings on the financing obligation, the payment of $26.2 million on the co-venture obligation and payments on
extinguishment of debt of $16.3 million related to the MOPPRS refinancing for the year ended December 31, 2003.



In 2004, we expect to continue our capital recycling program of selectively disposing of non-core properties or other properties in order to use the net
proceeds for investments or other purposes. At December 31, 2003, we had 0.4 million square feet of office properties, 88 apartment units and 168.1 acres of land under letter of intent or



34



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contract for sale in various transactions with a carrying value of $65.7 million. These transactions are subject to customary closing conditions, including
due diligence and documentation, and are expected to close by early 2005. However, we can provide no assurance that these transactions will be consummated. As of December 31, 2004, we have closed on some of these transactions consisting of 0.2
million square feet of properties, 88 apartment units and 117.4 acres of land.



During 2004, we expect to have positive cash flows from operating activities. The net cash flows from investing activities in 2004 could be positive or negative, depending on the level and timing of property
dispositions, property acquisitions, development and capitalized leasing and improvement costs. Any positive cash flows from operating and investing activities in 2004 are expected to be used to pay unitholder distributions, required debt
amortization, and recurring capital expenditures.



Capitalization



Our mortgages and notes payable at December 31, 2003 was
approximately $1.7 billion and was comprised of $982.8 million of secured indebtedness with a weighted average interest rate of 6.3% and $726.0 million of unsecured indebtedness with a weighted average interest rate of 6.2%. As of December 31, 2003,
our outstanding mortgages and notes payable were secured by real estate assets with an aggregate carrying value of approximately $1.6 billion.



We do not intend to reserve funds to retire existing secured or unsecured debt upon maturity. For a more complete discussion of our long-term liquidity
needs, see Liquidity and Capital Resources - Current and Future Cash Needs.



35



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The following table sets forth a summary regarding our known contractual obligations at December 31, 2003
($ in thousands):



|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|----------------------------------------------------------- |  | ------------------------------------------- | --------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | ---------- | ------- |  | - | ------- |  | - | -------
|                                                            |  | Amounts due during year ending December 31,
|                                                            |  | Total                                       |           | 2004 |   | 2005    |  | 2006 |         | 2007 |   | 2008    |  | Thereafter
|Fixed Rate Debt: (1)                                        |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Unsecured                                                   |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Put Option Notes (2)                                        |  | $                                           | 100,000   |      | $ | 100,000 |  | $    |        |      | $ |        |  | $          |        |  | $ |        |  | $ |       
|Notes                                                       |  |                                             | 460,000   |      |   |        |  |      |        |      |   | 110,000 |  |            |        |  |   | 100,000 |  |   | 250,000
|Secured:                                                    |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Mortgage Loans Payable (3)                                  |  |                                             | 777,849   |      |   | 12,871  |  |      | 81,447  |      |   | 19,362  |  |            | 79,476  |  |   | 14,343  |  |   | 570,350
|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Total Fixed Rate Debt                                       |  |                                             | 1,337,849 |      |   | 112,871 |  |      | 81,447  |      |   | 129,362 |  |            | 79,476  |  |   | 114,343 |  |   | 820,350
|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Variable Rate Debt:                                         |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Unsecured:                                                  |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Term Loans                                                  |  |                                             | 120,000   |      |   |        |  |      | 120,000 |      |   |        |  |            |        |  |   |        |  |   |       
|Revolving Loan                                              |  |                                             | 46,000    |      |   |        |  |      |        |      |   | 46,000  |  |            |        |  |   |        |  |   |       
|Secured:                                                    |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Mortgage Loans Payable (3)                                  |  |                                             | 204,916   |      |   | 235     |  |      | 279     |      |   | 201,175 |  |            | 3,227   |  |   |        |  |   |       
|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Total Variable Rate Debt                                    |  |                                             | 370,916   |      |   | 235     |  |      | 120,279 |      |   | 247,175 |  |            | 3,227   |  |   |        |  |   |       
|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Total Long Term Debt                                        |  |                                             | 1,708,765 |      |   | 113,106 |  |      | 201,726 |      |   | 376,537 |  |            | 82,703  |  |   | 114,343 |  |   | 820,350
|Operating Lease Obligations:                                |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Land Leases(4)                                              |  |                                             | 48,909    |      |   | 1,269   |  |      | 1,273   |      |   | 1,213   |  |            | 1,194   |  |   | 1,194   |  |   | 42,766 
|Purchase Obligations:                                       |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|MG-HIW, LLC Letter of Credit (4),(5)                        |  |                                             | 7,500     |      |   | 7,500   |  |      |        |      |   |        |  |            |        |  |   |        |  |   |       
|MG-HIW Metrowest I and II, LLC (4)                          |  |                                             | 3,200     |      |   | 3,200   |  |      |        |      |   |        |  |            |        |  |   |        |  |   |       
|Completion Contracts (4)                                    |  |                                             | 17,582    |      |   | 17,582  |  |      |        |      |   |        |  |            |        |  |   |        |  |   |       
|Other Long Term Liabilities Reflected on the Balance Sheet: |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Plaza Colonnade Debt Repayment Guarantee (4)                |  |                                             | 2,468     |      |   |        |  |      |        |      |   | 2,468   |  |            |        |  |   |        |  |   |       
|Plaza Colonnade Completion Guarantee (4)                    |  |                                             | 376       |      |   |        |  |      | 376     |      |   |        |  |            |        |  |   |        |  |   |       
|Highwoods DLF 97/26 DLF 99/32, LP Lease Guarantee (4)       |  |                                             | 855       |      |   |        |  |      |        |      |   |        |  |            |        |  |   | 855     |  |   |       
|Capital One Lease Guarantee (6)                             |  |                                             | 3,136     |      |   | 1,734   |  |      |        |      |   | 334     |  |            | 369     |  |   | 378     |  |   | 321    
|Industrial Portfolio Lease Guarantee (6)                    |  |                                             | 2,347     |      |   | 850     |  |      | 991     |      |   | 506     |  |            |        |  |   |        |  |   |       
|MG-HIW, LLC Financing Obligation (7)                        |  |                                             | 60,991    |      |   | 60,991  |  |      |        |      |   |        |  |            |        |  |   |        |  |   |       
|SF-HIW Harborview Financing Obligation (7)                  |  |                                             | 13,566    |      |   |        |  |      |        |      |   |        |  |            |        |  |   |        |  |   | 13,566 
|Eastshore Financing Obligation (7)                          |  |                                             | 28,873    |      |   |        |  |      |        |      |   |        |  |            | 28,873  |  |   |        |  |   |       
|Tax Increment Financing Obligation (8)                      |  |                                             | 20,633    |      |   | 687     |  |      | 775     |      |   | 863     |  |            | 913     |  |   | 976     |  |   | 16,419 
|DLF Note Payable (9)                                        |  |                                             | 3,280     |      |   | 187     |  |      | 216     |      |   | 250     |  |            | 286     |  |   | 325     |  |   | 2,016  
|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        
|Total                                                       |  | $                                           | 1,922,481 |      | $ | 207,106 |  | $    | 205,357 |      | $ | 382,171 |  | $          | 114,338 |  | $ | 118,071 |  | $ | 895,438
|                                                            |  |                                             |           |      |   |         |  |      |         |      |   |         |  |            |         |  |   |         |  |   |        

---

|(1) | The Operating Partnerships unsecured notes of $560.0 million bear interest at rates ranging from 7.0% to 8.125% with interest payable semi-annually in arrears. Any premium and
discount related to the issuance of the unsecured notes together with other issuance costs is being amortized over the life of the respective notes as an adjustment to interest expense. All of the unsecured notes, except for the Put Option Notes,
are redeemable at any time prior to maturity at our option, subject to certain conditions including the payment of make-whole amounts. Our fixed rate mortgage loans generally are either locked out to prepayment for all or a portion of their term, or
are pre-payable subject to certain conditions including prepayment penalties.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | See Note 5 to the Consolidated Financial Statements. Although not contractually due, the Put Option Notes were retired in June 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(3) | The mortgage loans payable were secured by real estate assets with an aggregate carrying value of approximately $1.6 billion at December 31, 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | See Note 15 to the Consolidated Financial Statements.
|--- | -----------------------------------------------------



|(5) | This letter of credit was terminated in March 2004.
|--- | ---------------------------------------------------



|(6) | These liabilities represent gains that were deferred in accordance with SFAS No. 66 when we sold these properties to third parties. We defer gains on sales of real estate up to our
maximum exposure to contingent loss. See Note 15 to the Consolidated Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | These liabilities represent our financing obligation to either our partner in the respective joint venture or the third party buyer as a result of accounting for these transactions
as a financing arrangement. See Note 3 to the Consolidated Financial Statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



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|(8) | In connection with Tax Increment Financing for construction of a public garage related to an office building constructed by us, we are obligated to pay fixed special assessments
over a 20-year period. The net present value of these assessments, discounted at 6.93%, is shown as a Financing Obligation in the Balance Sheet. We also receive special tax revenues and property tax rebates which are intended, but not guaranteed, to
provide funds to pay the special assessments.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Represents a fixed obligation we owe our partner in Highwoods DLF 98/29, LP. This amount arose from an excess contribution from our partner at the formation of the joint venture.
See Note 2 to the Consolidated Financial Statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Refinancings in 2003



On February 2, 1998, the
Operating Partnership sold $125.0 million of MandatOry Par Put Remarketed Securities (MOPPRS) which were originally expected to mature on February 1, 2013. The fixed interest rate was 6.835% through January 31, 2003, and would be reset
at that date at 5.715% plus a spread as determined under the terms of the MOPPRS. In connection with the original issuance, the Operating Partnership granted a remarketing option to one of the underwriters for the MOPPRS, the consideration for which
was reflected in the premium price of the bonds and aggregated $3.5 million. This consideration was deferred and included in deferred financing cost and was amortized to income over the term of the MOPPRS. The option, if exercised, allowed the
option holder to purchase the MOPPRS on January 31, 2003 from the holders for $125.0 million and then resell the MOPPRS in a new offering to new investors at the reset interest rate (5.715% plus the spread). If the option holder did not exercise the
option, the Operating Partnership would be required to repurchase the MOPPRS for $125.0 million plus any accrued interest. The Operating Partnership also had a one-time right to redeem the MOPPRS from the option holder on January 31, 2003 for $125.0
million plus the then present value of the remarketing option.



On January 28, 2003, the Operating Partnership, the option holder, and an intermediary entered into an agreement under which the option holder agreed to exercise its option to acquire the MOPPRS on January 31, 2003 and the intermediary
agreed to acquire the MOPPRS from the option holder for $142.7 million. The intermediary and the Operating Partnership also agreed to exchange the MOPPRS for new Operating Partnership debt instruments in the future, subject to certain terms and
conditions. The MOPPRS transaction between the option holder and the intermediary occurred on January 31, 2003 and the interest rate on the MOPPRS was reset at 8.975%. On February 4, 2003, a new $142.8 million mortgage loan with a third party,
secured by 24 of the Operating Partnerships properties, was executed; this loan bears a fixed interest rate of 6.03% and matures in February 2013. The intermediary received the proceeds from the new mortgage loan, and the mortgage loan and the
MOPPRS were then exchanged between the Operating Partnership and the intermediary. The Operating Partnerships then retired the MOPPRS. The retirement of the MOPPRS has been accounted for as an extinguishment (See Note 18 to the Consolidated
Financial Statements). Accordingly, $14.7 million was charged to loss on extinguishment of debt in the quarter ended March 31, 2003.



On July 17, 2003, we amended and restated our existing revolving loan. The amended and restated $250.0 million revolving loan (the Revolving
Loan) is from a group of nine lender banks, matures in July 2006 and replaces our previous $300.0 million revolving loan. The Revolving Loan carries an interest rate based upon our senior unsecured credit ratings. As a result, interest
currently accrues on borrowings under the Revolving Loan at a rate of LIBOR plus 105 basis points. The terms of the Revolving Loan require us to pay an annual facility fee equal to .25% of the aggregate amount of the Revolving Loan. We currently
have a credit rating of BBB- assigned by Standard & Poors and Fitch Inc. In August 2003, Moodys Investor Service downgraded our credit rating from Baa3 to Ba1. We cannot provide any assurances that Moodys or the other rating
agencies will not further change our credit ratings. If Standard and Poors or Fitch Inc. were to lower our credit ratings without a corresponding increase by Moodys, the interest rate on borrowings under our Revolving Loan would be
automatically increased by 60 basis points.



On December 1,
2003, $146.5 million of our 8.0% Notes and $100.0 million of our 6.75% Notes matured. We refinanced $127.5 million with 10-year secured debt at an effective rate of 5.25%. $100.0 million was refinanced with a two-year unsecured term loan with a
floating rate initially set at 1.3% over LIBOR. The balance, equaling $19.0 million, was repaid using funds from our Revolving Loan.



Refinancings in 2004



In 1997, a trust formed by the Operating Partnership sold $100.0 million of Exercisable Put Option Securities due June 15, 2004 (X-POS). The
assets of the trust consisted of, among other things, $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the Put Option Notes), issued by the Operating Partnership. The



37



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Put Option Notes bore an interest rate of 7.19% from the date of issuance through June 15, 2004. In connection with the initial issuance of the Put Option
Notes, a counter party was granted an option to purchase the Put Option Notes from the trust on June 15, 2004 at 100.0% of the principal amount. The counter party exercised this option and acquired the Put Option Notes on June 15, 2004. On that same
date, the Company exercised its option to acquire the Put Option Notes from the counter party for a purchase price equal to the sum of the present value of the remaining scheduled payments of principal and interest (assuming an interest rate of
6.39%) on the Put Option Notes, or $112.3 million. The difference between the $112.3 million and the $100.0 million was charged to loss on extinguishment of debt in the quarter ended June 30, 2004. The Operating Partnership borrowed funds from its
Revolving Loan to make the $112.3 million payment.



In late
June 2004, we repaid $51.0 million of the increased borrowing under our Revolving Loan with proceeds from the sale of a 60.0% interest in five office buildings in Orlando, Florida and from the sale of a building at Highwoods Preserve in Tampa,
Florida. See Notes 3 and 4 to the Consolidated Financial Statements for further details of these asset sales.



Operating and Financial Covenants and Performance Ratios



The terms of the $250.0 million Revolving Loan, the $120.0 million bank term loans and the indenture that governs our outstanding notes require us to
comply with certain operating and financial covenants and performance ratios. We are currently in compliance with all such requirements. Although we expect to remain in compliance with the covenants and ratios under our Revolving Loan, bank term
loans and indenture for the foreseeable future, depending upon our future operating performance and property and financing transactions, we cannot assure you that we will continue to be in compliance.



If we fail to comply with these financial ratios and other covenants (see
below) and such conditions were not waived by the lending banks, we would be unable to borrow any further amounts under the Revolving Loan, which could adversely affect our ability to fund our operations, and our lenders could accelerate any debt
outstanding under our Revolving Loan, bank term loans or our indenture. If our debt cannot be paid, refinanced or extended at maturity, in addition to our failure to repay our debt, we may not be able to make distributions to stockholders at
expected levels or at all. Furthermore, if any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flows and ability to make distributions to stockholders. Any such refinancing could also
impose tighter financial ratios and other covenants that could restrict our ability to take actions that could otherwise be in our stockholders best interest, such as funding new development activity, making opportunistic acquisitions,
repurchasing our securities or paying distributions.



The
following table sets forth more detailed information about the Operating Partnerships ratio and covenant compliance under our Revolving Loan and the bank term loans, which have identical covenants, as of December 31, 2003 and 2002. Certain of
these definitions (including the covenants regarding non-GAAP financial measures such as EBITDA, Cash Available for Distribution (CAD) and adjusted NOI) may differ from similar terms used in the accompanying Consolidated Financial
Statements and may, for example, consider our proportionate share of investments in unconsolidated affiliates. For a more detailed description of the covenants in our Revolving Loan, including definitions of certain relevant terms, see the credit
agreement governing our Revolving Loan which is incorporated by reference in the Companys Annual Report as Exhibit 10.13.



|                                                                                               |  |      |             |  
|---------------------------------------------------------------------------------------------- |  | ---- | ----------- | -
|                                                                                               |  | 2003 |            
|Total Liabilities Less Than or Equal to 57.5% of Total Assets                                  |  |      | 53.8        | %
|Unencumbered Assets Greater Than or Equal to 2 times Unsecured Debt                            |  |      | 2.23        |  
|Secured Debt Less Than or Equal to 35% of Total Assets                                         |  |      | 28.7        | %
|Adjusted EBITDA Greater Than 2.10 times Interest Expense                                       |  |      | 2.10        |  
|Adjusted EBITDA Greater Than 1.55 times Fixed Charges                                          |  |      | 1.55        |  
|Adjusted NOI Unencumbered Assets Greater Than 2.25 times Interest on Unsecured Debt            |  |      | 2.45        |  
|Tangible Net Worth Greater Than $1.574 Billion                                                 |  | $    | 1.6 billion |  
|Restricted Payments, including distributions to shareholders, Less Than or Equal to 95% of CAD |  |      | 72.3        | %

---

|(1) | A waiver was obtained with respect to this covenant in October 2004 as described below.
|--- | ---------------------------------------------------------------------------------------



38



---

In March 2004, the Operating Partnership amended its Revolving Loan and the two bank term loans. The
changes modified certain definitions used in all three loans to determine amounts that are used to compute financial covenants and also adjusted one of the financial ratio covenants.



In June 2004, the Operating Partnership further amended its Revolving Loan and the two bank term loans. The changes excluded
the $12.5 million charge taken related to the retirement of the X-POS from the calculations used to compute financial covenants.



In August 2004, the Operating Partnership further amended its Revolving Loan and two bank term loans. The changes excluded the effects of accounting for
three sales transactions as financing and/or profit sharing arrangements under SFAS No. 66, as described in Note 18 to the Consolidated Financial Statements, from the calculations used to compute financial covenants, adjusted one financial covenant
and temporarily adjusted a second financial covenant until the earlier of December 31, 2004 or the period when the Operating Partnership can record income from the settlement of a claim against WorldCom (see Note 20 to the Consolidated Financial
Statements).



In early October 2004, the Operating Partnership
obtained a waiver from the lenders of the Operating Partnerships Revolving Loan and two bank term loans for certain covenant violations caused by the effects, on a restated basis, of the loss on debt extinguishment from the MOPPRS transaction
in early 2003, as described in Notes 5 and 18 to the Consolidated Financial Statements.



The aforementioned modifications did not change the economic terms of the loans. In connection with these modifications, the Operating Partnership incurred certain loan costs that are capitalized and amortized over
the remaining term of the loans.



The following table sets
forth more detailed information about the Operating Partnerships ratio and covenant compliance under the Operating Partnerships indenture as of December 31, 2003 and 2002. Certain of these definitions may differ from similar terms used
in the Consolidated Financial Statements and may, for example, consider our proportionate share of investments in unconsolidated affiliates. For a more detailed discussion of the covenants in our indenture, including definitions of certain relevant
terms, see the indenture governing our unsecured notes which is incorporated by reference in this Form 10K Report as Exhibit 4.2.



|                                                                                |  |       |   |  |       |  
|------------------------------------------------------------------------------- |  | ----- | - |  | ----- | -
|                                                                                |  | 2003  |   |  | 2002  |  
|Overall Debt Less Than or Equal to 60% of Adjusted Total Assets                 |  | 42.2  | % |  | 42.4  | %
|Secured Debt Less Than or Equal to 40% of Adjusted Total Assets                 |  | 24.2  | % |  | 18.5  | %
|Income Available for Debt Service Greater Than 1.50 times Annual Service Charge |  | 2.6   |   |  | 2.9   |  
|Total Unencumbered Assets Greater Than 200% of Unsecured Debt                   |  | 333.0 | % |  | 284.2 | %



Current and Future Cash Needs



Historically, rental revenue has been the principal
source of funds to meet our short-term liquidity requirements, which primarily consist of operating expenses, debt service, unitholder distributions, any guarantee obligations and recurring capital expenditures. In addition, construction management,
maintenance, leasing and management fees have provided sources of cash flow. Major capital improvement obligations related to the existing properties total $2.1 million. In addition, we could incur tenant improvements and lease commissions related
to any releasing of space previously leased by WorldCom and US Airways or other vacant space.



In addition to the requirements discussed above, our short-term liquidity requirements also include the funding of first generation tenant improvements and lease commissions on properties placed in-service that are
not fully leased. We expect to fund our short-term liquidity requirements through a combination of working capital, cash flows from operations and the following:



| |  | borrowings under our unsecured Revolving Loan (up to $78.8 million of availability as of December 31, 2004);
| | - | ------------------------------------------------------------------------------------------------------------



| |  | the selective disposition of non-core assets or other assets;
| | - | -------------------------------------------------------------



39



---

| |  | the sale or contribution of some of our Wholly Owned Properties, development projects and development land to strategic joint ventures to be formed with unrelated investors, which
will have the net effect of generating additional capital through such sale or contributions;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the issuance of secured debt (at December 31, 2004, we had approximately $2.2 billion of unencumbered real estate assets at cost); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | the issuance of new unsecured debt.
| | - | -----------------------------------



Our long-term liquidity needs generally include the funding of existing and future development activity, selective asset acquisitions and the retirement
of mortgage debt, amounts outstanding under the Revolving Loan and long-term unsecured debt. Our goal is to maintain a flexible capital structure. Accordingly, we expect to meet our long-term liquidity needs through a combination of (1) the issuance
by the Operating Partnership of additional unsecured debt securities, (2) the issuance of additional equity securities by the Company and the Operating Partnership as well as (3) the sources described above with respect to our short-term liquidity.
We expect to use such sources to meet our long-term liquidity requirements either through direct payments or repayment of borrowings under the unsecured Revolving Loan. As mentioned above, we do not intend to reserve funds to retire existing secured
or unsecured indebtedness upon maturity. Instead, we will seek to refinance such debt at maturity or retire such debt through the issuance of equity or debt securities.



We anticipate that our available cash and cash equivalents and cash flows from operating activities, with cash available
from borrowings and other sources, will be adequate to meet our capital and liquidity needs in both the short and long term. However, if these sources of funds are insufficient or unavailable, the Operating Partnerships ability to make
distributions to unitholders and satisfy other cash payments may be adversely affected.



Off Balance Sheet Arrangements



The Operating
Partnership has several off balance sheet joint venture and guarantee arrangements. The joint ventures were formed with unrelated investors to generate additional capital to fund property acquisitions, repay outstanding debt or fund other strategic
initiatives and to lessen the ownership risks typically associated with owning 100.0% of a property. When we create a joint venture with a strategic partner, we usually contribute one or more properties that we own to a newly formed entity in which
we retain an interest of 50.0% or less. In exchange for an equal or minority interest in the joint venture, we generally receive cash from the partner and retain the management income relating to the properties in the joint venture. For financial
reporting purposes, the sales of assets we sold to two of our joint ventures are accounted for as financing and/or profit-sharing arrangements.



As of December 31, 2003, our unconsolidated joint ventures had $544.2 million of total assets and $375.2 million of total liabilities. Our weighted
average equity interest based on the total assets of these unconsolidated joint ventures was 41.5%. During 2003, these unconsolidated joint ventures earned $10.6 million of total net income, of which our share was $4.7 million. For a more detailed
discussion of our unconsolidated joint venture activity, see Note 2 in the Consolidated Financial Statements.



As required by GAAP, we use the equity method of accounting for our unconsolidated joint ventures in which we exercise significant influence but do not
control the major operating and financial policies of the entity regarding encumbering the entities with debt and the acquisition or disposal of properties. As a result, the assets and liabilities of these joint ventures are not included on our
balance sheet and the results of operations of these joint ventures are not included on our income statement, other than as equity in earnings of unconsolidated affiliates. Generally, we are not liable for the debts of our joint ventures, except to
the extent of our equity investment, unless we have directly guaranteed any of that debt. In most cases, we and/or our strategic partners are required to guarantee customary limited exceptions to non-recourse liability in non-recourse loans.



40



---

As of December 31, 2003, our unconsolidated joint ventures had $358.2 million of outstanding debt. The
following table sets forth the principal payments due on that outstanding long-term debt as recorded on the respective joint ventures books at December 31, 2003 ($ in thousands):



|                                  |  |              |   |      |       |         |     |                                             |   |       |  |      |        |            |   |        |  |   |        |  |   |        |  |   |        
|--------------------------------- |  | ------------ | - | ---- | ----- | ------- | --- | ------------------------------------------- | - | ----- |  | ---- | ------ | ---------- | - | ------ |  | - | ------ |  | - | ------ |  | - | -------
|                                  |  | PercentOwned |   |      | Total |         |     | Amounts due during year ending December 31, |   |      
|                                  |  |              |   | 2004 |       | 2005    |     | 2006                                        |   | 2007  |  | 2008 |        | Thereafter
|Board of Trade Investment Company |  | 49.00        | % |      | $     | 749     |     |                                             | $ | 184   |  | $    | 198    |            | $ | 215    |  | $ | 152    |  | $ |       |  | $ |       
|Dallas County Partners (1)        |  | 50.00        | % |      |       | 38,000  |     |                                             |   | 969   |  |      | 1,041  |            |   | 4,419  |  |   | 13,332 |  |   | 5,764  |  |   | 12,475 
|Dallas County Partners II (1)     |  | 50.00        | % |      |       | 22,465  |     |                                             |   | 1,242 |  |      | 1,375  |            |   | 1,522  |  |   | 1,684  |  |   | 1,863  |  |   | 14,779 
|Fountain Three (1)                |  | 50.00        | % |      |       | 29,924  |     |                                             |   | 1,106 |  |      | 1,172  |            |   | 1,243  |  |   | 1,316  |  |   | 6,400  |  |   | 18,687 
|RRHWoods, LLC (1)                 |  | 50.00        | % |      |       | 67,307  |     |                                             |   | 1,273 |  |      | 403    |            |   | 431    |  |   | 4,241  |  |   | 381    |  |   | 60,578 
|Highwoods DLF 98/29, LP           |  | 22.81        | % |      |       | 67,241  |     |                                             |   | 1,035 |  |      | 1,107  |            |   | 1,185  |  |   | 1,268  |  |   | 1,356  |  |   | 61,290 
|Highwoods DLF 97/26 DLF 99/32, LP |  | 42.93        | % |      |       | 59,027  |     |                                             |   | 714   |  |      | 770    |            |   | 831    |  |   | 897    |  |   | 969    |  |   | 54,846 
|Highwoods-Markel Associates, LLC  |  | 50.00        | % |      |       | 40,000  |     |                                             |   | 558   |  |      | 643    |            |   | 682    |  |   | 722    |  |   | 766    |  |   | 36,629 
|MG-HIW Metrowest II, LLC          |  | 50.00        | % |      |       | 7,326   |     |                                             |   |      |  |      | 7,326  |            |   |       |  |   |       |  |   |       |  |   |       
|Concourse Center Associates, LLC  |  | 50.00        | % |      |       | 9,695   |     |                                             |   | 176   |  |      | 189    |            |   | 202    |  |   | 217    |  |   | 232    |  |   | 8,679  
|Plaza Colonnade, LLC              |  | 50.00        | % |      |       | 16,496  |     |                                             |   |      |  |      |       |            |   |       |  |   | 16,496 |  |   |       |  |   |       
|                                  |  |              |   |      |       |         |     |                                             |   |       |  |      |        |            |   |        |  |   |        |  |   |        |  |   |        
|Total                             |  |              |   |      | $     | 358,230 | (2) |                                             | $ | 7,257 |  | $    | 14,224 |            | $ | 10,730 |  | $ | 40,325 |  | $ | 17,731 |  | $ | 267,963
|                                  |  |              |   |      |       |         |     |                                             |   |       |  |      |        |            |   |        |  |   |        |  |   |        |  |   |        

---

|(1) | Des Moines joint ventures.
|--- | --------------------------



|(2) | All of this joint venture debt is non-recourse to us except (1) in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions and
material misrepresentations and (2) those guarantees and loans described in the following paragraphs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In connection with the Des Moines joint ventures, we guaranteed certain debt and the maximum potential amount of future payments that we could be required
to make under the guarantees is $25.5 million. Of this amount, $8.6 million arose from housing revenue bonds that require credit enhancements in addition to the real estate mortgages. The bonds bear a floating interest rate, which at December 31,
2003 averaged 1.3%, and mature in 2015. Guarantees of $9.5 million will expire upon two industrial buildings becoming 93.8% and 95.0% leased or when the related loans mature. As of December 31, 2003, these buildings were 90.0% and 64.0% leased,
respectively. The remaining $7.4 million in guarantees relate to loans on four office buildings that were in the lease-up phase at the time the loans were initiated. Each of the loans will expire by May 2008. The average occupancy of the four
buildings at December 31, 2003 was 91.0%. If the joint ventures are unable to repay the outstanding balances under the loans, we will be required, under the terms of the agreements, to repay the outstanding balances. Recourse provisions exist that
enable us to recover some or all of such payments from the joint ventures assets and/or the other partners. The joint ventures currently generate sufficient cash flow to cover the debt service required by the loans.



In connection with the RRHWoods, LLC joint venture, we renewed our guarantee
of $6.2 million to a bank in July 2003; this guarantee expires in August 2006 and may be renewed by us. The bank provides a letter of credit securing industrial revenue bonds, which mature in 2015. We would be required to perform under the guarantee
should the joint venture be unable to repay the bonds. We have recourse provisions in order to recover from the joint ventures assets and the other partner for amounts paid under the guarantee in excess of our proportionate share. The property
collateralizing the bonds is 100.0% leased and currently generates sufficient cash flow to cover the debt service required by the bond financing.



With respect to the Plaza Colonnade, LLC joint venture, we have included $2.8 million in other liabilities and adjusted the investment in unconsolidated
affiliates by $2.8 million on our Consolidated Balance Sheet at December 31, 2003 related to two separate guarantees of a construction loan agreement and a construction completion agreement, which were subsequently terminated in December 2004. The
construction loan was scheduled to mature in February 2006, with two one-year options to extend the maturity date that were conditional on completion and lease-up of the project. The term of the construction completion agreement required the core
and shell of the building to be completed by December 15, 2005; the core and shell were completed in November 2004. Both guarantees arose from the formation of the joint venture to construct an office building. If the joint venture were unable to
repay the outstanding balance under the construction loan agreement or complete the construction of the office building, we could have been required, under the terms of the agreements, to repay our 50.0% share of the outstanding balance under the
construction loan and complete the construction of the office building. As of December 31, 2003, our maximum potential amount of future payments under the construction loan and completion agreements was $34.9 million.



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On March 30, 2004, the Industrial Development Authority of the City of Kansas City, Missouri issued $18.5
million in non-recourse bonds to finance public improvements made by the joint venture for the benefit of the Kansas City Missouri Public Library. Since the joint venture leases the land for the office building from the library, the joint venture is
obligated to build certain public improvements. The net bond proceeds of $16.3 million have been deposited with a trustee for the payment of project costs, interest and issuance costs. The joint venture is reimbursed for qualified project costs as
they are certified. The joint venture has recorded this obligation on its balance sheet. The bonds are ultimately paid by the Tax Increment Financing Revenue generated by the building and its tenants. As funds are transferred from the bond fund to
the construction lender, our exposure is reduced.



As a result
of the bond proceeds, our maximum potential amount of future payments under the construction loan and completion agreements was reduced to $27.6 million at March 31, 2004 assuming the construction loan was fully funded. No recourse provisions
existed that would have enabled us to recover from the other partner amounts paid under the guarantee. However, given the loan is collateralized by the building, we and our partner could have obtained and liquidated the building to recover the
amounts paid should we have been required to perform under the guarantees.



In addition to the Plaza Colonnade, LLC construction loan and completion agreement described above, the partners collectively had provided $12.0 million in letters of credit in December 2002, $6.0 million by us and
$6.0 million by our partner. We and our partner could have been held liable under the letter of credit agreements had the joint venture not completed construction of the building. No recourse provisions existed that would have enabled us to recover
from the other partner amounts drawn under the letter of credit.



In December 2004, the joint venture secured a $50.0 million non-recourse permanent loan and the $34.9 million construction loan was paid off. The related letters of credit were cancelled, and the aforementioned guarantee obligations
terminated when the construction loan was paid off.



In the
Highwoods DLF 97/26 DLF 99/32, LP joint venture, a single tenant currently leases an entire building under a lease scheduled to expire June 30, 2008. The tenant also leases space in other buildings owned by us. In conjunction with an overall
restructuring of the tenants leases with us and with this joint venture, we agreed to certain changes to the lease with the joint venture in September 2003. The modifications included allowing the tenant to terminate the lease on January 1,
2006, reducing the rent obligation by 50.0% and converting the net lease to a full service lease with the tenant liable for 50.0% of these costs beginning January 1, 2006. In turn, we agreed to compensate the joint venture
for any economic losses incurred as a result of these lease modifications. Based on the lease guarantee agreement, we recorded approximately $0.9 million in other liabilities and recorded a deferred charge of $0.9 million in September 2003. However,
should new tenants occupy the vacated space during the two and a half year guarantee period, our liability under the guarantee would diminish. Our maximum potential amount of future payments with regard to this guarantee is $1.1 million. No recourse
provisions exist to enable us to recover the amounts paid to the joint venture under this lease guarantee arrangement.



On December 29, 2003, we contributed an additional three in-service office properties encompassing 290,853 rentable square feet valued at $35.6 million to
the existing Highwoods-Markel, LLC joint venture. The joint ventures other partner, Markel Corporation, contributed an additional $3.6 million in cash to maintain its 50.0% ownership interest and the joint venture borrowed and refinanced $40.0
million from a third party lender. We retained our 50.0% ownership interest in the joint venture and received net cash proceeds of $31.9 million. We are the manager and leasing agent for the properties and receive customary management fees and
leasing commissions.



In July 2003, we entered into an option
agreement with our partner, Miller Global, to acquire its 50.0% interest in the assets of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million. We had previously guaranteed $3.7 million (50.0%) of the $7.4 million construction loan
to fund the development of this property, of which $7.3 million was outstanding at December 31, 2003. On March 2, 2004, we exercised our option and acquired our partners 50.0% equity interest in the assets of MG-HIW Metrowest I, LLC and MG-HIW
Metrowest II, LLC for $3.2 million. The assets in MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC include 87,832 square feet of property and 7.0 acres of development land zoned for the development of 90,000 square feet of office space. The $7.4
million construction loan to fund the development of this property was paid in full by us at closing.



On February 25, 2004, we and Kapital-Consult, a European investment firm, formed Highwoods KC Glenridge, LLC, which on February 26, 2004 acquired from a
third party Glenridge Point Office Park, consisting of two office



42



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buildings aggregating 185,000 square feet located in the Central Perimeter sub-market of Atlanta. The buildings are currently 91.1% occupied. We contributed
$10.0 million to the joint venture in return for a 40.0% equity interest and Kapital-Consult contributed $14.9 million for a 60.0% equity interest in the partnership. The joint venture entered into a $16.5 million 10-year secured loan on the assets.
We are the manager and leasing agent for this property and receive customary management fees and leasing commissions. The acquisition also includes 2.9 acres of development land that can accommodate 150,000 square feet of office space.



RRHWoods, LLC and Dallas County Partners each developed a new office
building in Des Moines, Iowa. On June 25, 2004, the joint ventures financed both buildings with a $7.4 million loan from a bank. As an inducement to make the loan at a 6.3% long-term interest rate, we and our partner agreed to master lease the
vacant space and guaranteed $1.6 million, or $0.8 million each, with limited recourse. As of June 30, 2004, the buildings are together 82.0% leased. As leasing improves, the obligations under the loan agreement diminish. As of June 30, 2004, we
recorded $1.3 million in other liabilities and $1.3 million as a deferred charge on our Consolidated Balance Sheet with respect to this guarantee. The maximum potential amount of future payments that we could be required to make under the master
leases in place is approximately $4.8 million. We believe that the likelihood of paying on our $0.8 million guarantee is remote since the master lease payments provide the required 1.3 debt coverage ratio and, should we have to pay, we would recover
the $0.8 million from other joint venture assets.



On June 28,
2004, Kapital-Consult, a European investment firm, bought an interest in HIW-KC Orlando, LLC, an entity formed by us. HIW-KC Orlando, LLC owns five in-service office properties, encompassing 1.3 million rentable square feet, located in the central
business district of Orlando, Florida which were valued under the joint venture agreement at $212.0 million, including amounts related to our guarantees described below, and which were subject to a $136.2 million secured mortgage loan. Our partner
contributed $42.1 million in cash and received a 60.0% equity interest in return. The joint venture borrowed $143.0 million under a ten-year fixed rate mortgage loan from a third party lender and repaid the $136.2 million loan. We retained a 40.0%
equity interest in the joint venture and received net cash proceeds of $46.6 million of which $33.0 million was used to pay down our Revolving Loan and $13.6 million was used to pay down another loan of ours. In connection with this transaction, we
agreed to guarantee rent to the joint venture for 3,248 rentable square feet commencing in August 2004 and expiring in April 2011. In connection with this guarantee, as of June 30, 2004 we included $0.6 million in other liabilities and reduced the
total amount of gain to be recognized by the same amount. Additionally, we agreed to guarantee re-tenanting costs for approximately 11% of the joint ventures total square footage. We recorded a $4.1 million contingent liability with respect to
such guarantee as of June 30, 2004 and reduced the total amount of gain to be recognized by the same amount. We believe our estimate related to the re-tenanting costs guarantee is accurate. However, if our assumptions prove to be incorrect, future
losses may occur. The contribution was accounted for as a partial sale as defined by SFAS No. 66 and we recognized a $15.9 million gain in June 2004. Since we have an ongoing 40.0% financial interest in the joint venture and since we are engaged by
the joint venture to provide management and leasing services for the joint venture, for which we receive customary management fees and leasing commissions, the operations of these properties will not be reflected as discontinued operations
consistent with SFAS No. 144 and the related gain on sale will be included in continuing operations in the second quarter 2004.



Financing and Profit-Sharing Arrangements



The following summarizes sale transactions that are accounted for as financing and/or profit-sharing arrangements under paragraphs 25 through 29 of SFAS
No. 66, as described in Note 1 to the Consolidated Financial Statements.



- MG-HIW, LLC



On
December 19, 2000, we formed a joint venture with Miller Global, MG-HIW, LLC, pursuant to which we sold or contributed to MG-HIW, LLC 19 in-service office properties in Raleigh, Atlanta, Tampa (the Non-Orlando City Group) and Orlando
(collectively the City Groups), valued at $335.0 million. As part of the formation of MG-HIW, LLC, Miller Global contributed $85.0 million in cash for an 80.0% ownership interest and the joint venture borrowed $238.8 million from a
third-party lender. We retained a 20.0% ownership interest and received net cash proceeds of $307.0 million. During 2001, we contributed a 39,000 square foot development project to MG-HIW, LLC for $5.1 million. The joint venture borrowed an
additional $3.7 million under its existing debt agreement with a third party and we retained our 20.0% ownership interest and received net cash proceeds of $4.8 million. The assets of each of the City Groups were legally acquired by four separate
LLCs for which MG-HIW, LLC was the sole member.



43



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The non-Orlando City Group consisted of 15 properties encompassing 1.3 million square feet and were
located in Atlanta, Raleigh and Tampa. Based on the nature and extent of certain rental guarantees made by us with respect to these properties, the transaction did not qualify for sale treatment under SFAS No. 66. The transaction has been accounted
for as a profit-sharing arrangement, and accordingly, the assets, liabilities and operations of the properties remain on our books and a co-venture obligation has been established for the amount of equity contributed by Miller Global related to the
non-Orlando City Group properties. The income from operations of the properties, excluding depreciation, is being allocated 80.0% to Miller Global and is reported as co-venture expense in our Consolidated Financial Statements. We
continue to depreciate the properties and record all of the depreciation on our books. In addition to the co-venture expense, we recorded expense of $1.3 million, $0.7 million and $0.7 million related to payments made under the rental guarantees for
the years ended December 31, 2003, 2002 and 2001, respectively.



On July 29, 2003, we acquired our partners 80.0% equity interest in the non-Orlando City Groups. We paid Miller Global $28.1 million, repaid $41.4 million of debt related to the properties and assumed $64.7 million of debt. We
recognized a $16.3 million gain on the settlement of the $43.5 million co-venture obligation recorded on our books.



With respect to the Orlando City Group, which consists of five properties encompassing 1.3 million square feet located in the central business district of
Orlando, we assumed obligations to make improvements to the assets as well as master lease obligations and guarantees on certain vacant space. Additionally, we guaranteed a leveraged internal rate of return (IRR) of 20.0% on Miller
Globals equity. See Note 15 to the Consolidated Financial Statements for further discussion of the guarantee. The contribution of these Orlando properties is accounted for as a financing arrangement under SFAS No. 66  see Note 18 to the
Consolidated Financial Statements. Consequently, the assets, liabilities and operations related to the properties remain on our books and a financing obligation has been established for the amount of equity contributed by Miller Global related to
the Orlando City Group. The income from operations of the properties, excluding depreciation, is being allocated 80.0% to Miller Global and reported as interest on financing obligation in our Consolidated Financial Statements. This
financing obligation is also adjusted each period by accreting the obligation up to the 20.0% guaranteed internal rate of return by a charge to interest expense, such that the financing obligation would equal at the end of each period the amount due
to Miller Global including the 20.0% guaranteed return. We recorded interest expense on the financing obligation of $11.6 million, $10.1 million and $9.9 million, which includes amounts related to this IRR guarantee and payments made under the
rental guarantees, for the years ended 2003, 2002 and 2001, respectively. We have continued to depreciate the Orlando properties and record all of the depreciation on our books.



On July 29, 2003, we also entered into an option agreement to acquire Miller Globals 80.0% interest in the Orlando
City Group. On March 2, 2004, we exercised our option and acquired our partners 80.0% equity interest in the Orlando City Group. The properties were 83.8% leased as of December 31, 2003 and were encumbered by $136.2 million of floating rate
debt with interest based on LIBOR plus 200 basis points. At the closing of the transaction, we paid our partner, Miller Global, $62.5 million and a $7.5 million letter of credit delivered to the seller in connection with the option was cancelled.
Since the initial contribution of these assets was accounted for as a financing arrangement and since the financing obligation was adjusted each period for the IRR guarantee, no gain or loss was recognized upon the extinguishment of the financing
obligation.



- SF-HIW Harborview, LP



On September 11, 2002, we contributed Harborview Plaza, an office building
located in Tampa, Florida, to SF-HIW Harborview Plaza, LP (Harborview LP), a newly formed entity, in exchange for a 20.0% limited partnership interest and $35.4 million in cash. The other partner contributed $12.6 million of cash and a
new loan was obtained by the partnership for $22.8 million. In connection with this disposition, we entered into a master lease agreement with Harborview LP for five years on the vacant space in the building (approximately 20%). We also guaranteed
to Harborview LP the payment of tenant improvements and lease commissions of $1.2 million. Our maximum exposure to loss under the master lease agreement was $2.1 million at September 11, 2002 and was $1.4 million at December 31, 2003. Additionally,
our partner in Harborview LP was granted the right to put its 80.0% equity interest in Harborview LP to us in exchange for cash at any time during the one-year period commencing on September 11, 2014. The value of the 80.0% equity interest will be
determined at the time, if ever, that such partner elects to exercise its put right, based upon the then fair market value of Harborview LPs assets and liabilities, less 3.0%, which was intended to cover the normal costs of a sale transaction.



44



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Because of the put option and the master lease agreement, this transaction is accounted for as a
financing transaction, as described in Notes 1 and 18 to the Consolidated Financial Statements. Accordingly, the assets, liabilities and operations related to Harborview Plaza, the property owned by Harborview LP, and any new financing by the
partnership remain on our books. As a result, we have established a financing obligation liability equal to the net equity contributed by the other partner. At the end of each reporting period, the balance of the financing obligation is adjusted to
equal the current fair value, which is $13.6 million at December 31, 2003, but not less than the original financing obligation. This adjustment is amortized prospectively through September 2014. Additionally, the net income from the operations
before depreciation of Harborview Plaza allocable to the 80.0% partner is recorded as interest expense on financing obligation. We continue to depreciate the property and record all of the depreciation on our books. Additionally, any payments made
under the master lease agreement are expensed as incurred ($0.4 million and $0.3 million were expensed during the years ended December 31, 2003 and 2002, respectively) and any amounts paid under the tenant improvement and lease commission guarantee
are capitalized and amortized to expense over the remaining lease term. At such time as the put option expires or otherwise is terminated, we will record the transaction as a sale and recognize gain on sale.



- Eastshore



On November 26, 2002, we sold three buildings located in Richmond, Virginia
(the Eastshore transaction) for a total purchase price of $28.5 million in cash, which was paid in full by the buyer at closing. Each of the sold properties is a single tenant building leased on a triple-net basis to Capital One
Services, Inc., a subsidiary of Capital One Financial Services, Inc.



In connection with the sale, we entered into a rental guarantee agreement for each building for the benefit of the buyer to guarantee any shortfalls that may be incurred in the payment of rent and re-tenanting costs for a five-year period
from the date of sale (through November 2007). Our maximum exposure to loss under the rental guarantee agreements was $18.7 million at the date of sale and was $15.9 million as of December 31, 2003. No payments were made during 2003 or 2002 in
respect of these rent guarantees. However, in June 2004, we began to make monthly payments to the buyer, at an annual rate of $0.1 million, as a result of the existing tenant renewing a lease in one building at a lower rental rate.



These rent guarantees are a form of continuing involvement as discussed in
paragraph 28 of SFAS No. 66. Because the guarantees cover the entire space occupied by a single tenant under a triple-net lease arrangement, our guarantees are considered a guaranteed return on the buyers investment for an extended period of
time. Therefore, the transaction has been accounted for as a financing transaction following the accounting method described in Note 1 to the Consolidated Financial Statements. Accordingly, the assets and operations are included in the Consolidated
Financial Statements, and a financing obligation of $28.5 million was recorded which represents the amount received from the buyer at the time of sale. The income from the operations of the properties, other than depreciation, is allocated 100.0% to
the owner as interest expense on a financing obligation. Payments made under the rent guarantees are charged to expense as incurred. This transaction will be recorded as a completed sale transaction in the future when the maximum exposure to loss
under the guarantees is equal to or less than the related gain.



Interest
Rate Hedging Activities



To meet in part our long-term
liquidity requirements, we borrow funds at a combination of fixed and variable rates. Borrowings under our Revolving Loan bear interest at variable rates. Our long-term debt, which consists of long-term financings and the unsecured issuance of debt
securities, typically bears interest at fixed rates. In addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objectives are to limit the impact of interest rate
changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate
our interest rate risk with respect to various debt instruments.



45



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The following table sets forth information regarding our interest rate hedge contracts as of December 31,
2003 ($ in thousands):



|                   |  |                |        |              |          |                |                       |           |       |   |                  |   |   
|------------------ |  | -------------- | ------ | ------------ | -------- | -------------- | --------------------- | --------- | ----- | - | ---------------- | - | --
|Type of Hedge      |  | NotionalAmount |        | MaturityDate |          | Reference Rate |                       | FixedRate |       |   | Fair MarketValue
|Interest Rate Swap |  | $              | 20,000 |              | 1/2/2004 |                | 1 month USD-LIBOR-BBA |           | 0.990 | % |                  | $ | 3 
|Interest Rate Swap |  | $              | 20,000 |              | 6/1/2005 |                | 1 month USD-LIBOR-BBA |           | 1.590 | % |                  |   | 20
|                   |  |                |        |              |          |                |                       |           |       |   |                  |   |   
|                   |  |                |        |              |          |                |                       |           |       |   |                  | $ | 23
|                   |  |                |        |              |          |                |                       |           |       |   |                  |   |   



The interest rate on
all of our variable rate debt is adjusted at one and three month intervals, subject to settlements under these interest rate hedge contracts. We also enter into treasury lock agreements from time to time in order to limit our exposure to an increase
in interest rates with respect to future debt offerings. During 2003, only a nominal amount was received from counter parties under interest rate hedge contracts. The interest rate swap that matured on January 2, 2004 was not renewed or extended.



Related Party Transactions



We have previously reported that we have had a contract to acquire
development land in the Bluegrass Valley office development project from GAPI, Inc., a corporation controlled by an executive officer/director of the Company. On January 17, 2003, we acquired an additional 23.5 acres of this land from GAPI, Inc. for
cash and shares of Common Stock valued at $2.3 million. In May 2003, 4.0 acres of the remaining acres not yet acquired by the Operating Partnership was taken by the Georgia Department of Transportation to develop a roadway interchange for
consideration of $1.8 million. The Department of Transportation took possession and title of the property in June 2003. As part of the terms of the contract between us and GAPI, Inc., we were entitled to the proceeds from the condemnation of $1.8
million, less the contracted purchase price between us and GAPI, Inc. for the condemned property of $0.7 million. On September 30, 2003, as a result of the condemnation, we received the proceeds of $1.8 million. A related party payable of $0.7
million to GAPI, Inc. related to the condemnation of the development land is included in accounts payable, accrued expenses and other liabilities in our Consolidated Balance Sheet at December 31, 2003 and a gain of $1.0 million related to the
condemnation of the development land is included in gain on disposition of land in our Consolidated Statement of Income for the year ended December 31, 2003. We believe that the purchase price with respect to each transaction did not exceed market
value. These transactions were unanimously approved by the executive committee and the full Board of Directors (with the related executive officer/director abstaining from the vote).



During 2000, in connection with the formation of the MG-HIW Peachtree Corners III, LLC, one of our affiliates made a
construction loan to this joint venture. Interest accrued at a rate of LIBOR plus 200 basis points. This construction loan was repaid in full in July 2003 when we were assigned our partners 50.0% equity interest in the single property
encompassing 53,896 square feet owned by MG-HIW Peachtree Corners III, LLC.



From 1998 to 2000, we advanced a total of $0.8 million to an officer/director of the Company related to certain expenses paid by us on behalf of the officer/director. During 2002, this advance, along with accrued
interest, was repaid by the officer/director.



CRITICAL ACCOUNTING ESTIMATES



The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from our estimates.



The policies and estimates used in the preparation of our Consolidated Financial Statements are described in Note 1 to our
Consolidated Financial Statements for the year ended December 31, 2003. However, certain of our significant accounting policies contain an increased level of assumptions used or estimates made in determining their impact on our Consolidated
Financial Statements. Management has reviewed our critical accounting policies and estimates with the audit committee of the Companys Board of Directors and the Companys independent auditors.



46



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We consider our critical accounting estimates to be those used in the determination of the reported
amounts and disclosure related to the following:



| |  | Real estate assets;
| | - | -------------------



| |  | Allowance for doubtful accounts; and
| | - | ------------------------------------



| |  | Property operating expense recoveries
| | - | -------------------------------------



Real Estate Assets



All capitalizable costs related to the improvement or replacement of commercial real estate properties are capitalized. Depreciation is computed using the
straight-line method over the estimated useful life of 40 years for buildings, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized over the life of the respective
leases, which currently average 4.5 years using the straight-line method. Real estate assets are stated at the lower of cost or fair value, if impaired.



Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at cost in
the Consolidated Balance Sheets. Expenditures directly related to the leasing of properties are included in other assets and are stated at cost in the Consolidated Balance Sheets. Development expenditures include pre-construction costs essential to
the development of properties, development and construction costs, interest costs, real estate taxes, salaries and other costs incurred during the period of development. Interest costs are capitalized until the building is ready for its intended
use. Construction expenditures include compensation incurred in connection with specific construction projects. Leasing expenditures include compensation incurred in connection with successfully securing leases on the properties. Estimated costs
related to unsuccessful activities are expensed as incurred. If our assumptions regarding the successful efforts of development, construction and leasing are incorrect, the resulting adjustments could impact earnings.



Upon the acquisition of real estate, we assess the fair value of acquired
tangible assets such as land, buildings and tenant improvements, intangible assets such as above and below market leases, acquired-in place leases and other identified intangible assets and assumed liabilities in accordance with SFAS No. 141,
Business Combinations. We allocate the purchase price to the acquired assets and assumed liabilities based on our relative fair values. We assess and consider fair value based on estimated cash flow projections that utilize appropriate
discount and/or capitalization rates, as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.



Above and below market leases acquired are recorded at their fair value. Fair
value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) managements estimate of fair market lease rates for each corresponding in-place lease, using a
discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options
for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to
base rental revenue over the remaining term of the respective leases.



The value of in-place leases is based on our evaluation of the specific characteristics of each tenants lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market
conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on
local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions, legal and other related expenses. The value of an in-place lease is amortized to depreciation and amortization expense over
the remaining term of the respective lease. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of its related intangible asset is expensed.



The value of a tenant relationship is based on our overall relationship with the respective tenant. Factors considered
include the tenants credit quality and expectations of lease renewals. The value of a tenant relationship is amortized to expense over the initial term and any renewal periods defined in the respective leases. Based on our acquisitions to
date, we have deemed tenant relationships to be immaterial and have not allocated any amounts to this intangible asset.



47



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Real estate and leasehold improvements are classified as long-lived assets held for sale or as long-lived
assets to be held for use. Real estate is classified as held for sale when the criteria set forth in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, are satisfied; this determination requires management to
make estimates and assumptions, including assessing the probability that potential sales transactions may or may not occur. Actual results could differ from those assumptions. In accordance with SFAS No. 144, we record assets held for sale at the
lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer less costs to sell. The impairment loss is the amount by which the carrying amount
exceeds the estimated fair value. With respect to assets classified as held for use, if events or changes in circumstances, such as a significant decline in occupancy or change in use, indicate that the carrying value may be impaired, an impairment
analysis is performed. Such analysis consists of determining whether the assets carrying amount will be recovered from its undiscounted estimated future operating cash flows These cash flows are estimated based on a number of assumptions that
are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. If the carrying amount of a held for use asset exceeds the sum of
its undiscounted future operating cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the net carrying amount. We generally estimate the fair value of assets held for use by using discounted
cash flow analysis; in some instances, appraisal information may be available and is used in addition to the discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events
that may alter our assumptions, the discounted and/or undiscounted future operating cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment
losses on our properties held for sale and held for use.



As of
December 31, 2003, we had 0.44 million square feet of property, 88 apartment units and 168.1 acres of land under contract for sale or letter of intent in various transactions totaling $90.3 million. These real estate assets have a carrying amount of
$65.7 million and have been classified as assets held for sale in the accompanying financial statements.



Sales of Real Estate



We account for sales of real estate in accordance with SFAS No. 66. For sales transactions meeting the requirements of SFAS No. 66 for full profit recognition, the related assets and liabilities are removed from the balance sheet and the
resultant gain or loss is recorded in the period the transaction closes. For sales transactions that do not meet the criteria for full profit recognition, we account for the transactions in accordance with the methods specified in SFAS No. 66. For
sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss
related to the nature of the continuing involvement. Sales to entities in which we have an interest are accounted for in accordance with partial sale accounting provisions as set forth in SFAS No. 66.



For sales transactions that do not meet sale criteria as set forth in SFAS
No. 66, we evaluate the nature of the continuing involvement, including put and call provisions if present, and account for the transaction as a financing arrangement, profit-sharing arrangement or other alternate method of accounting rather than as
a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.



If we have an obligation to repurchase the property at a
higher price or at a future indeterminable value (such as fair market value), or we guarantee the return of the buyers investment or a return on that investment for an extended period, we account for such transaction as a financing
transaction. If we have an option to repurchase the property at a higher price, and it is likely we will exercise this option, the transaction is accounted for as a financing transaction. For transactions treated as financings, we record the amounts
received from the buyer as a financing obligation, and continue to keep the property and related accounts recorded on our books. The results of operations of the property, net of expenses other than depreciation (net operating income), will be
reflected as interest expense on the financing obligation. If the transaction includes an obligation or option to repurchase the asset at a higher price, additional interest is recorded to accrete the liability to the repurchase price.
For options or obligations to repurchase the asset at fair market value at the end of each reporting period, the balance of the liability is adjusted



48



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to equal the current fair value, to the extent fair value exceeds the original financing obligation. The corresponding debit or credit will be recorded to a
related discount account and the revised debt discount is amortized over the expected term until termination of the option or obligation. If it is unlikely such option will be exercised, the transaction is accounted for under the deposit method or
profit-sharing method. If we have an obligation or option to repurchase at a lower price, the transaction is accounted for as a leasing arrangement. At such time as these repurchase obligations expire, a sale will be recorded and gain recognized.



If we retain an interest in the buyer and provide certain rent
guarantees or other forms of support where the maximum exposure to loss exceeds the gain, we account for such transaction as a profit-sharing arrangement. For transactions treated as profit-sharing arrangements, we record a profit-sharing obligation
for the amount of equity contributed by the other partner and continue to keep the property and related accounts recorded on our books. The results of operations of the property, net of expenses other than depreciation (net operating income), will
be allocated to the other partner for their percentage interest and reflected as co-venture expense in our Consolidated Financial Statements. In future periods, a sale is recorded and profit is recognized when the remaining maximum
exposure to loss is reduced below the amount of gain deferred.



Allowance
for Doubtful Accounts



Accounts receivable are reduced by
an allowance for amounts that may become uncollectible in the future. We evaluate the adequacy of our allowance for doubtful accounts on a quarterly basis. The evaluation primarily consists of reviewing past due account balances and considering such
factors as the credit quality of our tenants, historical trends of the tenant and/or other debtor, current economic conditions and changes in customer payment terms. Additionally, with respect to tenants in bankruptcy, we estimate the expected
recovery through bankruptcy claims and increase the allowance for amounts deemed uncollectible. If our assumptions regarding the collectibility of accounts receivable prove incorrect, we could experience write-offs of accounts receivable or accrued
straight-line rents receivable in excess of our allowance for doubtful accounts.



Property Operating Expense Recoveries



Property operating cost recoveries from tenants (or cost reimbursements) are determined on a lease-by-lease basis. The most common types of cost reimbursements in our leases are common area maintenance (CAM) and real estate
taxes, where the tenant pays a share of operating and administrative expenses and real estate taxes, as determined in each lease.



The computation of cost reimbursements from tenants for CAM and real estate taxes is complex and involves numerous judgments including interpretation of
terms and other tenant lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are many variations in the computations. Most tenants make monthly fixed payments of CAM, real estate taxes and other cost
reimbursement items. We record these payments as income each month. We also make adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to our best estimate of the final amounts to be billed and collected with
respect to the cost reimbursements. After the end of the calendar year, we compute each tenants final cost reimbursements and, after considering amounts paid by the tenant during the year, issue a bill or credit for the appropriate amount to
the tenant. The differences between the amounts billed, less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when the final bills are prepared, usually beginning in March and
completed by June or July. The net amounts of any such adjustments have not been material in the years presented.



FUNDS FROM OPERATIONS



We believe that funds from operations (FFO) and FFO per unit are beneficial to management and investors and are important indicators of the
performance of any equity REIT. Because FFO and FFO per unit calculations exclude such factors as depreciation and amortization or real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of
identical assets in similar conditions based on historical cost accounting and useful life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that historical cost
accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry
investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by



49



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themselves. As a result, management believes that the use of FFO and FFO per unit, together with the required GAAP presentations, provide a more complete
understanding of the Operating Partnerships performance relative to its competitors and a more informed and appropriate basis on which to make decisions involving operating, financing and investing activities.



FFO and FFO per unit as disclosed by other REITs may not be comparable to our
calculation of FFO and FFO per unit as described below. However, you should be aware that FFO and FFO per unit are non-GAAP financial measure and do therefore not represent net income or net income per share as defined by GAAP. Net income and net
income per unit as defined by GAAP are the most relevant measures in determining our operating performance because FFO and FFO per share include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and
amortization. Furthermore, FFO per share does not depict the amount that accrues directly to the unitholders benefit. Accordingly, FFO and FFO per unit should never be considered as alternatives to net income or net income per unit as
indicators of our operating performance.



Our calculation of
FFO, which we believe is consistent with the calculation of FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT), and appropriately excludes the cost of capital improvements and related capitalized interest is as
follows:



| |  | Net income (loss) - computed in accordance with GAAP;
| | - | -----------------------------------------------------



| |  | Plus depreciation and amortization of assets uniquely significant to the real estate industry;
| | - | ----------------------------------------------------------------------------------------------



| |  | Less gains or plus losses from sales of depreciable operating properties, (but excluding impairment losses, see Note 2 following the table) and items that are classified as
extraordinary items under GAAP;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Less distributions to preferred unitholders;
| | - | --------------------------------------------



| |  | Plus or minus adjustments for unconsolidated partnerships and joint ventures (to reflect funds from operations on the same basis); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales related to discontinued operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------



Other REITs may not define the term in accordance with the current NAREIT
definition or may interpret the current NAREIT definition differently than we do.



50



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Restated FFO and FFO per unit for the years ended December 31, 2003, 2002 and 2001 are summarized in the
following table ($ in thousands):



|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|-------------------------------------------------------------- |  | ------ | ------- | - | --------------- | - | ----- | ------ |  | - | --------------- | - |  | ------ | ----- | - | --------------- | - | ------- | - |  | - | ----- | -
|                                                               |  | 2003   |         |   | 2002            |   |       | 2001   | 
|                                                               |  | Amount |         |   | Per UnitDiluted |   |       | Amount |  |   | Per UnitDiluted |   |  | Amount |       |   | Per UnitDiluted |  
|Funds from operations:                                         |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Net income                                                     |  | $      | 50,419  |   |                 |   |       |        |  | $ | 90,564          |   |  |        |       |   |                 | $ | 130,899 |   |  |   |       |  
|Distributions on preferred units                               |  |        | (30,852 | ) |                 |   |       |        |  |   | (30,852         | ) |  |        |       |   |                 |   | (31,500 | ) |  |   |       |  
|Excess of preferred stock carrying value over repurchase value |  |        |        |   |                 |   |       |        |  |   |                |   |  |        |       |   |                 |   | 1,012   |   |  |   |       |  
|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Net income applicable to common units                          |  |        | 19,567  |   |                 | $ | 0.33  |        |  |   | 59,712          |   |  | $      | 0.99  |   |                 |   | 100,411 |   |  | $ | 1.62  |  
|Add/(Deduct):                                                  |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Depreciation and amortization of real estate assets (1)        |  |        | 139,246 |   |                 |   | 2.33  |        |  |   | 138,069         |   |  |        | 2.29  |   |                 |   | 124,539 |   |  |   | 2.02  |  
|Gain on disposition of depreciable real estate assets (2)      |  |        | (8,677  | ) |                 |   | (0.14 | )      |  |   | (15,530         | ) |  |        | (0.26 | ) |                 |   | (17,233 | ) |  |   | (0.28 | )
|Transition adjustment upon adoption of SFAS No. 133            |  |        |        |   |                 |   |      |        |  |   |                |   |  |        |      |   |                 |   | 556     |   |  |   | 0.01  |  
|Unconsolidated affiliates:                                     |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Depreciation and amortization of real estate assets (1), (5)   |  |        | 6,865   |   |                 |   | 0.11  |        |  |   | 7,219           |   |  |        | 0.12  |   |                 |   | 6,430   |   |  |   | 0.10  |  
|Discontinued operations(4):                                    |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Depreciation and amortization of real estate assets (1)        |  |        | 1,354   |   |                 |   | 0.02  |        |  |   | 5,426           |   |  |        | 0.09  |   |                 |   | 5,563   |   |  |   | 0.09  |  
|Gain on sale (2)                                               |  |        | (8,962  | ) |                 |   | (0.15 | )      |  |   | (17,179         | ) |  |        | (0.28 | ) |                 |   |        |   |  |   |      |  
|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Funds from operations applicable to common units (3)           |  | $      | 149,393 |   |                 | $ | 2.50  |        |  | $ | 177,717         |   |  | $      | 2.95  |   |                 | $ | 220,266 |   |  | $ | 3.56  |  
|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|                                                               |  |        |         |   |                 |  
|Distribution payout data:                                      |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Distributions paid per common unit                             |  | $      | 1.86    |   |                 |   |       |        |  | $ | 2.34            |   |  |        |       |   |                 | $ | 2.31    |   |  |   |       |  
|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|As a percent of funds from operations                          |  |        | 74.4    | % |                 |   |       |        |  |   | 79.3            | % |  |        |       |   |                 |   | 64.9    | % |  |   |       |  
|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Weighted average units outstanding  diluted                   |  |        | 59,738  |   |                 |   |       |        |  |   | 60,324          |   |  |        |       |   |                 |   | 61,856  |   |  |   |       |  
|                                                               |  |        |         |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |         |   |  |   |       |  

---

|(1) | In connection with the SECs adoption of Regulation G, which governs the presentation of non-GAAP financial measures in documents filed with the SEC, we revised our definition
of FFO for 2003 and all periods presented relating to the add-back of non-real estate depreciation and amortization. Our revised definition is in accordance with the definition provided by NAREIT.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | In October 2003, NAREIT issued a Financial Reporting Alert that changed its current implementation guidance for FFO regarding impairment losses. Accordingly, impairment losses
related to depreciable assets have now been included in FFO for the periods presented. See Note 4 to our Consolidated Financial Statements for a breakdown of gain on disposition and impairment of depreciable assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As a result of FASBs SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, gains or losses
on the extinguishment of debt are no longer classified as an extraordinary item in our Consolidated Statements of Income. Therefore, the calculation of FFO no longer includes an add-back of this amount. Amounts previously reported in 2002 and 2001
have been adjusted to reduce FFO by extraordinary items in those years. The 2003 Funds from Operations include a gain on extinguishment of co-venture obligation of $16.3 million and a loss on debt extinguishment of $14.7 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | For further discussion related to discontinued operations, see Note 12 to the Consolidated Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------



|(5) | Depreciation and amortization of real estate assets includes an adjustment for gains on disposition of depreciable assets of $0.1 million and $0.3 million for 2003 and 2002,
respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



51



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As a result of the changes to the FFO calculation due to the matters discussed in Note 18 to the
Consolidated Financial Statements and in footnotes (1), (2) and (3) above, FFO has been reduced by the following in dollars and per unit amounts ($ in thousands, except per unit information):



|                                                                        |  |                         |        |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                        |  | Year Ended December 31, |       
|                                                                        |  | 2003                    |        |   | 2002 |   |         | 2001 | 
|Change as discussed in Note 18 to the Consolidated Financial Statements |  | $                       | (678   | ) |      | $ | (7,348  | )    |  | $ | (12,983 | )
|Change as discussed in Note 1 above                                     |  |                         | (3,446 | ) |      |   | (3,382  | )    |  |   | (3,698  | )
|Change as discussed in Note 2 above                                     |  |                         | (325   | ) |      |   | (13,976 | )    |  |   |        |  
|Change as discussed in Note 3 above                                     |  |                         |       |   |      |   | (687    | )    |  |   | (714    | )
|                                                                        |  |                         |        |   |      |   |         |      |  |   |         |  
|FFO in dollars                                                          |  | $                       | (4,449 | ) |      | $ | (25,393 | )    |  | $ | (17,395 | )
|                                                                        |  |                         |        |   |      |   |         |      |  |   |         |  
|                                                                        |  |                         |       
|Change as discussed in Note 18 to the Consolidated Financial Statements |  | $                       | (0.02  | ) |      | $ | (0.12   | )    |  | $ | (0.22   | )
|Change as discussed in Note 1 above                                     |  |                         | (0.05  | ) |      |   | (0.06   | )    |  |   | (0.05   | )
|Change as discussed in Note 2 above                                     |  |                         | (0.01  | ) |      |   | (0.23   | )    |  |   |        |  
|Change as discussed in Note 3 above                                     |  |                         |       |   |      |   | (0.01   | )    |  |   | (0.01   | )
|                                                                        |  |                         |        |   |      |   |         |      |  |   |         |  
|FFO per unit                                                            |  | $                       | (0.08  | ) |      | $ | (0.42   | )    |  | $ | (0.28   | )
|                                                                        |  |                         |        |   |      |   |         |      |  |   |         |  



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The effects of potential changes in interest rates are discussed below. Our market risk discussion includes forward-looking statements and
represents an estimate of possible changes in fair value or future earnings that would occur assuming hypothetical future movements in interest rates. These disclosures are not precise indicators of expected future effects, but only indicators of
reasonably possible effects. As a result, actual future results may differ materially from those presented. See Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources
and the Notes to the Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.



To meet in part our long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates.
Borrowings under our Revolving Loan and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings and the issuance of unsecured debt securities, typically bears interest at
fixed rates although some loans bear interest at variable rates. In addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objectives are to limit the impact of interest
rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to
mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes.



As of December 31, 2003, we had $1,338 million of fixed rate debt outstanding. The estimated aggregate fair value of this
debt at December 31, 2003 was $1,419 million. If interest rates increase by 100 basis points, the aggregate fair market value of our fixed rate debt as of December 31, 2003 would increase by $71.3 million. If interest rates decrease by 100 basis
points, the aggregate fair market value of our fixed rate debt as of December 31, 2003 would decrease by $77.4 million.



As of December 31, 2003, we had $350.9 million of variable rate debt outstanding that was not protected by interest rate hedge contracts. If the weighted
average interest rate on this variable rate debt is 100 basis points higher or lower during the 12 months ended December 31, 2004, our interest expense would be increased or decreased $3.5 million.



For a discussion of our interest rate hedge contracts in effect at December
31, 2003, see Managements Discussion and Analysis of Financial Conditions and Results of Operations  Liquidity and Capital Resources  Interest Rate Hedging Activities. If interest rates increase by 100 basis points, the
aggregate fair market value of these interest rate hedge contracts as of December 31, 2003 would increase by approximately $0.3 million. If interest rates decrease by 100 basis points, the aggregate fair market value of these interest rate hedge
contracts as of December 31, 2003 would decrease by approximately $0.2 million.



In addition, we are exposed to certain losses in the event of nonperformance by the counter parties under the hedge contracts. We expect the counter parties, which are major financial institutions, to perform fully
under the



52



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contracts. However, if either of the counter parties was to default on its obligation under an interest rate hedge contract, we could be required to pay the
full rates on our debt, even if such rates were in excess of the rate in the contract.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



See page F-1 of the financial report included herein.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES



GENERAL



The purpose of this
section is to discuss the effectiveness of our disclosure controls and procedures and our internal control over financial reporting. The statements in this section represent the conclusions of Edward J. Fritsch, the Companys CEO, and Terry L.
Stevens, the Companys CFO. Mr. Fritsch became the Companys CEO on July 1, 2004 and Mr. Stevens became the Companys CFO on December 1, 2003.



The CEO and CFO evaluations of our disclosure controls and procedures over financial reporting include a review of the controls objectives and
design, the controls implementation by us and the effect of the controls on the information generated for use in this amended Annual Report. We seek to identify data errors, control problems or acts of fraud and confirm that appropriate
corrective action, including process improvements, is undertaken. Our disclosure controls and procedures over financial reporting are also evaluated on an ongoing basis through the following:



| |  | activities undertaken and reports issued by employees in our internal audit department;
| | - | ---------------------------------------------------------------------------------------



| |  | by managements evaluation of the results of audits provided by our independent auditors in connection with their audit activities;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| |  | other personnel in our finance and accounting organization;
| | - | -----------------------------------------------------------



| |  | members of our internal disclosure committee; and
| | - | -------------------------------------------------



| |  | members of the audit committee of the Companys Board of Directors.
| | - | -------------------------------------------------------------------



The Companys management, including its CEO and CFO, do not expect that our disclosure controls and procedures and internal control over financial
reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of disclosure
controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Operating Partnership have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of
the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



53



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DISCLOSURE
CONTROLS AND PROCEDURES



SEC rules require us to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our annual and periodic reports filed with the SEC is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us
is accumulated and communicated to our management, including the Companys CEO and CFO, to allow timely decisions regarding required disclosure.



As described above under Explanatory Note, the purpose of this amended Annual Report is to restate our previously reported financial results
for fiscal years 2001 through 2003 included in our 2003 Annual Report on Form 10-K. These restatements are primarily due to: adjustments relating to the accounting for a limited number of our prior real estate sales transactions with continuing
involvement occurring between 1999 and 2003, reclassifications related to discontinued operations with continuing involvement, accounting for a debt extinguishment transaction, and various other matters. We believe that the material adjustments
relate to transactions that were previously disclosed by the Operating Partnership in prior SEC filings. For instance, the nature of the Operating Partnerships material continuing involvement related to our real estate sales transactions and
the material facts relating to our retirement of the $125 million principal amount of MOPPRS were disclosed in our prior quarterly and annual regulatory and financial filings with the Securities and Exchange Commission and our annual reports.



Based on our evaluation of disclosure controls and procedures,
as of the date of the filing of this amended Annual Report, the Companys CEO and CFO believe that our disclosure controls and procedures are effective to ensure that information required to be disclosed in its financial reports has been made
known to management, including the Companys CEO and CFO, and other persons responsible for preparing such reports and is recorded, processed, summarized and reported.



INTERNAL CONTROL OVER FINANCIAL REPORTING



SEC rules also require us to maintain internal control
over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting
includes those policies and procedures that:



| |  | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| |  | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures
are being made only in accordance with authorizations of management and directors; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As noted above and
described above under Explanatory Note, the purpose of this amended Annual Report is to restate our previously reported financial results for fiscal years 2001 through 2003 included in our 2003 Annual Report on Form 10-K. These
restatements are primarily due to: adjustments relating to the accounting for a limited number of our prior real estate sales transactions with continuing involvement occurring between 1999 and 2003, reclassifications related to discontinued
operations with continuing involvement, accounting for a debt extinguishment transaction, and various other matters. We believe that the adjustments required to be made to the historical financial statements resulted from prior unintentional
misapplication of GAAP.



A majority of the adjustments made as
part of the restatement relate to transactions that occurred or methods that were adopted during the 1997 to 2002 timeframe. While a number of those early adjustments had continuing effects into 2003 and 2004, only a few adjustments related to
transactions that occurred or methods that were adopted in 2003 or 2004, such as the MOPPRS debt extinguishment in early 2003 and the Companys CEO retirement package in the first quarter of 2004, both of which required some amount of
subjective judgment to determine the proper accounting methodology.



54



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Ernst & Young LLP has issued an unqualified opinion dated January 18, 2005 on our restated 2003, 2002
and 2001 Consolidated Financial Statements that are included in this amended Annual Report. In connection with their audit, Ernst & Young LLP advised the Companys Audit Committee that they identified the following material weaknesses
during their audits of the restated financial statements for 2003, 2002 and 2001: inadequate procedures for appropriately assessing and applying accounting principles to complex transactions; lack of adequate finance and accounting staff to
appropriately identify and evaluate accounting for transactions; inadequate procedures to ensure critical information regarding a transaction is known by the persons accounting for such transaction; and lack of application of GAAP to transactions
due to perceived immateriality of transactions.



Since late
2002, we have added several experienced staff to our Finance and Accounting Departments. These included an Assistant Controller (new position), a Director of Financial Standards and Compliance (new position), a Senior Director of Investor Relations
(replacement) and a new Chief Financial Officer of the Company (replacement, as the former CFO assumed a new position within the Company). During 2003 and 2004 up to the filing date of this amended Annual Report, we have further improved our
internal control over financial reporting by, among other things, expanding supervisory activities and monitoring techniques and strengthening our procedures designed to ensure that information relating to transactions directly or indirectly
involving the Operating Partnership and its subsidiaries is made known to persons responsible for preparing our financial statements. We have also implemented revised checklists and additional management oversight of our accounting staff to ensure
appropriate assessment and application of GAAP to all transactions, particularly complex transactions such as sales of real estate with continuing involvement that are governed by SFAS No. 66.



Other than the foregoing and the adjustments that are being made as described
under Explanatory Note and Note 18 to our restated Consolidated Financial Statements, there have been no changes in our internal controls over financial reporting since December 31, 2003 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



Section 404 of the Sarbanes-Oxley Act of 2002 requires public companies, including us, with a fiscal year that ends on December 31 to report on the effectiveness of their internal control over financial reporting in
their 2004 Annual Report on Form 10-K, which we are required to file with the SEC no later than March 16, 2005. Our independent auditor will be required to attest to that report. Our management, including the Companys CEO, CFO, and audit
committee are working diligently to ensure that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with GAAP.



55



---



PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The Company is the sole general partner of the Operating Partnership. The section under the heading Election of Directors of the Companys Proxy Statement for the Annual Meeting of Stockholders, which
was held on May 18, 2004, is incorporated herein by reference for information on directors of the Company. See Item X in Part I hereof for information regarding executive officers of the Company.



The Section under the heading Committees of the Board of Directors
 Audit Committee of the Proxy Statement is incorporated herein by reference.



The Company has adopted a Code of Business Conduct and Ethics that applies to all employees and members of its Board of Directors. The Company has also
adopted a separate Code of Ethics for its CEO and Senior Financial Officers. A copy of both Codes is available free of charge on the Companys corporate website, which is http://www.highwoods.com. The Company intends to satisfy the disclosure
requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of these Codes of Ethics by posting such information on the website as identified above. The website also includes the Companys board committee
charters and corporate governance guidelines. Alternatively, you may request any of this information free of charge by writing to us at Highwoods Properties, Inc., Investor Relations, 3100 Smoketree Court, Suite 600, Raleigh, NC 27604.



ITEM 11. EXECUTIVE COMPENSATION



The Section under the heading Election of Directors entitled Compensation of Directors of the Companys Proxy Statement and the Section titled Executive Compensation of the Companys Proxy
Statement are incorporated herein by reference except for the 2003 Year-End Option Values table, which is superseded by the table below.



The following table sets forth information with respect to options held by the following Named Executive Officers as of December 31, 2003:



|                    |  |                                                            |  |                                                                  |  |             |           |               |   |          
|------------------- |  | ---------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ----------- | --------- | ------------- | - | ---------
|                    |  | Number ofSecurities UnderlyingOptions at 2003 Year-End (1) |  | Value ofUnexercised In-the-MoneyOptions at 2003 Year-End (2),(3)
|Name                |  | Exercisable                                                |  | Unexercisable                                                    |  | Exercisable |           | Unexercisable
|Ronald P. Gibson    |  | 365,699                                                    |  | 507,725                                                          |  | $           | 1,266,306 |               | $ | 1,324,840
|Edward J. Fritsch   |  | 264,792                                                    |  | 249,427                                                          |  | $           | 1,025,140 |               | $ | 646,716  
|Carman J. Liuzzo    |  | 213,595                                                    |  | 193,127                                                          |  | $           | 936,729   |               | $ | 500,787  
|Mack D. Pridgen III |  | 176,297                                                    |  | 172,620                                                          |  | $           | 792,652   |               | $ | 447,570  
|Gene H. Anderson    |  | 42,516                                                     |  | 94,113                                                           |  | $           | 45,520    |               | $ | 153,484  
|Michael E. Harris   |  | 122,718                                                    |  | 94,113                                                           |  | $           | 295,132   |               | $ | 241,684  

---

|(1) | Options include incentive stock options and nonqualified stock options. Options have varying vesting schedules of no less than four year ratable vesting.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Represents the difference between a closing price of $25.40 per share of common stock on December 31, 2003 and the options exercise prices as adjusted by any Dividend
Equivalent Right (DER) as described in (3) below.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | 196,660 nonqualified stock options granted to the Named Executive Officers in 1997 were accompanied by a DER pursuant to the 1997 Performance Award Plan. The Plan provided that if
the total return on a share of common stock exceeds certain thresholds during the five-year vesting period ending in 2002, the exercise price of such stock options with a DER will be reduced under a formula that is based on dividends and other
distributions that are made with respect to such a share during the period beginning on the date of grant and ending upon exercise of such stock option. Based on the performance of the common stock during the five-year vesting period and the level
of dividends paid on common stock through December 31, 2003, the exercise price per share has been reduced by $8.12. As of December 31, 2003, 166,968 of these options held by the Named Executive Officers remain outstanding.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



56



---



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The Operating Partnership has no executive officers or directors. As of December 31, 2003, the only person or group known by us to be holding more than
5.0% of the Common Units was the Company, which owned 53,065,594 Common Units, or 89.5% of the outstanding Common Units. In addition, the section under the heading Equity Compensation Plan Information of the Companys Proxy
Statement is incorporated herein by reference.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The section under the heading Related Party Transactions of the Companys Proxy Statement is incorporated herein by reference.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The section under the heading Ratification of Appointment of Independent Auditors of the Companys Proxy Statement is incorporated herein by reference.



57



---



PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(a) | List of Documents Filed as a Part of this Report
|--- | ------------------------------------------------



| | 1. | Consolidated Financial Statements, Consolidated Financial Statement Schedules and Report of Independent Registered Public Accounting Firm. See Index on Page F-1
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Exhibits
| | -- | --------



|      |  |      |  |                                                                                                                                                                            
|----- |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | FN   |  | Description                                                                                                                                                                
|      |  |     
|3.1   |  | (1)  |  | Amended and Restated Articles of Incorporation of the Company                                                                                                              
|      |  |     
|3.2   |  | (2)  |  | Amended and Restated Bylaws of the Company                                                                                                                                 
|      |  |     
|4.1   |  | (2)  |  | Specimen of certificate representing shares of Common Stock                                                                                                                
|      |  |     
|4.2   |  | (3)  |  | Indenture among the Operating Partnership, the Company and First Union National Bank of North Carolina dated as of December 1, 1996                                        
|      |  |     
|4.3   |  | (4)  |  | Specimen of certificate representing 8 5/8% Series A Cumulative Redeemable Preferred Shares                                                                                
|      |  |     
|4.4   |  | (5)  |  | Specimen of certificate representing 8% Series B Cumulative Redeemable Preferred Shares                                                                                    
|      |  |     
|4.5   |  | (6)  |  | Specimen of certificate representing 8% Series D Cumulative Redeemable Preferred Shares                                                                                    
|      |  |     
|4.6   |  | (6)  |  | Specimen of Depositary Receipt evidencing the Depositary Shares each representing 1/10 of an 8% Series D Cumulative Redeemable Preferred Share                             
|      |  |     
|4.7   |  | (6)  |  | Deposit Agreement, dated April 23, 1998, between the Company and First Union National Bank, as preferred share depositary                                                  
|      |  |     
|4.8   |  | (7)  |  | Rights Agreement, dated as of October 6, 1997, between the Company and First Union National Bank, as rights agent                                                          
|      |  |     
|4.9   |  | (8)  |  | Agreement to furnish certain instruments defining the rights of long-term debt holders                                                                                     
|      |  |     
|4.10  |  | (17) |  | Amendment No. 1, dated as of October 7, 2003, to the Rights Agreement, dated as of October 7, 1997, between the Company and Wachovia Bank, N.A., as rights agent           
|      |  |     
|10.1  |  | (2)  |  | Amended and Restated Agreement of Limited Partnership of the Operating Partnership                                                                                         
|      |  |     
|10.2  |  | (4)  |  | Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series A Preferred Units                                   
|      |  |     
|10.3  |  | (5)  |  | Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series B Preferred Units                                   
|      |  |     
|10.4  |  | (6)  |  | Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to Series D Preferred Units                                   
|      |  |     
|10.5  |  | (9)  |  | Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership with respect to certain rights of limited partners upon a change of control
|      |  |     
|10.6  |  | (10) |  | Form of Registration Rights and Lockup Agreement among the Company and the Holders named therein, which agreement is signed by all Common Unit holders                     
|      |  |     
|10.7  |  | (11) |  | Amended and Restated 1994 Stock Option Plan                                                                                                                                
|      |  |     
|10.8  |  | (8)  |  | 1997 Performance Award Plan                                                                                                                                                
|      |  |     
|10.9  |  | (12) |  | Form of Executive Supplemental Employment Agreement between the Company and Named Executive Officers                                                                       
|      |  |     
|10.10 |  | (13) |  | Form of warrants to purchase Common Stock of the Company issued to John L. Turner, William T. Wilson III and John E. Reece II                                              
|      |  |     
|10.11 |  | (14) |  | Form of warrants to purchase Common Stock of the Company issued to W. Brian Reames, John W. Eakin and Thomas S. Smith                                                      



58



---

|      |  |      |  |                                                                                                                                                                                                      
|----- |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | FN   |  | Description                                                                                                                                                                                          
|      |  |     
|10.12 |  | (15) |  | 1999 Shareholder Value Plan                                                                                                                                                                          
|      |  |     
|10.13 |  | (16) |  | Amended and Restated Credit Agreement among Highwoods Realty Limited Partnership, Highwoods Properties, Inc., the Subsidiaries named therein and the Lenders named therein, dated as of July
17, 2003
|      |  |     
|21    |  | (12) |  | Schedule of subsidiaries of the Company                                                                                                                                                              
|      |  |     
|23.1  |  |      |  | Consent of Ernst & Young LLP                                                                                                                                                                         
|      |  |     
|31.1  |  |      |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act                                                                                                                                      
|      |  |     
|31.2  |  |      |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act                                                                                                                                      
|      |  |     
|32.1  |  |      |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act                                                                                                                                      
|      |  |     
|32.2  |  |      |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act                                                                                                                                      

---

|(1) | Filed as part of the Companys Current Report on Form 8-K dated September 25, 1997 and amended by articles supplementary filed as part of the Companys Current Report on
Form 8-K dated October 4, 1997 and articles supplementary filed as part of the Companys Current Report on Form 8-K dated April 20, 1998, each of which is incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Filed as part of Registration Statement 33-76952 dated February 28, 1994 with the SEC and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------



|(3) | Filed as part of the Operating Partnerships Current Report on Form 8-K dated December 2, 1996 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(4) | Filed as part of the Companys Current Report on Form 8-K dated February 12, 1997 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------



|(5) | Filed as part of the Companys Current Report on Form 8-K dated September 25, 1997 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(6) | Filed as part of the Companys Current Report on Form 8-K dated April 20, 1998 and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------



|(7) | Filed as part of the Companys Current Report on Form 8-K dated October 4, 1997 and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------



|(8) | Filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(9) | Filed as part of the Operating Partnerships Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
|---- | ------------------------------------------------------------------------------------------------------------------------------------



|(11) | Filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
|---- | -------------------------------------------------------------------------------------------------



|(12) | Filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.
|---- | ------------------------------------------------------------------------------------------------------------------------------------



|(13) | Filed as part of Registration Statement 33-88364 with the SEC and incorporated herein by reference.
|---- | ---------------------------------------------------------------------------------------------------



|(14) | Filed as part of the Companys Current Report on Form 8-K dated April 1, 1996 and incorporated herein by reference.
|---- | -------------------------------------------------------------------------------------------------------------------



|(15) | Filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
|---- | ------------------------------------------------------------------------------------------------------------------------------------



|(16) | Filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
|---- | --------------------------------------------------------------------------------------------------------------------------------------



|(17) | Filed as part of the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------



The Company will provide copies of any exhibit, upon written request, at a
cost of $.05 per page.



|(b) | Reports on Form 8-K
|--- | -------------------



None.



59



---



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Raleigh, State of North Carolina, on January 19, 2005.



HIGHWOODS REALTY LIMITED PARTNERSHIPBy:

Highwoods Properties, Inc., in its capacity as general partner (the General Partner)By:

/s/    EDWARD J. FRITSCHEdward J. Fritsch President and Chief Executive Officer




60



---

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT



No annual report or proxy statement has been sent to security holders of the Registrant. The General Partner of the Registrant has mailed its annual report and its proxy statement to holders of common stock of the
General Partner. Portions of the General Partners proxy statement are incorporated by reference herein in Item 5 of Part II and Items 10-13 of Part III.



61



---



INDEX TO FINANCIAL
STATEMENTS



|                                                                                                  |  |     
|------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                  |  | Page
|Highwoods Realty Limited Partnership                                                              |  |     
|Report of Independent Registered Public Accounting Firm                                           |  | F-2 
|Restated Financial Statements:                                                                    |  |     
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                      |  | F-3 
|Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001            |  | F-4 
|Consolidated Statements of Partners Capital for the Years Ended December 31, 2003, 2002 and 2001 |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001        |  | F-6 
|Notes to Consolidated Financial Statements                                                        |  | F-8 
|Schedule II  Valuation and Qualifying Accounts and Reserves                                      |  | F-58
|Schedule III  Real Estate and Accumulated Depreciation                                           |  | F-59



All other schedules
are omitted because they are not applicable, or because the required information is included in the Consolidated Financial Statements or notes thereto.



F-1



---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors of the General Partner

of Highwoods Realty Limited Partnership



We have audited the accompanying consolidated balance sheets of Highwoods
Realty Limited Partnership (a majority-owned subsidiary of Highwoods Properties, Inc.) as of December 31, 2003 and 2002, and the related consolidated statements of income, partners capital, and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Partnerships management. Our responsibility is
to express an opinion on these financial statements and schedules based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Highwoods Realty Limited Partnership at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2003, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.



As
discussed in Notes 1, 18 and 19 to the consolidated financial statements, the accompanying consolidated balance sheets as of December 31, 2003 and 2002 and the related consolidated statements of income, partners capital, and cash flows for
each of the three years in the period ended December 31, 2003 and the financial statement schedules listed in the Index at Item 15(a) have been restated.



In 2003, as discussed in Note 1 to the consolidated financial statements, the Partnership adopted the provisions of Statement of Financial Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. In 2002, as discussed in Note 12 to the consolidated financial statements, the Partnership adopted the
provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.



/S/ ERNST & YOUNG LLP



Raleigh, North Carolina

January 18, 2005



F-2



---



HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Balance Sheets



($ in thousands
except per unit amounts)



(Restated)



|                                                                                                                     |  |              |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                     |  | December 31, |          
|                                                                                                                     |  | 2003         |           |   | 2002 |  
|Assets:                                                                                                              |  |              |           |   |      |   |           |  
|Real estate assets, at cost:                                                                                         |  |              |           |   |      |   |           |  
|Land and improvements                                                                                                |  | $            | 428,749   |   |      | $ | 442,004   |  
|Buildings and tenant improvements                                                                                    |  |              | 3,113,273 |   |      |   | 3,157,648 |  
|Development in process                                                                                               |  |              | 7,088     |   |      |   | 6,714     |  
|Land held for development                                                                                            |  |              | 186,454   |   |      |   | 161,339   |  
|Furniture, fixtures and equipment                                                                                    |  |              | 21,813    |   |      |   | 20,960    |  
|                                                                                                                     |  |              |           |   |      |   |           |  
|                                                                                                                     |  |              | 3,757,377 |   |      |   | 3,788,665 |  
|Less  accumulated depreciation                                                                                      |  |              | (545,097  | ) |      |   | (453,657  | )
|                                                                                                                     |  |              |           |   |      |   |           |  
|Net real estate assets                                                                                               |  |              | 3,212,280 |   |      |   | 3,335,008 |  
|Property held for sale                                                                                               |  |              | 65,724    |   |      |   | 147,424   |  
|Cash and cash equivalents                                                                                            |  |              | 21,329    |   |      |   | 15,509    |  
|Restricted cash                                                                                                      |  |              | 4,602     |   |      |   | 10,638    |  
|Accounts receivable, net of allowance of $1,235 and $1,457, respectively                                             |  |              | 18,131    |   |      |   | 17,524    |  
|Notes receivable                                                                                                     |  |              | 10,026    |   |      |   | 6,834     |  
|Accrued straight-line rents receivable                                                                               |  |              | 58,912    |   |      |   | 53,113    |  
|Investments in unconsolidated affiliates                                                                             |  |              | 59,005    |   |      |   | 55,868    |  
|Other assets:                                                                                                        |  |              |           |   |      |   |           |  
|Deferred leasing costs                                                                                               |  |              | 103,350   |   |      |   | 92,225    |  
|Deferred financing costs                                                                                             |  |              | 19,286    |   |      |   | 17,218    |  
|Prepaid expenses and other                                                                                           |  |              | 10,131    |   |      |   | 11,126    |  
|                                                                                                                     |  |              |           |   |      |   |           |  
|                                                                                                                     |  |              | 132,767   |   |      |   | 120,569   |  
|Less  accumulated amortization                                                                                      |  |              | (55,718   | ) |      |   | (43,639   | )
|                                                                                                                     |  |              |           |   |      |   |           |  
|Other assets, net                                                                                                    |  |              | 77,049    |   |      |   | 76,930    |  
|                                                                                                                     |  |              |           |   |      |   |           |  
|Total Assets                                                                                                         |  | $            | 3,527,058 |   |      | $ | 3,718,848 |  
|                                                                                                                     |  |              |           |   |      |   |           |  
|Liabilities and Partners Capital:                                                                                   |  |              |           |   |      |   |           |  
|Mortgages and notes payable                                                                                          |  | $            | 1,708,765 |   |      | $ | 1,754,260 |  
|Accounts payable, accrued expenses and other liabilities                                                             |  |              | 95,845    |   |      |   | 104,419   |  
|Financing obligations                                                                                                |  |              | 124,063   |   |      |   | 121,012   |  
|Co-venture obligation                                                                                                |  |              |          |   |      |   | 43,511    |  
|                                                                                                                     |  |              |           |   |      |   |           |  
|Total Liabilities                                                                                                    |  |              | 1,928,673 |   |      |   | 2,023,202 |  
|Redeemable operating partnership units:                                                                              |  |              |           |   |      |   |           |  
|Class A Common Units, 6,202,640 and 6,974,524 outstanding at December 31, 2003 and 2002, respectively                |  |              | 157,547   |   |      |   | 154,137   |  
|Series A Preferred Units (liquidation preference $1,000 per unit), 104,945 outstanding at December 31, 2003 and 2002 |  |              | 104,945   |   |      |   | 104,945   |  
|Series B Preferred Units (liquidation preference $25 per unit), 6,900,000 outstanding at December 31, 2003 and 2002  |  |              | 172,500   |   |      |   | 172,500   |  
|Series D Preferred Units (liquidation preference $250 per unit), 400,000 outstanding at December 31, 2003 and 2002   |  |              | 100,000   |   |      |   | 100,000   |  
|Partners Capital:                                                                                                   |  |              |           |   |      |   |           |  
|Class A Common Units:                                                                                                |  |              |           |   |      |   |           |  
|General partner Common Units, 592,682 and 599,659 outstanding at December 31, 2003 and 2002, respectively            |  |              | 10,715    |   |      |   | 11,774    |  
|Limited partner Common Units, 52,472,912 and 52,391,727 outstanding at December 31, 2003 and 2002, respectively      |  |              | 1,060,797 |   |      |   | 1,165,529 |  
|Accumulated other comprehensive loss                                                                                 |  |              | (3,650    | ) |      |   | (9,204    | )
|Deferred compensation  restricted units                                                                             |  |              | (4,469    | ) |      |   | (4,035    | )
|                                                                                                                     |  |              |           |   |      |   |           |  
|Total Partners Capital                                                                                              |  |              | 1,063,393 |   |      |   | 1,164,064 |  
|                                                                                                                     |  |              |           |   |      |   |           |  
|Total Liabilities, Redeemable Operating Partnership Units and Partners Capital                                      |  | $            | 3,527,058 |   |      | $ | 3,718,848 |  
|                                                                                                                     |  |              |           |   |      |   |           |  



See accompanying notes
to consolidated financial statements.



F-3



---



HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Income



($ in
thousands, except per unit amounts)



For the Years Ended
December 31, 2003, 2002 and 2001



(Restated)



|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Rental and other revenues                                                                                     |  | $    | 504,453 |   |      | $ | 521,627 |      |  | $ | 535,233 |  
|Operating expenses:                                                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Rental property and other expenses                                                                            |  |      | 177,897 |   |      |   | 168,727 |      |  |   | 168,613 |  
|Depreciation and amortization                                                                                 |  |      | 142,073 |   |      |   | 140,788 |      |  |   | 127,574 |  
|Impairment of assets held for use                                                                             |  |      |        |   |      |   | 9,919   |      |  |   |        |  
|General and administrative                                                                                    |  |      | 24,641  |   |      |   | 25,227  |      |  |   | 23,082  |  
|Litigation expense                                                                                            |  |      |        |   |      |   | 2,700   |      |  |   |        |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                                                      |  |      | 344,611 |   |      |   | 347,361 |      |  |   | 319,269 |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Interest expense:                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Contractual                                                                                                   |  |      | 119,165 |   |      |   | 119,167 |      |  |   | 118,198 |  
|Amortization of deferred financing costs                                                                      |  |      | 4,405   |   |      |   | 3,470   |      |  |   | 4,038   |  
|Financing obligations                                                                                         |  |      | 17,691  |   |      |   | 12,488  |      |  |   | 11,841  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                              |  |      | 141,261 |   |      |   | 135,125 |      |  |   | 134,077 |  
|Other income/expense:                                                                                         |  |      |         |   |      |   |         |      |  |   |         |  
|Interest and other income                                                                                     |  |      | 6,025   |   |      |   | 7,688   |      |  |   | 13,745  |  
|Loss on debt extinguishments                                                                                  |  |      | (14,653 | ) |      |   | (378    | )    |  |   | (714    | )
|Gain on extinguishment of co-venture obligation                                                               |  |      | 16,301  |   |      |   |        |      |  |   |        |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                              |  |      | 7,673   |   |      |   | 7,310   |      |  |   | 13,031  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Income before disposition of property, co-venture expense and equity in earnings of unconsolidated affiliates |  |      | 26,254  |   |      |   | 46,451  |      |  |   | 94,918  |  
|Gains on disposition of property, net                                                                         |  |      | 12,316  |   |      |   | 22,695  |      |  |   | 21,935  |  
|Co-venture expense                                                                                            |  |      | (4,588  | ) |      |   | (7,730  | )    |  |   | (6,859  | )
|Equity in earnings of unconsolidated affiliates                                                               |  |      | 4,680   |   |      |   | 5,282   |      |  |   | 7,005   |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations                                                                             |  |      | 38,662  |   |      |   | 66,698  |      |  |   | 116,999 |  
|Discontinued operations:                                                                                      |  |      |         |   |      |   |         |      |  |   |         |  
|Income from discontinued operations                                                                           |  |      | 2,923   |   |      |   | 10,744  |      |  |   | 13,900  |  
|Gain on sale of discontinued operations                                                                       |  |      | 8,834   |   |      |   | 13,122  |      |  |   |        |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                              |  |      | 11,757  |   |      |   | 23,866  |      |  |   | 13,900  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                    |  |      | 50,419  |   |      |   | 90,564  |      |  |   | 130,899 |  
|Distributions on preferred units                                                                              |  |      | (30,852 | ) |      |   | (30,852 | )    |  |   | (31,500 | )
|Excess of preferred unit carrying value over repurchase value                                                 |  |      |        |   |      |   |        |      |  |   | 1,012   |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Net income available for Class A common unitholders                                                           |  | $    | 19,567  |   |      | $ | 59,712  |      |  | $ | 100,411 |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Net income per common unit  basic:                                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations                                                                             |  | $    | 0.13    |   |      | $ | 0.60    |      |  | $ | 1.41    |  
|Income from discontinued operations                                                                           |  |      | 0.20    |   |      |   | 0.40    |      |  |   | 0.23    |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                    |  | $    | 0.33    |   |      | $ | 1.00    |      |  | $ | 1.64    |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Weighted average common units outstanding                                                                     |  |      | 59,156  |   |      |   | 59,707  |      |  |   | 61,234  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Net income per common unit  diluted:                                                                         |  |      |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations                                                                             |  | $    | 0.13    |   |      | $ | 0.59    |      |  | $ | 1.40    |  
|Income from discontinued operations                                                                           |  |      | 0.20    |   |      |   | 0.40    |      |  |   | 0.22    |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                    |  | $    | 0.33    |   |      | $ | 0.99    |      |  | $ | 1.62    |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Weighted average common units outstanding                                                                     |  |      | 59,738  |   |      |   | 60,324  |      |  |   | 61,856  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  



See accompanying notes
to consolidated financial statements.



F-4



---



HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Partners Capital



($ in thousands)



For the Years Ended December 31,
2003, 2002 and 2001



(Restated)



|                                                    |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|--------------------------------------------------- |  | ----------------------- | ------ | - | ----------------------- | - | --------- | --------------------------------- |  | - | --------------------- | - |  | - | ------ | - |  | - | --------- | -
|                                                    |  | Class A Common Unit     |        |   | DeferredCompensation    |   |           | AccumulatedOtherComprehensiveLoss |  |   | TotalPartnersCapital |  
|                                                    |  | GeneralPartnersCapital |        |   | LimitedPartnersCapital |   |           |                                   | 
|Balance at December 31, 2000 (as reported)          |  | $                       | 14,114 |   |                         | $ | 1,397,367 |                                   |  | $ | (2,488                | ) |  | $ |       |   |  | $ | 1,408,993 |  
|Restatement adjustments                             |  |                         | (205   | ) |                         |   | (20,344   | )                                 |  |   | (913                  | ) |  |   |       |   |  |   | (21,462   | )
|                                                    |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2000 (restated)             |  |                         | 13,909 |   |                         |   | 1,377,023 |                                   |  |   | (3,401                | ) |  |   |       |   |  |   | 1,387,531 |  
|Issuance of Common Units                            |  |                         | 49     |   |                         |   | 4,857     |                                   |  |   |                      |   |  |   |       |   |  |   | 4,906     |  
|Redemption of Common Units                          |  |                         | (122   | ) |                         |   | (12,136   | )                                 |  |   |                      |   |  |   |       |   |  |   | (12,258   | )
|Distributions paid on Common Units                  |  |                         | (1,429 | ) |                         |   | (141,460  | )                                 |  |   |                      |   |  |   |       |   |  |   | (142,889  | )
|Distributions paid on Preferred Units               |  |                         | (315   | ) |                         |   | (31,185   | )                                 |  |   |                      |   |  |   |       |   |  |   | (31,500   | )
|Net income                                          |  |                         | 1,309  |   |                         |   | 129,590   |                                   |  |   |                      |   |  |   |       |   |  |   | 130,899   |  
|Adjustment of redeemable Common Units to fair value |  |                         | 121    |   |                         |   | 12,044    |                                   |  |   |                      |   |  |   |       |   |  |   | 12,165    |  
|Other comprehensive loss                            |  |                         |       |   |                         |   |          |                                   |  |   |                      |   |  |   | (9,441 | ) |  |   | (9,441    | )
|Issuance of deferred compensation                   |  |                         | 30     |   |                         |   | 3,002     |                                   |  |   | (3,032                | ) |  |   |       |   |  |   |          |  
|Repurchase of Common Units                          |  |                         | (1,348 | ) |                         |   | (133,406  | )                                 |  |   |                      |   |  |   |       |   |  |   | (134,754  | )
|Amortization of deferred compensation               |  |                         |       |   |                         |   |          |                                   |  |   | 2,243                 |   |  |   |       |   |  |   | 2,243     |  
|                                                    |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2001                        |  |                         | 12,204 |   |                         |   | 1,208,329 |                                   |  |   | (4,190                | ) |  |   | (9,441 | ) |  |   | 1,206,902 |  
|Issuance of Common Units                            |  |                         | 58     |   |                         |   | 5,707     |                                   |  |   |                      |   |  |   |       |   |  |   | 5,765     |  
|Redemption of Common Units                          |  |                         | (32    | ) |                         |   | (3,202    | )                                 |  |   |                      |   |  |   |       |   |  |   | (3,234    | )
|Retirement of treasury units                        |  |                         | (11    | ) |                         |   | (1,163    | )                                 |  |   |                      |   |  |   |       |   |  |   | (1,174    | )
|Distributions paid on Common Units                  |  |                         | (1,412 | ) |                         |   | (139,764  | )                                 |  |   |                      |   |  |   |       |   |  |   | (141,176  | )
|Distributions paid on Preferred Units               |  |                         | (308   | ) |                         |   | (30,544   | )                                 |  |   |                      |   |  |   |       |   |  |   | (30,852   | )
|Net income                                          |  |                         | 906    |   |                         |   | 89,658    |                                   |  |   |                      |   |  |   |       |   |  |   | 90,564    |  
|Adjustment of redeemable common units to fair value |  |                         | 367    |   |                         |   | 36,327    |                                   |  |   |                      |   |  |   |       |   |  |   | 36,694    |  
|Other comprehensive income                          |  |                         |       |   |                         |   |          |                                   |  |   |                      |   |  |   | 237    |   |  |   | 237       |  
|Issuance of deferred compensation                   |  |                         | 14     |   |                         |   | 1,343     |                                   |  |   | (1,357                | ) |  |   |       |   |  |   |          |  
|Repurchase of Common Units                          |  |                         | (12    | ) |                         |   | (1,162    | )                                 |  |   |                      |   |  |   |       |   |  |   | (1,174    | )
|Amortization of deferred compensation               |  |                         |       |   |                         |   |          |                                   |  |   | 1,512                 |   |  |   |       |   |  |   | 1,512     |  
|                                                    |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2002                        |  |                         | 11,774 |   |                         |   | 1,165,529 |                                   |  |   | (4,035                | ) |  |   | (9,204 | ) |  |   | 1,164,064 |  
|Issuance of Common Units                            |  |                         | 20     |   |                         |   | 1,956     |                                   |  |   |                      |   |  |   |       |   |  |   | 1,976     |  
|Redemption of Common Units                          |  |                         | (98    | ) |                         |   | (9,697    | )                                 |  |   |                      |   |  |   |       |   |  |   | (9,795    | )
|Distributions paid on Common Units                  |  |                         | (1,118 | ) |                         |   | (110,686  | )                                 |  |   |                      |   |  |   |       |   |  |   | (111,804  | )
|Distributions paid on Preferred Units               |  |                         | (309   | ) |                         |   | (30,543   | )                                 |  |   |                      |   |  |   |       |   |  |   | (30,852   | )
|Net income                                          |  |                         | 504    |   |                         |   | 49,915    |                                   |  |   |                      |   |  |   |       |   |  |   | 50,419    |  
|Adjustment of redeemable Common Units to fair value |  |                         |       |   |                         |   | (10       | )                                 |  |   |                      |   |  |   |       |   |  |   | (10       | )
|Other comprehensive income                          |  |                         |       |   |                         |   |          |                                   |  |   |                      |   |  |   | 5,554  |   |  |   | 5,554     |  
|Issuance of deferred compensation                   |  |                         | 35     |   |                         |   | 3,517     |                                   |  |   | (3,552                | ) |  |   |       |   |  |   |          |  
|Repurchase of Common Units                          |  |                         | (93    | ) |                         |   | (9,184    | )                                 |  |   |                      |   |  |   |       |   |  |   | (9,277    | )
|Amortization of deferred compensation               |  |                         |       |   |                         |   |          |                                   |  |   | 3,118                 |   |  |   |       |   |  |   | 3,118     |  
|                                                    |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2003                        |  | $                       | 10,715 |   |                         | $ | 1,060,797 |                                   |  | $ | (4,469                | ) |  | $ | (3,650 | ) |  | $ | 1,063,393 |  
|                                                    |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  



See accompanying notes
to consolidated financial statements.



F-5



---



HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Cash Flows



For the
Years Ended December 31, 2003, 2002 and 2001



(Restated)



|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                         |  | 2003 |          |   | 2002 |   |          | 2001 | 
|Operating activities:                                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Income from continuing operations                                                                        |  | $    | 38,662   |   |      | $ | 66,698   |      |  | $ | 116,999  |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |      |          |   |      |   |          |      |  |   |          |  
|Depreciation                                                                                             |  |      | 123,742  |   |      |   | 122,288  |      |  |   | 114,290  |  
|Amortization of lease commissions                                                                        |  |      | 18,331   |   |      |   | 18,500   |      |  |   | 13,284   |  
|Amortization of deferred compensation                                                                    |  |      | 3,118    |   |      |   | 1,512    |      |  |   | 2,243    |  
|Amortization of deferred financing costs                                                                 |  |      | 4,405    |   |      |   | 3,470    |      |  |   | 4,038    |  
|Amortization of accumulated other comprehensive loss                                                     |  |      | 1,688    |   |      |   | 1,543    |      |  |   | 1,565    |  
|Equity in earnings of unconsolidated affiliates                                                          |  |      | (4,680   | ) |      |   | (5,282   | )    |  |   | (7,005   | )
|Gain on disposition of property, net                                                                     |  |      | (12,316  | ) |      |   | (22,695  | )    |  |   | (21,935  | )
|Impairment of assets held for use                                                                        |  |      |         |   |      |   | 9,919    |      |  |   |         |  
|Gain on extinguishment of co-venture obligation                                                          |  |      | (16,301  | ) |      |   |         |      |  |   |         |  
|Loss on extinguishment of debt                                                                           |  |      | 14,653   |   |      |   | 378      |      |  |   | 714      |  
|Transition loss upon adoption of SFAS No. 133                                                            |  |      |         |   |      |   |         |      |  |   | 556      |  
|Loss on ineffective portion of derivative instruments                                                    |  |      |         |   |      |   |         |      |  |   | 554      |  
|Discontinued operations                                                                                  |  |      | 4,277    |   |      |   | 16,143   |      |  |   | 19,438   |  
|Change in financing obligation                                                                           |  |      | 3,660    |   |      |   | 4,235    |      |  |   | 4,711    |  
|Change in co-venture obligation                                                                          |  |      | (987     | ) |      |   | 3,029    |      |  |   | 3,188    |  
|Changes in operating assets and liabilities:                                                             |  |      |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                                      |  |      | (2,404   | ) |      |   | 9,657    |      |  |   | (3,914   | )
|Prepaid expenses and other assets                                                                        |  |      | 7,886    |   |      |   | (7,297   | )    |  |   | 3,533    |  
|Accrued straight-line rents receivable                                                                   |  |      | (8,576   | ) |      |   | (4,798   | )    |  |   | (11,317  | )
|Accounts payable accrued expenses and other liabilities                                                  |  |      | (13,068  | ) |      |   | (1,088   | )    |  |   | 18,485   |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                                |  |      | 162,090  |   |      |   | 216,212  |      |  |   | 259,427  |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Investing activities:                                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Additions to real estate assets                                                                          |  |      | (138,927 | ) |      |   | (138,133 | )    |  |   | (359,136 | )
|Proceeds from disposition of real estate assets                                                          |  |      | 225,464  |   |      |   | 235,399  |      |  |   | 157,001  |  
|Repayments from unconsolidated affiliates                                                                |  |      |         |   |      |   | 788      |      |  |   | 27,570   |  
|Distributions from unconsolidated affiliates                                                             |  |      | 5,568    |   |      |   | 8,844    |      |  |   | 7,446    |  
|Investments in notes receivable                                                                          |  |      | 516      |   |      |   | 3,021    |      |  |   | 57,519   |  
|Other investing activities                                                                               |  |      | (257     | ) |      |   | 2,454    |      |  |   | (15,132  | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by/(used in) investing activities                                                      |  |      | 92,364   |   |      |   | 112,373  |      |  |   | (124,732 | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Financing activities:                                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Distributions paid on common units                                                                       |  |      | (111,804 | ) |      |   | (141,176 | )    |  |   | (142,889 | )
|Settlement of interest rate swap agreement                                                               |  |      | 3,866    |   |      |   |         |      |  |   |         |  
|Distributions paid on preferred units                                                                    |  |      | (30,852  | ) |      |   | (30,852  | )    |  |   | (31,500  | )
|Redemption/repurchase of preferred units                                                                 |  |      |         |   |      |   |         |      |  |   | (18,501  | )
|Net proceeds from the sale of common units                                                               |  |      | 1,976    |   |      |   | 5,573    |      |  |   | 2,992    |  
|Redemption/repurchase of common units                                                                    |  |      | (19,072  | ) |      |   | (4,408   | )    |  |   | (147,012 | )
|Borrowings on revolving loans                                                                            |  |      | 276,500  |   |      |   | 198,500  |      |  |   | 482,900  |  
|Repayment of revolving loans                                                                             |  |      | (267,500 | ) |      |   | (362,000 | )    |  |   | (282,400 | )
|Borrowings on mortgages and notes payable                                                                |  |      | 247,500  |   |      |   | 74,537   |      |  |   | 80,380   |  
|Repayment of mortgages and notes payable                                                                 |  |      | (301,995 | ) |      |   | (94,613  | )    |  |   | (176,918 | )
|Borrowings on financing obligation                                                                       |  |      |         |   |      |   | 41,226   |      |  |   |         |  
|Payments on financing obligation                                                                         |  |      | (609     | ) |      |   | (538     | )    |  |   | (468     | )
|Contributions from co-venture partner                                                                    |  |      |         |   |      |   |         |      |  |   | 1,248    |  
|Payments on co-venture obligation                                                                        |  |      | (26,223  | ) |      |   |         |      |  |   |         |  
|Net change in deferred financing costs                                                                   |  |      | (4,139   | ) |      |   | (2,339   | )    |  |   | (2,192   | )
|Payments on extinguishment of debt                                                                       |  |      | (16,282  | ) |      |   | (378     | )    |  |   | (714     | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net cash used in financing activities                                                                    |  |      | (248,634 | ) |      |   | (316,468 | )    |  |   | (235,074 | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net increase/(decrease) in cash and cash equivalents                                                     |  |      | 5,820    |   |      |   | 12,117   |      |  |   | (100,379 | )
|Cash and cash equivalents at beginning of the year                                                       |  |      | 15,509   |   |      |   | 3,392    |      |  |   | 103,771  |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of the year                                                             |  | $    | 21,329   |   |      | $ | 15,509   |      |  | $ | 3,392    |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  



See accompanying notes
to consolidated financial statements.



F-6



---



HIGHWOODS REALTY LIMITED
PARTNERSHIP



Consolidated Statements of Cash Flows -
Continued



($ in thousands)



For the Years Ended December 31, 2003, 2002 and 2001



(Restated)



Supplemental disclosure of cash flow information:



|                       |  |      |         |      |   |         |  |   |        
|---------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                       |  | 2003 |         | 2002 |   | 2001   
|Cash paid for interest |  | $    | 123,842 |      | $ | 126,536 |  | $ | 134,759
|                       |  |      |         |      |   |         |  |   |        



Supplemental disclosure of non-cash
investing and financing activities:



The following table
summarizes the net assets contributed by the holders of Common Units in the Operating Partnership (other than the Company), the net assets acquired subject to mortgage notes payable and other non-cash transactions:



|                                                        |  |      |        |   |      |   |        |  |   |        |  
|------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ |  | - | ------ | -
|                                                        |  | 2003 |        |   | 2002 |   | 2001   | 
|Assets:                                                 |  |      |        |   |      |   |        |  |   |        |  
|Net real estate assets                                  |  | $    | 3,150  |   |      | $ | 29,553 |  | $ | 6,008  |  
|Cash and cash equivalents                               |  |      |       |   |      |   | 353    |  |   | 40     |  
|Accounts receivable                                     |  |      | (1,797 | ) |      |   | 139    |  |   |       |  
|Notes receivable                                        |  |      | 3,708  |   |      |   | 447    |  |   | (4,169 | )
|Investment in unconsolidated affiliates                 |  |      | 3,801  |   |      |   |       |  |   | 2,296  |  
|Prepaid and other                                       |  |      | 855    |   |      |   |       |  |   | (214   | )
|Deferred financing costs                                |  |      |       |   |      |   |       |  |   |       |  
|                                                        |  |      |        |   |      |   |        |  |   |        |  
|                                                        |  | $    | 9,717  |   |      | $ | 30,492 |  | $ | 3,961  |  
|                                                        |  |      |        |   |      |   |        |  |   |        |  
|Liabilities:                                            |  |      |        |   |      |   |        |  |   |        |  
|Mortgages and notes payable                             |  | $    |       |   |      | $ | 23,366 |  | $ | 3,922  |  
|Financing obligation                                    |  |      |       |   |      |   |       |  |   | (1,774 | )
|Accounts payable accrued expenses and other liabilities |  |      | 6,515  |   |      |   | 6,934  |  |   | (748   | )
|                                                        |  |      |        |   |      |   |        |  |   |        |  
|                                                        |  | $    | 6,515  |   |      | $ | 30,300 |  | $ | 1,400  |  
|                                                        |  |      |        |   |      |   |        |  |   |        |  
|Partners Capital:                                      |  | $    | 3,202  |   |      | $ | 192    |  | $ | 2,561  |  
|                                                        |  |      |        |   |      |   |        |  |   |        |  



See accompanying notes
to consolidated financial statements.



F-7



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



December 31, 2003



(Restated)



1. DESCRIPTION OF BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES



Description of the Operating Partnership



Highwoods Realty Limited Partnership (the Operating Partnership) is managed by its sole general partner, Highwoods Properties, Inc. (the Company), a self-administered and self-managed real
estate investment trust (REIT) that operates in the southeastern and midwestern United States. The Operating Partnerships wholly owned assets include: 465 in-service office, industrial and retail properties; 213 apartment units;
1,305 acres of undeveloped land suitable for future development; and an additional four properties under development (collectively, the Wholly Owned Properties).



The Company conducts substantially all of its activities through, and substantially all of its interests in the properties
are held directly or indirectly by, the Operating Partnership. At December 31, 2003, the Company owned 100.0% of the preferred partnership interests (Preferred Units) and 89.5% of the common partnership interests (Common
Units) in the Operating Partnership. The remaining 10.5% of the Common Units (Redeemable Common Units) are owned by limited partners (including certain officers and directors of the Company). In 2003, the Company redeemed in cash
from limited partners 453,635 Redeemable Common Units and converted 318,249 Common Units to shares of Common Stock. These transactions increased the percentage of Common Units owned by the Company from 88.4% at December 31, 2002 to 89.5% at December
31, 2003. The three series of Preferred Units in the Operating Partnership were issued to the Company in connection with the Companys three preferred stock offerings in 1997 and 1998. The net proceeds raised from each of the three Preferred
Stock issuances were contributed by the Company to the Operating Partnership in exchange for the Preferred Units. The terms of each series of Preferred Units generally parallel the terms of the respective Preferred Stock as to dividends, liquidation
and redemption rights as more fully described in Note 9.



Basis of
Presentation



The Consolidated Financial Statements
include the accounts of the Operating Partnership, wholly owned subsidiaries and those subsidiaries in which the Operating Partnership owns a majority voting interest with the ability to control operations of the subsidiaries and where no approval,
veto or other important rights have been granted to the minority unitholders. In accordance with Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, the Operating Partnership consolidates partnerships, joint
ventures and limited liability companies when the Operating Partnership controls the major operating and financial policies of the entity through majority ownership or in its capacity as general partner or managing member. The Operating Partnership
does not consolidate entities where the other interest holders have important rights, including approving decisions to encumber the entities with debt and acquire or dispose of properties. In addition, the Operating Partnership consolidates those
entities, if any, where the Operating Partnership is deemed to be the primary beneficiary in a variable interest entity (as defined by FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities
(FIN 46). All significant intercompany transactions and accounts have been eliminated.



The Company has elected and expects to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986 (the
Code), as amended. As a REIT, the Company generally will not be subject to federal or state income taxes on its net income that it distributes to stockholders. Continued qualification as a REIT depends on the Companys ability to
satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests prescribed in the Code. In June 1994, the Company formed a taxable REIT subsidiary, as permitted under the Code, through which it conducts
certain business activities; the taxable REIT subsidiary is subject to federal and state income taxes on its net taxable income and the Company records provisions for such taxes, to the extent required, based on its income recognized for financial
statement purposes, including the effects of temporary differences between such income and that recognized for tax purposes.



F-8



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



Restated and Reclassified Financial Data. As more fully described in Notes 18 and 19, the
Consolidated Financial Statements as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 have been restated to reflect adjustments for certain asset sales in which the Operating Partnership has continuing
involvement to conform with paragraphs 25 through 29 of Statement of Financial Accounting Standards (SFAS) No. 66, Accounting for Sales of Real Estate, accounting for a debt retirement, and other matters. The adjustments
resulted in the following increases/(decreases) in net income and net income per unit  basic and net income per unit  diluted (in thousands except per unit data):



|                              |  |                          |         |   |      |   |         |      |  |   |         |  
|----------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                              |  | Years Ended December 31, |        
|                              |  | 2003                     |         |   | 2002 |   |         | 2001 | 
|Net income                    |  | $                        | (12,384 | ) |      | $ | (17,400 | )    |  | $ | (19,354 | )
|Net income per unit  basic   |  | $                        | (0.21   | ) |      | $ | (0.29   | )    |  | $ | (0.29   | )
|Net income per unit  diluted |  | $                        | (0.21   | ) |      | $ | (0.29   | )    |  | $ | (0.30   | )



The Operating
Partnership also made certain reclassifications related to discontinued operations and for presentation of certain tenant reimbursements as revenue, rather than a reduction of operating expenses. Certain amounts originally reported in the December
31, 2002 and 2001 financial statements have been reclassified to conform to the December 31, 2003 presentation and accounting for discontinued operations (See Note 12 for further discussion). These reclassifications had no effect on net income or
partners capital as previously reported.



Real estate
assets.All capitalizable costs related to the improvement or replacement of commercial real estate properties are capitalized. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings, 15
years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized over the life of the respective leases, using the straight-line method. Real estate assets are stated at the lower of
cost or fair value, if impaired.



Expenditures directly related
to the development and construction of real estate assets are included in net real estate assets and are stated at cost in the Consolidated Balance Sheets. Expenditures directly related to the leasing of properties are included in other assets and
are stated at cost in the Consolidated Balance Sheets. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs, real estate taxes, salaries and other
costs incurred during the period of development. Interest costs are capitalized until the building is ready for its intended use. Construction expenditures include appropriate general and administrative costs, including compensation incurred in
connection with specific construction projects. Leasing expenditures include appropriate general and administrative costs, including compensation incurred in connection with successfully securing leases on the properties. Estimated costs related to
unsuccessful activities are expensed as incurred. If the Operating Partnerships assumptions regarding the successful efforts of development, construction and leasing are incorrect, the resulting adjustments could impact earnings.



Upon the acquisition of real estate, the Operating Partnership assesses
the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets such as above and below market leases, acquired-in place leases and other identified intangible assets and assumed liabilities in
accordance with SFAS No. 141, Business Combinations. The Operating Partnership allocates the purchase price to the acquired assets and assumed liabilities based on their relative fair values. The Operating Partnership assesses and
considers fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as available market information. The fair value of the tangible assets of an acquired property considers the value
of the property as if it were vacant.



Above and below market
leases acquired are recorded at their fair value. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) managements estimate of fair market lease
rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the
term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases and the capitalized
below-market lease values are amortized as an increase to base rental revenue over the remaining term of the respective leases.



F-9



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



The value of in-place leases is based on the Operating Partnerships evaluation of the specific
characteristics of each tenants lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, and costs to execute similar leases. In estimating carrying costs, the
Operating Partnership includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar
leases, the Operating Partnership considers tenant improvements, leasing commissions, legal and other related expenses. The value of in-place leases are amortized to depreciation and amortization expense over the remaining term of the respective
leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of their related intangible asset is expensed.



The value of a tenant relationship is based on the Operating Partnerships overall relationship with the respective tenant. Factors considered
include the tenants credit quality and expectations of lease renewals. The value of a tenant relationship is amortized to expense over the initial term and any renewal periods defined in the respective leases. Based on the Operating
Partnerships acquisitions to date, the Operating Partnership has deemed tenant relationships to be immaterial and have not allocated any amounts to this intangible asset.



Real estate and leasehold improvements are classified as long-lived assets held for sale or as long-lived assets to be held
for use. Real estate is classified as held for sale when the criteria set forth in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, are satisfied; this determination requires management to make estimates and
assumptions, including assessing the probability that potential sales transactions may or may not occur. Actual results could differ from those assumptions. In accordance with SFAS No. 144, the Operating Partnership records assets held for sale at
the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer less costs to sell. The impairment loss is the amount by which the carrying
amount exceeds the estimated fair value. With respect to assets classified as held for use, if events or changes in circumstances, such as significant decline in occupancy and change in use, indicate that the carrying value may be impaired, an
impairment analysis is performed. Such analysis consists of determining whether the assets carrying amount will be recovered from its undiscounted estimated future operating cash flows These cash flows are estimated based on a number of
assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. If the carrying amount of a held for use asset
exceeds the sum of its undiscounted future operating cash flows, an impairment loss would be recorded for the difference between estimated fair value of the asset and the net carrying amount. The Operating Partnership generally estimates the fair
value of assets held for use by using discounted cash flow analysis; in some instances, appraisal information may be available and is used in addition to the discounted cash flow analysis. As the factors used in generating these cash flows are
difficult to predict and are subject to future events that may alter the Operating Partnerships assumptions, the discounted and/or undiscounted future operating cash flows estimated by the Operating Partnership in its impairment analyses or
those established by appraisal may not be achieved and the Operating Partnership may be required to recognize future impairment losses on its properties held for sale and held for use.



As of December 31, 2003, we had 0.44 million square feet of property, 88 apartment units and 168.1 acres of land in various
transactions totaling $90.3 million. These real estate assets have a carrying amount of $65.7 million and have been classified as assets held for sale in the accompanying financial statements.



Sales of real estate. The Operating Partnership accounts for sales of
real estate in accordance with SFAS No. 66. For sales transactions meeting the requirements of SFAS No. 66 for full profit recognition, the related assets and liabilities are removed from the balance sheet and resultant gain or loss is recorded in
the period the transaction closes. For sales transactions that do not meet the criteria for full profit recognition, the Operating Partnership accounts for the transactions in accordance with the methods specified in SFAS No. 66. For sales
transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related
to the nature of the continuing involvement. Sales to entities in which the Operating Partnership has an interest are accounted for in accordance with partial sale accounting provisions as set forth in SFAS No. 66.



F-10



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



For sales transactions that do not meet sale criteria as set forth in SFAS No. 66, the Operating
Partnership evaluates the nature of the continuing involvement, including put and call provisions if present, and accounts for the transaction as a financing arrangement, profit-sharing arrangement or other alternate method of accounting rather than
as a sale, based on the nature and extent of continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, the Operating Partnership determines which method is most appropriate based on the substance of
the transaction.



If the Operating Partnership has an
obligation to repurchase the property at a higher price or at a future indeterminable value (such as fair market value), or the Operating Partnership guarantees the return of the buyers investment or a return on that investment for an extended
period, the Operating Partnership accounts for such transaction as a financing transaction. If the Operating Partnership has an option to repurchase the property at a higher price, and it is likely the Operating Partnership will exercise this
option, the transaction is accounted for as a financing. If it is unlikely such option will be exercised, the transaction is accounted for under the deposit method or profit-sharing method. If the Operating Partnership has an obligation or option to
repurchase at a lower price, the transaction is accounted for as a leasing arrangement. At such time as these repurchase obligations expire, a sale will be recorded and gain recognized.



For transactions treated as financings, the Operating Partnership records the amounts received from the buyer as a financing
obligation, and continues to keep the property and related accounts recorded on its books. The results of operations of the property, net of expenses other than depreciation (net operating income), reflected as interest expense on the
financing obligation. If the transaction includes an obligation or option to repurchase the asset at a higher price, additional interest is recorded to accrete the liability to the repurchase price. For options or obligations to repurchase the asset
at fair market value at the end of each reporting period, the balance of the liability is adjusted to equal the current fair value to the extent fair value exceeds the original financing obligation. This adjustment is amortized over the expected
term until termination of the option or obligation.



If the
Operating Partnership retains an interest in the buyer and provides certain rent guarantees or other forms of support where the maximum exposure to loss exceeds the gain, the Operating Partnership accounts for such transaction as a profit-sharing
arrangement. For transactions treated as profit-sharing arrangements, the Operating Partnership records a profit-sharing obligation for the amount of equity contributed by the other partner and continues to keep the property and related accounts
recorded on its books. The results of operations of the property, net of expenses other than depreciation (net operating income), are allocated to the other partner for their percentage interest and reflected as co-venture expense in the
Operating Partnerships Consolidated Financial Statements. In future periods, a sale is recorded and profit is recognized when the remaining maximum exposure to loss is reduced below the amount of gain deferred.



Discontinued operations. Properties that are sold or classified as
held for sale are classified as discontinued operations in accordance with SFAS No. 144, provided (1) the operations and cash flows of the property will be eliminated from the ongoing operations of the Operating Partnership and (2) the Operating
Partnership will not have any significant continuing involvement in the operations of the property after it is sold. If the property is sold to a joint venture in which the Operating Partnership retains an interest, the property will not be
accounted for as a discontinued operation due to the Operating Partnerships ongoing interest in the operations through its joint venture interest. If the Operating Partnership is retained to provide property management, leasing and/or other
services for the property owner after the sale, the property will not be accounted for as a discontinued operation due to the Operating Partnerships ongoing interest in the operations through its providing of such services. The operations of
properties classified as held for sale in which the Operating Partnership could potentially provide future property management, leasing and/or other services are also not classified as discontinued operations. See Note 12 for further discussion.



F-11



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



Investments in joint ventures.The Operating Partnership accounts for its investments in
unconsolidated affiliates under the equity method of accounting as the Operating Partnership exercises significant influence, but does not control the major operating and financial policies of the entity regarding encumbering the entities with debt
and the acquisition or disposal of properties. These investments are initially recorded at cost, as investments in unconsolidated affiliates, and are subsequently adjusted for equity in earnings and cash contributions and distributions. To the
extent the Operating Partnership contributes assets to a joint venture, the difference between the Operating Partnerships cost basis in the assets and the basis reflected at the joint venture level is amortized over the life of the related
asset and included in the Operating Partnerships share of equity in net income of the joint venture.



From time to time, the Operating Partnership contributes real estate assets to a joint venture in exchange for a combination of cash and an equity
interest in the venture. The Operating Partnership assesses its continuing involvement in the joint venture and accounts for the transaction according to the nature and extent of the involvement. If substantially all the risks and rewards of
ownership have transferred, a gain is recognized to the extent of the third party investors interest and the Operating Partnership accounts for its interest in the joint venture under the equity method of accounting as an unconsolidated
affiliate as described in the preceding paragraph. However, if substantially all the risks and rewards have not transferred, depending upon the nature and extent of the involvement, the transaction is accounted for as a financing or profit-sharing
arrangement or other alternate method of accounting rather than as a sale under paragraph 25 through 29 of SFAS No.66 and the assets, liabilities and operations of such joint ventures are included on the Operating Partnerships Consolidated
Financial Statements. See also Sales of real estate above.



Additionally, the joint ventures will frequently borrow money on their own behalf to finance the acquisition of and/or leverage the return upon the properties being acquired by the joint venture or to build or acquire additional buildings,
typically on a non-recourse or limited recourse basis. The Operating Partnership generally is not liable for the debts of its joint ventures, except to the extent of the Operating Partnerships equity investment, unless the Operating
Partnership has directly guaranteed any of that debt. (See Note 15 for further discussion). In most cases, the Operating Partnership and/or its joint venture partners are required to guarantee customary limited exceptions to non-recourse liability
in non-recourse loans.



Rental and other revenues.Rental and other revenues consist of the following (in thousands):



|                                        |  |                          |         |      |   |         |  |   |        
|--------------------------------------- |  | ------------------------ | ------- | ---- | - | ------- |  | - | -------
|                                        |  | Years Ended December 31,
|                                        |  | 2003                     |         | 2002 |   | 2001   
|Contractual rents                       |  | $                        | 438,917 |      | $ | 461,721 |  | $ | 468,264
|Straight-line rental income, net        |  |                          | 8,446   |      |   | 4,438   |  |   | 10,530 
|Property operating cost recovery income |  |                          | 41,341  |      |   | 45,709  |  |   | 44,361 
|Termination fees                        |  |                          | 6,043   |      |   | 4,367   |  |   | 3,421  
|Fee income                              |  |                          | 3,435   |      |   | 3,292   |  |   | 3,929  
|Other miscellaneous operating income    |  |                          | 6,271   |      |   | 2,100   |  |   | 4,728  
|                                        |  |                          |         |      |   |         |  |   |        
|                                        |  | $                        | 504,453 |      | $ | 521,627 |  | $ | 535,233
|                                        |  |                          |         |      |   |         |  |   |        



In accordance with
United States Generally Accepted Accounting Principles (GAAP), rental revenue is recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in
accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents
currently billed in accordance with lease agreements. Termination fees are recognized as revenue when the following four conditions are met: a fully executed lease termination agreement has been delivered; the tenant has vacated the space; the
amount of the fee is determinable; and collectibility of the fee is reasonably assured.



Property operating cost recoveries from tenants (or cost reimbursements) are determined on a lease-by-lease basis. The most common types of cost reimbursements in the Operating Partnerships leases are common
area maintenance (CAM) and real estate taxes, where the tenant pays its pro-rata share of operating and administrative expenses and real estate taxes.



F-12



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



Many tenants make monthly fixed payments of CAM, real estate taxes and other cost reimbursement
items. The Operating Partnership records these payments as income each month. The Operating Partnership makes adjustments, positive or negative, to cost recovery income to adjust the recorded amounts to the Operating Partnerships best estimate
of the final amounts to be billed and collected with respect to the cost reimbursements. After the end of the calendar year, the Operating Partnership computes each tenants final cost reimbursements and, after considering amounts paid by the
tenants during the year, issues a bill or credit for the appropriate amount. The differences between the amounts billed, less previously received payments and the accrual adjustment are recorded as increases or decreases to cost recovery income when
the final bills are prepared. The net amounts of any such adjustments have not been material in any of the years presented.



Operating expenses  rental property and other. Rental property and other operating expenses consist of the following (in thousands):



|                                           |  |                          |         |      |   |         |  |   |        
|------------------------------------------ |  | ------------------------ | ------- | ---- | - | ------- |  | - | -------
|                                           |  | Years Ended December 31,
|                                           |  | 2003                     |         | 2002 |   | 2001   
|Maintenance, cleaning and general building |  | $                        | 63,725  |      | $ | 63,379  |  | $ | 61,854 
|Utility, insurance and real estate taxes   |  |                          | 92,164  |      |   | 89,471  |  |   | 88,806 
|Division and allocated administrative      |  |                          | 13,725  |      |   | 11,783  |  |   | 13,305 
|Other miscellaneous operating expenses     |  |                          | 8,283   |      |   | 4,094   |  |   | 4,648  
|                                           |  |                          |         |      |   |         |  |   |        
|                                           |  | $                        | 177,897 |      | $ | 168,727 |  | $ | 168,613
|                                           |  |                          |         |      |   |         |  |   |        



Allowance for
doubtful accounts. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Operating Partnerships receivable balance is comprised primarily of rents and operating cost recoveries due
from tenants as well as accrued rental rate increases to be received over the life of the existing leases. The Operating Partnership regularly evaluates the adequacy of its allowance for doubtful accounts. The evaluation primarily consists of
reviewing past due account balances and considering such factors as the credit quality of the Operating Partnerships tenants, historical trends of the tenant and/or other debtor, current economic conditions and changes in customer payment
terms. Additionally, with respect to tenants in bankruptcy, the Operating Partnership estimates the expected recovery through bankruptcy claims and increases the allowance for amounts deemed uncollectible. If the Operating Partnerships
assumptions regarding the collectibility of accounts receivable prove incorrect, the Operating Partnership could experience write-offs of accounts receivable or accrued straight-line rents receivable in excess of its allowance for doubtful accounts.



Cash equivalents.The Operating Partnership considers
highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.



Restricted cash.Restricted cash includes security deposits for the Operating Partnerships commercial properties and construction-related
escrows. In addition, the Operating Partnership maintains escrow and reserve funds for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements.



Redeemable Common Units and Preferred Units.The Operating Partnership
accounts for Redeemable Common Units and Preferred Units in accordance with Accounting Series Release No. 268 issued by the Securities and Exchange Commission. Consequently, these Redeemable Common Units and Preferred Units are classified outside of
permanent partners capital in the accompanying balance sheet. The recorded value of the Redeemable Common Units is based on fair value at the balance sheet date as measured by the closing price of the Companys $0.01 par value common
stock (Common Stock) on that date multiplied by the total number of Redeemable Common Units outstanding. The recorded value of the Preferred Units is based on their redemption value.



Income Taxes.No provision has been made for income taxes because such
taxes, if any, are the responsibility of the individual partners.



F-13



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



Concentration of credit risk.Management of the Operating Partnership performs ongoing credit
evaluations of its tenants. As of December 31, 2003, the properties (excluding apartment units) to which the Operating Partnership holds title and has 100.0% ownership rights (the Wholly Owned Properties) were leased to 2,407 tenants in
14 geographic locations. The Operating Partnerships tenants engage in a wide variety of businesses. No single tenant of the Operating Partnerships Wholly Owned Properties currently generates more than 3.4% of the Operating
Partnerships consolidated revenues. In addition and as described in Note 15, in connection with various real estate sales transactions, the Operating Partnership has guaranteed to the buyers the rental income during various future periods due
from Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc. The maximum exposure under the guarantees related to Capital One Services, Inc. aggregated $19.0 million at December 31, 2003.



Stock compensation.The Company generally grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. Upon exercise of a stock option, the Company will contribute the exercise price to the Operating Partnership in exchange for a
Common Unit; therefore, the Operating Partnership accounts for such options as if issued by the Operating Partnership. As described in Note 14, the Operating Partnership elected to follow Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations in accounting for its stock options issued through December 31, 2002. During 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148
Accounting for Stock-Based Compensation  Transition and Disclosure, which provides methods of transition to the fair value based method of accounting for stock-based employee compensation. This standard is effective for financial
statements issued for fiscal years beginning after December 15, 2002. The Operating Partnership elected the prospective method as defined by SFAS No. 148 for options issued on or after January 1, 2003.



Stock granted under the Companys Shareholder Value Plan and certain
options accompanied by a dividend equivalent right granted under the 1997 Performance Award Plan are accounted for using variable plan accounting. See Note 6 for further discussion.



Restricted stock grants. The Company has a long-term incentive plan under which it makes annual grants of restricted
shares of Common Stock. Because the Operating Partnership issues a common unit to the Company for each share of restricted stock issued to employees, the Operating Partnership accounts for such restricted shares as if issued by the Operating
Partnership. The restricted shares generally vest 50.0% three years from date of grant and the remaining 50.0% five years from date of grant. Restricted shares issued through December 31, 2002 were recorded at market value on date of grant as
unearned compensation expense (recorded in Stockholders Equity), which is amortized to expense over the vesting periods. Restricted shares issued on or after January 1, 2003 are measured at market value on date of grant and recognized
compensation expense over the vesting period.



Fair value of
derivative instruments. In the normal course of business, the Operating Partnership is exposed to the effect of interest rate changes. The Operating Partnership limits its exposure by following established risk management policies and procedures
including the use of derivatives. To mitigate its exposure to unexpected changes in interest rates, derivatives are used primarily to hedge against rate movements on the Operating Partnerships related debt. The Operating Partnership is
required to recognize all derivatives as either assets or liabilities in the Consolidated Balance Sheets and to measure those instruments at fair value. Changes in fair value will affect either stockholders equity or net income depending on
whether the derivative instrument qualifies as a hedge for accounting purposes.



To determine the fair value of derivative instruments, the Operating Partnership uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the
majority of financial instruments, including most derivatives, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost are used to determine fair value. All
methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.



F-14



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



Per unit information. The Operating Partnership computes earnings per Common Unit in
accordance with SFAS No. 128, Earnings per Share. Basic earnings per Common Unit is computed by dividing net income available for common unitholders by the weighted average number of common units outstanding. Diluted earnings per Common
Unit is computed in the same manner except that the denominator is comprised of the weighted average number of Common Units plus the dilutive effect of options, warrants and convertible securities outstanding, using the treasury stock
method. Earnings per Common Unit data is required for all periods for which an income statement or summary of earnings is presented, including summaries outside the basic financial statements.



Use of estimates.The preparation of financial statements in
accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



Impact of Newly Adopted and Issued Accounting Standards



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which rescinds Statement No. 4, which required all gains and losses from the extinguishment of debt to be aggregated, and if material, classified as
an extraordinary item, net of related income tax effect. The provisions of SFAS No. 145 related to the rescission of Statement No. 4 are effective for financial statements issued for fiscal years beginning after May 15, 2002. The Statement also
requires gains and losses from the extinguishment of debt classified as an extraordinary item in prior periods presented that do not meet the criteria in APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of
the Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions for classification as an extraordinary item to also be reclassified. The Operating Partnership adopted SFAS No. 145 in the
first quarter of 2003. In accordance with the statement, the Operating Partnership reclassified losses on early extinguishment of debt of $0.4 million and $0.7 million, respectively, from an extraordinary item to other expense in its Consolidated
Statements of Income for the years ended December 31, 2002 and 2001.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), which changes the
accounting for, and disclosure of, certain guarantees. Beginning with transactions entered into after December 31, 2002, certain guarantees are to be recorded at fair value, which differs from prior practice, under which a liability was recorded
only when a loss was probable and could be reasonably estimated. In general, the change applies to contracts or indemnification agreements that contingently require the Operating Partnership to make payments to a guaranteed third-party based on
changes in an underlying asset, liability, or equity security of the guaranteed party. However, a guarantee or an indemnification whose existence prevents the guarantor from being able to either account for a transaction as the sale of an asset that
is related to the underlying guarantee or recognize in earnings the profit from that sale transaction is exempt from FIN 45. The disclosure requirements in FIN 45 are effective for interim and annual periods ending after December 15, 2002. The
Operating Partnership adopted the accounting and disclosures requirements under FIN 45 on January 1, 2003. As of December 31, 2003, the Operating Partnership had various guarantees as further discussed in Note 15.



F-15



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, the Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements related to the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2002. On January 1, 2003, the Operating Partnership adopted the fair
value recognition provision prospectively for all awards granted on or after January 1, 2003. Under this provision, total compensation expense related to stock options is determined using the fair value of the stock options on the date of grant and
is recognized on a straight-line basis over the option vesting period. The Operating Partnership continues to account for stock options issued prior to January 1, 2003 under the guidance of APB Opinion No. 25. (See Note 14 for further discussion).



In January 2003, the FASB issued FIN 46, Consolidation
of Variable Interest Entities (VIEs), the primary objective of which is to provide guidance on the identification of entities for which control is achieved through means other than voting rights and to determine when and which
business enterprise should consolidate the VIEs. This new model applies when either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance the entitys
activities without additional financial support. FIN 46 also requires additional disclosures. The Operating Partnership adopted the provisions of FIN 46 for the Operating Partnerships interests in VIEs acquired subsequent to January 31, 2003.
According to FIN 46 (revised December 2003), entities shall apply FIN 46 only to special-purpose entities subject to FIN 46 no later than December 31, 2003 and all other entities no later than March 31, 2004. Special-purpose entities are defined as
any entity whose activities are primarily related to securitizations or other forms of asset-backed financings or single-lessee leasing arrangements. Given that the Operating Partnership has no significant variable interests in special-purpose
entities, FIN 46 became effective March 31, 2004. As of December 31, 2003, it was initially believed that when FIN 46 became effective, it was reasonably possible the Operating Partnership would consolidate or disclose information about variable
interest entities. Those entities would have consisted of two joint ventures with unrelated investors in which the Operating Partnership had retained 50.00% or less minority equity interests. These joint ventures were formed for the development,
management and leasing of office properties. However, on March 2, 2004, the Operating Partnership acquired its partners interests in these entities and will now consolidate these entities, which eliminates any FIN 46 impact that was previously
anticipated related to these joint ventures. (See Note 2 for further discussion). FIN 46 requires the Operating Partnership to disclose its maximum exposure to loss as a result of its involvement with these entities, which would have been $6.0
million at December 31, 2003. The maximum exposure to loss assumes both that the Operating Partnership would be required to fully satisfy its debt guarantees and that the Operating Partnership experiences a complete loss of its equity investment in
such entities.



In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with some exceptions, and for hedging relationships
designated after June 30, 2003. The guidance was applied prospectively. The provisions of SFAS No. 149 did not have an impact on our financial condition and results of operations. See Note 10 for further discussion of the Operating
Partnerships derivative instruments.



F-16



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES - Continued



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify
a financial instrument that is within its scope as a liability (or an asset in certain circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective July 1, 2003. It is to
be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. As of December
31, 2003, the provisions of SFAS No. 150 do not have a material impact on the Operating Partnerships financial condition or results of operations. The Operating Partnership initially believed the implementation of FIN 46 at March 31, 2004, as
mentioned above, would result in minority interest in VIEs, which would be classified as non-controlling interests in finite-life entities under SFAS No. 150. However, on March 2, 2004, the Operating Partnership acquired its partners interests
in these entities, which eliminated the minority interest in VIEs that was expected upon the implementation of FIN 46. (See Note 2 for further discussion). Additionally, at its October 29, 2003 meeting, the FASB voted to defer indefinitely SFAS No.
150 as it relates to non-controlling interests in finite-life entities.



2.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES



During the past several years, the Operating Partnership has formed various joint ventures with unrelated investors. The Operating Partnership has
retained minority equity interests ranging from 22.81% to 50.00% in these joint ventures. The Operating Partnership has accounted for its unconsolidated joint ventures using the equity method of accounting. As a result, the assets and liabilities of
these joint ventures for which it uses the equity method of accounting are not included on the Operating Partnerships balance sheet. Two joint ventures are accounted for as financing arrangements and/or profit-sharing arrangements pursuant to
SFAS No. 66, as described in Notes 3 and 18, and accordingly are not reflected in the tables below.



The following tables set forth information regarding the Operating Partnerships unconsolidated joint ventures as recorded on the joint
ventures books at December 31, 2003 and 2002 ($ in thousands):



|                                  |  |               |   |  |                   |         |                   |   |                   |  |              |         |      |   |                   |  |   |         |  |   |        
|--------------------------------- |  | ------------- | - |  | ----------------- | ------- | ----------------- | - | ----------------- |  | ------------ | ------- | ---- | - | ----------------- |  | - | ------- |  | - | -------
|                                  |  |               |   |  | December 31, 2003 |         | December 31, 2002
|                                  |  | Percent Owned |   |  | Total Assets      |         | Debt              |   | Total Liabilities |  | Total Assets |         | Debt |   | Total Liabilities
|Balance Sheet Data:               |  |               |   |  |                   |         |                   |   |                   |  |              |         |      |   |                   |  |   |         |  |   |        
|Board of Trade Investment Company |  | 49.00         | % |  | $                 | 7,829   |                   | $ | 749               |  | $            | 815     |      | $ | 7,778             |  | $ | 919     |  | $ | 1,071  
|Dallas County Partners (1)        |  | 50.00         | % |  |                   | 42,459  |                   |   | 38,000            |  |              | 40,427  |      |   | 44,128            |  |   | 38,904  |  |   | 41,285 
|Dallas County Partners II (1)     |  | 50.00         | % |  |                   | 18,255  |                   |   | 22,465            |  |              | 23,934  |      |   | 18,900            |  |   | 23,587  |  |   | 24,874 
|Fountain Three (1)                |  | 50.00         | % |  |                   | 34,524  |                   |   | 29,924            |  |              | 31,860  |      |   | 37,159            |  |   | 30,958  |  |   | 32,581 
|RRHWoods, LLC (1)                 |  | 50.00         | % |  |                   | 81,327  |                   |   | 67,307            |  |              | 70,707  |      |   | 82,646            |  |   | 68,561  |  |   | 71,767 
|Highwoods DLF 98/29, LP           |  | 22.81         | % |  |                   | 139,741 |                   |   | 67,241            |  |              | 69,522  |      |   | 140,696           |  |   | 68,209  |  |   | 70,482 
|Highwoods DLF 97/26 DLF 99/32, LP |  | 42.93         | % |  |                   | 114,777 |                   |   | 59,027            |  |              | 61,841  |      |   | 118,057           |  |   | 59,688  |  |   | 62,601 
|Highwoods-Markel Associates, LLC  |  | 50.00         | % |  |                   | 51,661  |                   |   | 40,000            |  |              | 41,128  |      |   | 16,026            |  |   | 11,625  |  |   | 12,583 
|MG-HIW Peachtree Corners III, LLC |  | 50.00         | % |  |                   |        |                   |   |                  |  |              |        |      |   | 3,809             |  |   | 2,494   |  |   | 2,823  
|MG-HIW Metrowest I, LLC           |  | 50.00         | % |  |                   | 1,601   |                   |   |                  |  |              |        |      |   | 1,601             |  |   |        |  |   | 3      
|MG-HIW Metrowest II, LLC          |  | 50.00         | % |  |                   | 11,460  |                   |   | 7,326             |  |              | 7,636   |      |   | 9,600             |  |   | 5,372   |  |   | 5,540  
|Concourse Center Associates, LLC  |  | 50.00         | % |  |                   | 14,489  |                   |   | 9,695             |  |              | 9,933   |      |   | 14,896            |  |   | 9,859   |  |   | 10,193 
|Plaza Colonnade, LLC              |  | 50.00         | % |  |                   | 26,086  |                   |   | 16,496            |  |              | 17,437  |      |   | 3,591             |  |   |        |  |   | 3      
|                                  |  |               |   |  |                   |         |                   |   |                   |  |              |         |      |   |                   |  |   |         |  |   |        
|Total                             |  |               |   |  | $                 | 544,209 |                   | $ | 358,230           |  | $            | 375,240 |      | $ | 498,887           |  | $ | 320,176 |  | $ | 335,806
|                                  |  |               |   |  |                   |         |                   |   |                   |  |              |         |      |   |                   |  |   |         |  |   |        

---

|(1) | Des Moines joint ventures.
|--- | --------------------------



F-17



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED
AFFILIATES - Continued



|                                  |  |               |   |  |                              |        |                    |                              |          |  |             |        |                    |   |        |         |   |                    |   |          |   |             |  |                    |        |  |   |        |  |   |        |  |   |        |  
|--------------------------------- |  | ------------- | - |  | ---------------------------- | ------ | ------------------ | ---------------------------- | -------- |  | ----------- | ------ | ------------------ | - | ------ | ------- | - | ------------------ | - | -------- | - | ----------- |  | ------------------ | ------ |  | - | ------ |  | - | ------ |  | - | ------ | -
|                                  |  |               |   |  | Year ended December 31, 2003 |        |                    | Year ended December 31, 2002 |         
|                                  |  | Percent Owned |   |  | Revenue                      |        | Operating Expenses |                              | Interest |  | Depr/ Amort |        | Net Income/ (Loss) |   |        | Revenue |   | Operating Expenses |   | Interest |   | Depr/ Amort |  | Net Income/ (Loss) |       
|Income Statement Data:            |  |               |   |  |                              |        |                    |                              |          |  |             |        |                    |   |        |         |   |                    |   |          |   |             |  |                    |        |  |   |        |  |   |        |  |   |        |  
|Board of Trade Investment Company |  | 49.00         | % |  | $                            | 2,373  |                    | $                            | 1,604    |  | $           | 65     |                    | $ | 408    |         | $ | 296                |   |          | $ | 2,670       |  | $                  | 1,647  |  | $ | 83     |  | $ | 363    |  | $ | 577    |  
|Dallas County Partners (1)        |  | 50.00         | % |  |                              | 10,551 |                    |                              | 5,509    |  |             | 2,758  |                    |   | 1,917  |         |   | 367                |   |          |   | 11,046      |  |                    | 5,470  |  |   | 2,663  |  |   | 1,998  |  |   | 915    |  
|Dallas County Partners II (1)     |  | 50.00         | % |  |                              | 6,167  |                    |                              | 2,707    |  |             | 2,343  |                    |   | 822    |         |   | 295                |   |          |   | 5,948       |  |                    | 2,522  |  |   | 2,452  |  |   | 1,062  |  |   | (88    | )
|Fountain Three (1)                |  | 50.00         | % |  |                              | 6,939  |                    |                              | 3,129    |  |             | 2,220  |                    |   | 1,535  |         |   | 55                 |   |          |   | 6,884       |  |                    | 2,850  |  |   | 2,143  |  |   | 1,516  |  |   | 375    |  
|RRHWoods, LLC (1)                 |  | 50.00         | % |  |                              | 14,401 |                    |                              | 7,464    |  |             | 2,510  |                    |   | 3,458  |         |   | 969                |   |          |   | 13,740      |  |                    | 7,145  |  |   | 3,397  |  |   | 3,617  |  |   | (419   | )
|Highwoods DLF 98/29, LP           |  | 22.81         | % |  |                              | 19,359 |                    |                              | 5,518    |  |             | 4,589  |                    |   | 3,464  |         |   | 5,788              |   |          |   | 20,301      |  |                    | 5,549  |  |   | 4,653  |  |   | 3,391  |  |   | 6,708  |  
|Highwoods DLF 97/26 DLF 99/32, LP |  | 42.93         | % |  |                              | 15,893 |                    |                              | 4,376    |  |             | 4,591  |                    |   | 4,034  |         |   | 2,892              |   |          |   | 16,859      |  |                    | 4,465  |  |   | 4,635  |  |   | 3,968  |  |   | 3,791  |  
|Highwoods- Markel Associates, LLC |  | 50.00         | % |  |                              | 3,342  |                    |                              | 1,834    |  |             | 1,135  |                    |   | 632    |         |   | (259               | ) |          |   | 3,191       |  |                    | 1,642  |  |   | 1,032  |  |   | 562    |  |   | (45    | )
|MG-HIW Peachtree Corners III, LLC |  | 50.00         | % |  |                              | 214    |                    |                              | 74       |  |             | 72     |                    |   | 73     |         |   | (5                 | ) |          |   |            |  |                    | 55     |  |   |       |  |   | 44     |  |   | (99    | )
|MG-HIW Rocky Point, LLC           |  | 50.00         | % |  |                              |       |                    |                              |         |  |             |       |                    |   |       |         |   |                   |   |          |   | 1,813       |  |                    | 555    |  |   | 271    |  |   | 248    |  |   | 739    |  
|MG-HIW Metrowest I, LLC           |  | 50.00         | % |  |                              |       |                    |                              | 28       |  |             |       |                    |   |       |         |   | (28                | ) |          |   |            |  |                    | 26     |  |   |       |  |   |       |  |   | (26    | )
|MG-HIW Metrowest II, LLC          |  | 50.00         | % |  |                              | 635    |                    |                              | 411      |  |             | 169    |                    |   | 349    |         |   | (294               | ) |          |   | 303         |  |                    | 240    |  |   | 50     |  |   | 246    |  |   | (233   | )
|Concourse Center Associates, LLC  |  | 50.00         | % |  |                              | 2,082  |                    |                              | 542      |  |             | 726    |                    |   | 305    |         |   | 509                |   |          |   | 2,113       |  |                    | 539    |  |   | 681    |  |   | 302    |  |   | 591    |  
|Plaza Colonnade, LLC              |  | 50.00         | % |  |                              | 11     |                    |                              | 2        |  |             |       |                    |   | 4      |         |   | 5                  |   |          |   | 9           |  |                    |       |  |   |       |  |   | 2      |  |   | 7      |  
|                                  |  |               |   |  |                              |        |                    |                              |          |  |             |        |                    |   |        |         |   |                    |   |          |   |             |  |                    |        |  |   |        |  |   |        |  |   |        |  
|Total                             |  |               |   |  | $                            | 81,967 |                    | $                            | 33,198   |  | $           | 21,178 |                    | $ | 17,001 |         | $ | 10,590             |   |          | $ | 84,877      |  | $                  | 32,705 |  | $ | 22,060 |  | $ | 17,319 |  | $ | 12,793 |  
|                                  |  |               |   |  |                              |        |                    |                              |          |  |             |        |                    |   |        |         |   |                    |   |          |   |             |  |                    |        |  |   |        |  |   |        |  |   |        |  

---

|(1) | Des Moines joint ventures.
|--- | --------------------------



The following summarizes the formation and principal activities of the various unconsolidated joint ventures in which the Operating Partnership has a
minority equity interest.



Board of Trade Investment Company



In connection with the Companys merger with J.C. Nichols Company in
July 1998, the Operating Partnership acquired a 49.0% interest in Board of Trade Investment Company. The Operating Partnership is the sole and exclusive property manager of Board of Trade Investment Company joint venture, for which it received a
nominal amount of fees in 2003, 2002 and 2001.



Des Moines Joint Ventures



Also, in connection with the Companys merger with
J.C. Nichols Company in July 1998, the Operating Partnership succeeded to the interests of J.C. Nichols in a strategic alliance with R&R Investors, Ltd. pursuant to which R&R Investors manages and leases certain joint venture properties
located in the Des Moines area. As a result of the merger, the Operating Partnership acquired an ownership interest of 50.0% or more in a series of nine joint ventures with R&R Investors (the Des Moines Joint Ventures). Certain of
these properties were previously included in the Operating Partnerships Consolidated Financial Statements. On June 2, 1999, the Operating Partnership agreed with R&R Investors to reorganize its respective ownership interests in the Des
Moines Joint Ventures such that each would own a 50.0% interest.



F-18



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED
AFFILIATES - Continued



Highwoods DLF 98/29, L.P.



On March 15, 1999, the Operating Partnership closed a transaction with Schweiz-Deutschland-USA Dreilander Beteiligung Objekt
DLF 98/29-Walker Fink-KG (DLF), pursuant to which the Operating Partnership sold or contributed certain office properties valued at $142.0 million to a newly created limited partnership (the DLF I Joint Venture). DLF
contributed $56.0 million for a 77.19% interest in the DLF I Joint Venture, and the DLF I Joint Venture borrowed $71.0 million from third-party lenders. The Operating Partnership retained the remaining 22.81% interest in the DLF I Joint Venture,
received net cash proceeds of approximately $124.0 million and is the property manager and leasing agent of the DLF I Joint Ventures properties. At the formation of this joint venture, the amount DLF contributed in cash to the venture was
determined to be in excess of the amount required based on its ownership interest and on the final agreed-upon value of the real estate assets. The Operating Partnership agreed to repay this amount to DLF over 14 years. The payments of $7.2 million
were discounted to net present value of $3.8 million using a discount rate of 9.62% specified in the agreement. Payments of $0.5 million were made in each of the years ended December 31, 2003, 2002 and 2001, of which $0.3 million in each year
represented imputed interest expense.



Highwoods DLF 97/26 DLF 99/32, L.P.



On May 9, 2000, the Operating Partnership closed a
transaction with Dreilander-Fonds 97/26 and 99/32 (DLF II) pursuant to which the Operating Partnership contributed five in-service office properties encompassing 570,000 rentable square feet and a 246,000-square-foot development project
valued at $110.0 million to a newly created limited partnership (the DLF II Joint Venture). DLF II contributed $24.0 million in cash for a 40.0% ownership interest in the DLF II Joint Venture, and the DLF II Joint Venture borrowed $50.0
million from a third-party lender. The Operating Partnership initially retained the remaining 60.0% interest in the DLF II Joint Venture and received net cash proceeds of $73.0 million. During 2001 and 2000, DLF II contributed an additional $10.7
million in cash to the DLF II Joint Venture. As a result, the Operating Partnership decreased its ownership percentage to 42.93% as of December 31, 2001. The Operating Partnership is the property manager and leasing agent of the DLF II Joint
Ventures properties and receives customary management and leasing commissions.



Highwoods-Markel Associates, LLC, Concourse Center Associates, LLC



During 1999 and 2001, the Operating Partnership closed two transactions with Highwoods-Markel Associates, LLC and Concourse Center Associates, LLC pursuant to which the Operating Partnership sold or contributed
certain office properties to newly created limited liability companies. Unrelated investors contributed cash for a 50.0% ownership interest in the joint ventures. The Operating Partnership retained the remaining 50.0% interest, received net cash
proceeds and is the property manager and leasing agent of the joint ventures properties.



On December 29, 2003, the Operating Partnership contributed an additional three in-service office properties encompassing 290,853 rentable square feet valued at $35.6 million to the Highwoods-Markel, LLC joint
venture. The joint ventures other partner, Markel Corporation, contributed an additional $3.6 million in cash to maintain its 50.0% ownership interest and the joint venture borrowed and refinanced $40.0 million from a third party lender. The
Operating Partnership retained its 50.0% ownership interest in the joint venture and received net cash proceeds of $31.9 million. As a result, the Operating Partnership recognized $2.7 million of the $5.4 million gain in accordance with SFAS No. 66,
which represents the extent of the Companys interest sold to outside parties. The Operating Partnership is the manager and leasing agent for the properties and receives customary management fees and leasing commissions.



F-19



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED
AFFILIATES - Continued



MG-HIW Development Joint Ventures



On December 19, 2000, the Operating Partnership formed or agreed to form four development joint ventures with Denver-based
Miller Global Properties, LLC (Miller Global), pursuant to which, the Operating Partnership contributed approximately $7.5 million of development land to various newly created limited liability companies and retained a 50.0% ownership
interest. Three of these joint ventures have developed three properties that encompass an aggregate of 347,000 rentable square feet and cost $50.4 million in the aggregate. The Operating Partnership was the developer of these properties. In
addition, the Operating Partnership is the property manager and leasing agent for the properties in all of these joint ventures. The fourth joint venture, MG-HIW Metrowest I, LLC, did not develop a property but holds development land.



On June 26, 2002, the Operating Partnership acquired Miller Globals
interest in MG-HIW Rocky Point, LLC, which owned Harborview Plaza, a 205,000 rentable square foot office property, to bring its ownership interest in that entity to 100.0%. At that time, the Operating Partnership consolidated the assets and
liabilities, and recorded revenues and expenses on a consolidated basis. (See also Note 3 for SF-HIW Harborview, LP discussion).



As a part of the MG-HIW, LLC acquisition on July 29, 2003 (See Note 3), the Operating Partnership was assigned Miller Globals 50.0% equity interest
in MG-HIW Peachtree Corners III, LLC, which increased the Operating Partnerships interest to 100.0%; the Operating Partnership consolidated this entity from July 29, 2003 on. The entity owned a single property encompassing 53,896 square feet.
The construction loan, which was made to this joint venture by a wholly owned affiliate of the Operating Partnership, Highwoods Finance, LLC, had an interest rate of LIBOR plus 200 basis points and was paid in full on July 29, 2003 in connection
with the assignment.



In July 2003, the Operating Partnership
entered into an option agreement with its partner, Miller Global, to acquire Miller Globals 50.0% interest in the assets encompassing 87,832 square feet of property and 7.0 acres of development land (zoned for the development of 90,000 square
feet of office space) of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million, to bring its ownership interest in these entities to 100.0%.



On March 2, 2004, the Operating Partnership exercised its option to acquire its partners 50.0% equity interest in the assets of MG-HIW Metrowest I,
LLC and MG-HIW Metrowest II, LLC for $3.2 million. At that time, the Company consolidated the assets and liabilities and recorded revenues and expenses of that entity on a consolidated basis. A $7.4 million construction loan to fund the development
of this property, of which $7.3 million was outstanding at December 31, 2003, was paid in full by the Operating Partnership at closing. (See Note 15 for further discussion).



Plaza Colonnade, LLC



On June 14, 2002, the Operating Partnership contributed $1.1 million in cash to Plaza Colonnade, LLC, a newly formed limited liability company, for the
construction of a 285,000 square foot development property. The Operating Partnership has retained a 50.0% interest in this joint venture. On February 12, 2003, Plaza Colonnade, LLC signed a $61.3 million construction loan to fund the development of
this property. The Operating Partnership and its joint venture partner each guaranteed 50.0% of the loan. In addition to the construction loan, the partners collectively provided $12.0 million in letters of credit, $6.0 million by the Operating
Partnership and $6.0 million by its partner. In December 2004, the joint venture secured a $50.0 million non-recourse permanent loan and the construction loan was paid off. The related letters of credit were cancelled, and the aforementioned
guarantee obligations terminated when the construction loan was paid off. (See Note 15 for further discussion).



F-20



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED
AFFILIATES - Continued



Other Unconsolidated Affiliates



On February 20, 2004, the Operating Partnership and Kapital-Consult, a European investment firm, formed Highwoods KC
Glenridge, LLC, which on February 26, 2004, acquired from a third-party Glenridge Point Office Park, consisting of two office buildings aggregating 185,000 square feet located in the Central Perimeter sub-market of Atlanta. The buildings are
currently 91.1% occupied. The Operating Partnership contributed $10.0 million to the joint venture in return for a 40.0% equity interest and Kapital-Consult contributed $14.9 million for a 60.0% equity interest in the partnership. The joint venture
entered into a $16.5 million ten-year secured loan on the assets. The Operating Partnership is the manager and leasing agent for this property and receives customary management fees and leasing commissions. The acquisition also includes 2.9 acres of
development land that can accommodate 150,000 square feet of office space.



See Note 4 for information regarding HIW-KC Orlando, LLC.



Development, Leasing and Management Fees



As discussed above, the Operating Partnership receives development, management and leasing fees for services provided to certain of its joint ventures. Development, management and leasing fee income recognized by the
Operating Partnership during the years ended December 31, 2003, 2002 and 2001 are as follows (in thousands):



|                            |  |                          |       |      |   |       |  |   |      
|--------------------------- |  | ------------------------ | ----- | ---- | - | ----- |  | - | -----
|                            |  | Years Ended December 31,
|                            |  | 2003                     |       | 2002 |   | 2001 
|Development fees            |  | $                        | 205   |      | $ | 35    |  | $ | 541  
|Management and leasing fees |  |                          | 1,104 |      |   | 1,300 |  |   | 1,143
|                            |  |                          |       |      |   |       |  |   |      
|Total fees                  |  | $                        | 1,309 |      | $ | 1,335 |  | $ | 1,684
|                            |  |                          |       |      |   |       |  |   |      



3. FINANCING
AND PROFIT-SHARING ARRANGEMENTS



The following summarizes sale transactions that are accounted for as financing and/or profit-sharing arrangements under paragraphs 25 through 29 of SFAS
No. 66, as described in Note 1 and as further described in Note 18.



MG-HIW,
LLC



On December 19, 2000, the Operating Partnership
formed a joint venture with Miller Global, MG-HIW, LLC, pursuant to which the Operating Partnership sold or contributed to MG-HIW, LLC 19 in-service office properties in Raleigh, Atlanta, Tampa (the Non-Orlando City Groups) and Orlando
(collectively the City Groups) valued at $335.0 million. As part of the formation of MG-HIW, LLC, Miller Global contributed $85.0 million in cash for an 80.0% ownership interest and the joint venture borrowed $238.8 million from a
third-party lender. The Operating Partnership retained a 20.0% ownership interest and received net cash proceeds of $307.0 million. During 2001, the Operating Partnership contributed a 39,000 square foot development project to MG-HIW, LLC in
exchange for $5.1 million. The joint venture borrowed an additional $3.7 million under its existing debt agreement with a third party and the Operating Partnership retained its 20.0% ownership interest and received net cash proceeds of approximately
$4.8 million. The assets of each of the City Groups were legally acquired by four separate LLCs for which MG-HIW, LLC was the sole member.



F-21



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



3. FINANCING AND
PROFIT-SHARING ARRANGEMENTS - Continued



The non-Orlando City Groups consisted of 15 properties encompassing 1.3 million square feet and were
located in Atlanta, Raleigh and Tampa. Based on the nature and extent of certain rental guarantees made by the Operating Partnership with respect to these properties, the transaction did not qualify for sale treatment under SFAS No. 66. The
transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Operating Partnership and a co-venture obligation has been established for the
amount of equity contributed by Miller Global related to the Non-Orlando City Group properties. The income from operations of the properties, excluding depreciation, is being allocated 80.0% to Miller Global (which represents its interest in the
joint venture) and is reported as co-venture expense in these Consolidated Financial Statements. The Operating Partnership continues to depreciate the properties and record all of the depreciation on its books. In addition to the
co-venture expense, the Operating Partnership recorded expense of $1.3 million, $0.7 million and $0.7 million related to payments made under the rental guarantees for the years ended December 31, 2003, 2002 and 2001, respectively.



On July 29, 2003, the Operating Partnership acquired its partners 80.0%
equity interest in the non-Orlando City Groups. The Operating Partnership paid Miller Global $28.1 million, repaid $41.4 million of debt related to the properties and assumed $64.7 million of debt. The Operating Partnership recognized a $16.3
million gain in 2003 on the settlement of the $43.5 million co-venture obligation recorded on the books of the Operating Partnership.



With respect to the Orlando City Group, which consists of five properties encompassing 1.3 million square feet located in the central business district of
Orlando, the Operating Partnership assumed obligations to make improvements to the assets as well as master lease obligations and guarantees on certain vacant space. Additionally, the Operating Partnership guaranteed a leveraged internal rate of
return (IRR) of 20.0% on Miller Globals equity. See Note 15 for further discussion of the guarantee. The contribution of these Orlando properties is accounted for as a financing arrangement under SFAS No. 66  see Note 18.
Consequently, the assets, liabilities and operations related to the properties remain on the books of the Operating Partnership and a financing obligation has been established for the amount of equity contributed by Miller Global related to the
Orlando City Group. The income from operations of the properties, excluding depreciation, is being allocated 80.0% to Miller Global and reported as interest on financing obligation in these Consolidated Financial Statements. This
financing obligation is adjusted each period by accreting the obligation up to the 20.0% guaranteed internal rate of return by a charge to interest expense, such that the financing obligation would equal at the end of each period the amount due to
Miller Global including the 20.0% guaranteed return. The Operating Partnership recorded interest expense on the financing obligation of $11.6 million, $10.1 million and $9.9 million, which includes amounts related to this IRR guarantee and payments
made under the rental guarantees, for the years ended 2003, 2002 and 2001, respectively. The Operating Partnership has continued to depreciate the Orlando properties and record all of the depreciation on its books.



On July 29, 2003, the Operating Partnership also entered into an option
agreement to acquire Miller Globals 80.0% interest in the Orlando City Group. On March 2, 2004, the Operating Partnership exercised its option and acquired its partners 80.0% equity interest in the Orlando City Group of MG-HIW, LLC. The
properties were 83.8% leased as of December 31, 2003 and were encumbered by $136.2 million of floating rate debt with interest based on LIBOR plus 200 basis points. At the closing of the transaction, the Operating Partnership paid its partner,
Miller Global, $62.5 million and a $7.5 million letter of credit delivered to the seller in connection with the option was cancelled. Since the initial contribution of these assets was accounted for as a financing arrangement, and since the
financing obligation was adjusted each period for the IRR guarantee, no gain or loss was recognized upon the extinguishment of the financing obligation.



F-22



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



3. FINANCING AND
PROFIT-SHARING ARRANGEMENTS - Continued



SF-HIW Harborview, LP



On September 11, 2002, the Operating Partnership contributed Harborview Plaza, an office building located in Tampa, Florida,
to SF-HIW Harborview Plaza, LP (Harborview LP), a newly formed entity, in exchange for a 20.0% limited partnership interest and $35.4 million in cash. The other partner contributed $12.6 million of cash and a new loan was obtained by the
partnership for $22.8 million. In connection with this disposition, the Operating Partnership entered into a master lease agreement with Harborview LP for five years on the vacant space in the building (approximately 20.0% of the building);
occupancy was 99.6% at September 30, 2004. The Operating Partnership also guaranteed to Harborview LP the payment of tenant improvements and lease commissions of $1.2 million. The Operating Partnerships maximum exposure to loss under the
master lease agreement was $2.1 million at September 11, 2002 and was $1.4 million at December 31, 2003. Additionally, the Operating Partnerships partner in Harborview LP was granted the right to put its 80.0% equity interest in Harborview LP
to the Operating Partnership in exchange for cash at any time during the one-year period commencing on September 11, 2014. The value of the 80.0% equity interest will be determined at the time, if ever, that such partner elects to exercise its put
right, based upon the then fair market value of Harborview LPs assets and liabilities less 3.0%, which amount was intended to cover normal costs of a sale transaction.



Because of the put option and the master lease agreement, this transaction is accounted for as a financing transaction, as
described in Notes 1 and 18. Consequently, the assets, liabilities and operations related to Harborview Plaza, the property owned by Harborview LP, including any new financing by the partnership, remain on the books of the Operating Partnership. As
a result, the Operating Partnership has established a financing obligation equal to the net equity contributed by the other partner. At the end of each reporting period, the balance of the financing obligation is adjusted to equal the current fair
value, which is $13.6 million at December 31, 2003, but not less than the original financing obligation. This adjustment is amortized prospectively through September 2014. Additionally, the net income from the operations before depreciation of
Harborview Plaza allocable to the 80.0% partner is recorded as interest expense on financing obligation. The Operating Partnership continues to depreciate the property and record all of the depreciation on its books. Any payments made under the
master lease agreement were expensed as incurred ($0.4 million and $0.3 million was expensed during the years ended December 31, 2003 and 2002, respectively) and any amounts paid under the tenant improvement and lease commission guarantee are
capitalized and amortized to expense over the remaining lease term. At such time as the put option expires or is otherwise terminated, the Operating Partnership will record the transaction as a sale and recognize gain on sale.



Eastshore Transaction



On November 26, 2002, the Operating Partnership sold three buildings located in Richmond, Virginia (the
Eastshore transaction) for a total purchase price of $28.5 million in cash, which was paid in full by the buyer at closing. Each of the sold properties is a single tenant building leased on a triple-net basis to Capital One Services,
Inc., a subsidiary of Capital One Financial Services, Inc.



In
connection with the sale, the Operating Partnership entered into a rental guarantee agreement for each building for the benefit of the buyer to guarantee any shortfalls that may be incurred in the payment of rent and re-tenanting costs for a
five-year period from the date of sale (through November 2007). The Operating Partnerships maximum exposure to loss under the rental guarantee agreements was $18.7 million at the date of sale and was $15.9 million as of December 31, 2003. No
payments were made by the Operating Partnership during 2003 and 2002 in respect of these rent guarantees. However, in June 2004, the Operating Partnership began to make monthly payments to the buyer at an annual rate of $0.1 million as a result of
the existing tenant renewing a lease in one building at a lower rental rate.



F-23



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



3. FINANCING AND
PROFIT-SHARING ARRANGEMENTS - Continued



These rent guarantees are a form of continuing involvement as prescribed by SFAS No. 66. Because the
guarantees cover the entire space occupied by a single tenant under a triple-net lease arrangement, the Operating Partnerships guarantees are considered a guaranteed return on the buyers investment for an extended period of time.
Therefore, the transaction has been accounted for as a financing transaction, following the accounting method described in Note 1. Accordingly, the assets, liabilities and operations are included in these Consolidated Financial Statements, and a
financing obligation of $28.5 million was recorded which represents the amount received from the buyer. The income from the operations of the properties, other than depreciation, is allocated 100.0% to the owner as interest expense on financing
obligation. Payments made under the rent guarantees are charged to expense as incurred. This transaction will be recorded as a completed sale transaction in the future when the maximum exposure to loss under the guarantees is equal to or less than
the related gain.



4. DISPOSITIONS



Gains on disposition of properties, net, excluding gains or losses from
discontinued operations, consisted of the following (in thousands):



|                                                  |  |                          |        |   |      |   |        |  |   |       
|------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ |  | - | ------
|                                                  |  | Years Ended December 31,
|                                                  |  | 2003                     |        |   | 2002 |   | 2001  
|Gains and impairments on disposition of land, net |  | $                        | 3,836  |   |      | $ | 7,165  |  | $ | 4,702 
|Gains on disposition of depreciable properties    |  |                          | 8,677  |   |      |   | 15,530 |  |   | 17,233
|(Impairments) of depreciable properties           |  |                          | (197   | ) |      |   |       |  |   |      
|                                                  |  |                          |        |   |      |   |        |  |   |       
|Total                                             |  | $                        | 12,316 |   |      | $ | 22,695 |  | $ | 21,935
|                                                  |  |                          |        |   |      |   |        |  |   |       



Gains on disposition
of properties from discontinued operations consisted of the following (in thousands):



|                                               |  |                          |       |   |      |   |        |      |  |   |  
|---------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ------ | ---- |  | - | -
|                                               |  | Years Ended December 31,
|                                               |  | 2003                     |       |   | 2002 |   |        | 2001
|Gains on disposition of depreciable properties |  | $                        | 8,962 |   |      | $ | 17,179 |      |  | $ | 
|(Impairments) of depreciable properties        |  |                          | (128  | ) |      |   | (4,057 | )    |  |   | 
|                                               |  |                          |       |   |      |   |        |      |  |   |  
|Total                                          |  | $                        | 8,834 |   |      | $ | 13,122 |      |  | $ | 
|                                               |  |                          |       |   |      |   |        |      |  |   |  



In the Fourth Quarter
2004, the Operating Partnership sold an additional 14 buildings encompassing 514,191 square feet, and one 88 unit apartment building, for gross proceeds of $37.5 million and recorded an approximate $4.8 million gain on sales. In addition, the
Operating Partnership sold approximately 95 acres of non-core land for gross proceeds of $20.1 million and recorded approximately $3 million in gain on sales.



In November 2004, the Operating Partnership sold a 165,000 square foot building located in Orlando, Florida with a net book value of approximately $9.7
million. Net proceeds from the sale were approximately $6.4 million. The building did not meet the criteria to be classified as held for the sale until November 2004 and as a result, the Operating Partnership has recognized an impairment loss of
approximately $3.3 million in November 2004.



F-24



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



4. DISPOSITIONS - Continued



On June 28, 2004, Kapital-Consult, a European investment firm, bought an interest in HIW-KC Orlando,
LLC, an entity formed by the Operating Partnership. HIW-KC Orlando, LLC owns the Orlando City Group assets which were valued under the joint venture agreement at $212.0 million, including amounts related to the Companys guarantees described
below, and which were subject to a $136.2 million secured mortgage loan. Kapital-Consult contributed $42.1 million in cash and received a 60.0% equity interest in return. The joint venture borrowed $143.0 million under a ten-year fixed rate mortgage
loan from a third party lender and repaid the $136.2 million loan. The Operating Partnership retained a 40.0% equity interest in the joint venture and received net cash proceeds of $46.6 million, of which $33.0 million was used to pay down the
Operating Partnerships Revolving Loan and $13.6 million was used to pay down another loan of the Operating Partnership. In connection with this transaction, the Operating Partnership agreed to guarantee rent to the joint venture for 3,248
rentable square feet commencing in August 2004 and expiring in April 2011. In connection with this guarantee, as of June 30, 2004 the Operating Partnership included $0.6 million in other liabilities and reduced the total amount of gain to be
recognized by the same amount. Additionally, the Operating Partnership agreed to guarantee re-tenanting costs for approximately 11% of the joint ventures total square footage. The Operating Partnership recorded a $4.1 million liability with
respect to such guarantee as of June 30, 2004 and reduced the total amount of gain to be recognized by the same amount. The Operating Partnership believes its estimate related to the re-tenanting costs guarantee is accurate. However, if its
assumptions prove to be incorrect, future losses may occur. The contribution was accounted for as a partial sale as defined by SFAS No. 66 and the Operating Partnership recognized a $15.9 million gain in June 2004. Since the Operating Partnership
has an ongoing 40.0% financial interest in the joint venture and since the Company is engaged by the joint venture to provide management and leasing services for the joint venture, for which it receives customary management fees and leasing
commissions, the operations of these properties will not be reflected as discontinued operations consistent with SFAS No. 144 and the related gain on sale will be included in continuing operations in the second quarter 2004.



On June 16, 2004, the Operating Partnership sold a 177,000 square foot
building (the network operations center) located in the Highwoods Preserve Office Park in Tampa, Florida. Highwoods Preserve is a 816,000 square foot office park that has not been occupied since WorldCom vacated the space as of December 31, 2002.
Net proceeds from the sale were $18.6 million. The asset had a net book value of $22.4 million. The Operating Partnership recognized an impairment loss of approximately $3.7 million in April 2004 when the planned sale met the criteria to be
classified as held for sale. In connection with the sale of the network operations center, the buyer also agreed to purchase a 3.3 acre tract of development land located in the office park for approximately $1.4 million, which is subject to the
Operating Partnership securing certain development rights for the land from the local municipality. The net book value of the land is approximately $0.6 million and was classified as held for sale in accordance with SFAS No. 144 in April 2004. This
land sale is subject to customary closing conditions and no assurances can be provided that the disposition will occur. The remaining assets in the office park were classified as held for use as of December 31, 2003 and continue to be so classified
in accordance with SFAS No. 144.



In May 2004, the Operating
Partnership executed two agreements to sell 30.0 acres of land in suburban Baltimore, Maryland. The agreements provide for estimated net proceeds of approximately $6.1 million and the net book value of the land is $7.9 million. Accordingly, an
impairment loss of approximately $1.8 million was recorded in May 2004 when the land was reclassified from held for use to held for sale. On September 30, 2004, one sale of 27.0 acres was consummated. The Operating Partnership received $5.5 million
in net proceeds. Sale of the remaining 3.0 acres is subject to customary closing conditions and no assurances can be provided that the disposition will occur.



F-25



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



4. DISPOSITIONS - Continued



During 2003, the Operating Partnership sold approximately 3.3 million rentable square feet of office,
industrial and retail properties, 7.8 acres of revenue-producing land and 108.5 acres of development land for gross proceeds of $201.6 million. The Operating Partnership recognized gains, net of impairments, totaling $18.4 million related to these
dispositions, of which $8.8 million was included in discontinued operations and $9.6 million was included in continuing operations. In addition, the Operating Partnership contributed three properties consisting of 290,853 rentable square feet to
Highwoods-Markel Associates, LLC in which the Operating Partnership has a 50.0% equity interest. As a result, the Operating Partnership recognized $2.7 million of the $5.4 million gain in continuing operations and deferred $2.7 million of the $5.4
million gain in accordance with SFAS No. 66. See Note 2 for further discussion.



During 2002, the Operating Partnership sold approximately 2.0 million rentable square feet of office and industrial properties and 137.7 acres of development land for gross proceeds of $235.2 million. The Operating
Partnership recognized gains, net of impairments, of $35.8 million related to these dispositions, of which $13.1 million was included in discontinued operations and $22.7 million was included in continuing operations. The Operating Partnership also
sold three buildings in the Eastshore transaction, which was accounted for as a financing arrangement. See Notes 3 and 18 for further discussion. In September 2002, the Operating Partnership contributed an office property to SF-HIW Harborview, LP
and accounted for the contribution as a financing arrangement. See Notes 3 and 18 for further discussion.



During 2001, the Operating Partnership sold 386,000 rentable square feet of office and industrial properties, 215.7 acres of development land and 1,672
apartment units for gross proceeds of $175.2 million. The Operating Partnership recognized a gain of $20.2 million related to these dispositions of which all were included in continuing operations. The Operating Partnership contributed 38,669
rentable square feet of office property to MG-HIW, LLC in July 2001. No gain or loss was recognized  see Note 3 for further discussion.



F-26



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. MORTGAGES AND NOTES PAYABLE



The Operating Partnerships consolidated mortgages and notes payable
consisted of the following at December 31, 2003 and 2002:



|                                                      |  |                  |           |     |      |   |          
|----------------------------------------------------- |  | ---------------- | --------- | --- | ---- | - | ---------
|                                                      |  | 2003             |           |     | 2002
|                                                      |  | ($ in thousands)
|Mortgage loans payable:                               |  |                  |           |     |      |   |          
|9.0% mortgage loan due 2005                           |  | $                | 35,170    |     |      | $ | 36,089   
|8.1% mortgage loan due 2005                           |  |                  | 27,257    |     |      |   | 28,004   
|8.2% mortgage loan due 2007                           |  |                  | 66,896    |     |      |   | 68,442   
|7.8% mortgage loan due 2009                           |  |                  | 88,322    |     |      |   | 89,946   
|7.9% mortgage loan due 2009                           |  |                  | 88,404    |     |      |   | 90,008   
|7.8% mortgage loan due 2010                           |  |                  | 140,498   |     |      |   | 142,841  
|6.0% mortgage loan due 2013                           |  |                  | 143,713   |     |      |   |         
|5.7% mortgage loan due 2013                           |  |                  | 127,500   | (1) |      |   |         
|4.5% to 9.1% mortgage loans due between 2005 and 2022 |  |                  | 60,089    | (2) |      |   | 63,881   
|Variable rate mortgage loan due 2006                  |  |                  | 200,883   | (3) |      |   | 242,240  
|Variable rate mortgage loan due 2007                  |  |                  | 4,033     |     |      |   | 4,309    
|                                                      |  |                  |           |     |      |   |          
|                                                      |  |                  | 982,765   |     |      |   | 765,760  
|                                                      |  |                  |           |     |      |   |          
|Unsecured indebtedness:                               |  |                  |           |     |      |   |          
|6.75% notes due 2003                                  |  |                  |          | (1) |      |   | 100,000  
|8.0% notes due 2003                                   |  |                  |          | (1) |      |   | 146,500  
|7.0% notes due 2006                                   |  |                  | 110,000   |     |      |   | 110,000  
|7.125% notes due 2008                                 |  |                  | 100,000   |     |      |   | 100,000  
|8.125% notes due 2009                                 |  |                  | 50,000    |     |      |   | 50,000   
|MOPPRS due 2013                                       |  |                  |          | (5) |      |   | 125,000  
|Put Option Notes due 2011                             |  |                  | 100,000   | (4) |      |   | 100,000  
|7.5% notes due 2018                                   |  |                  | 200,000   |     |      |   | 200,000  
|Term loan due 2005                                    |  |                  | 20,000    |     |      |   | 20,000   
|Term loan due 2005                                    |  |                  | 100,000   | (1) |      |   |         
|Unsecured Revolving loan due 2006                     |  |                  | 46,000    |     |      |   | 37,000   
|                                                      |  |                  |           |     |      |   |          
|                                                      |  |                  | 726,000   |     |      |   | 988,500  
|                                                      |  |                  |           |     |      |   |          
|Total                                                 |  | $                | 1,708,765 |     |      | $ | 1,754,260
|                                                      |  |                  |           |     |      |   |          

---

|(1) | On December 1, 2003, $146.5 million of the Operating Partnerships 8.0% Notes and $100.0 million of the Operating Partnerships 6.75% Notes matured. The Operating
Partnership refinanced $127.5 million with 5.7% 10-year secured debt which had an effective rate of 5.25% after taking into consideration the effect of the interest rate swap hedging this debt. Another $100.0 million was refinanced with a two-year
unsecured bank term loan with a floating rate initially set at 1.3% over LIBOR. The balance, equaling $19.0 million, was repaid using funds from the Operating Partnerships $250.0 million revolving loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-27



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. MORTGAGES AND NOTES PAYABLE
- Continued



|(2) | Includes $22.8 million related to the SF-HIW Harborview, LP, which has been accounted for as a financing arrangement and is included in the Operating Partnerships mortgages
and notes payable in its Consolidated Balance Sheets. See Note 3.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes $136.2 million related to MG-HIW, LLC, which has been accounted for as a financing arrangement and is included in the Operating Partnerships mortgages and notes
payable in its Consolidated Balance Sheets. See Note 3.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | In 1997, the Operating Partnership sold $100.0 million of Exercisable Put Option Notes due June 15, 2011 (the Put Option Notes). The Put Option Notes bore an interest
rate of 7.19% from the date of issuance through June 15, 2004. After June 15, 2004, the interest rate to maturity on the Put Option Notes was required to be 6.39% plus the applicable spread determined as of June 10, 2004. In connection with the
initial issuance of the Put Option Notes, a counter party was granted an option to purchase the Put Option Notes on June 15, 2004 at 100.0% of the principal amount. The counter party exercised this option and acquired the Put Option Notes on June
15, 2004. On that same date, the Operating Partnership exercised its option to acquire the Put Option Notes from the counter party for a purchase price equal to the sum of the present value of the remaining scheduled payments of principal and
interest (assuming an interest rate of 6.39%) on the Put Option Notes, or $112.3 million. The difference between the $112.3 million and the $100.0 million was charged to loss on extinguishment of debt in the quarter ended June 30, 2004. The
Operating Partnership borrowed funds from its Revolving Loan to make the $112.3 million payment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | On February 2, 1998, the Operating Partnership sold $125.0 million of MandatOry Par Put Remarketed Securities (MOPPRS) which were originally expected to mature on
February 1, 2013. The fixed interest rate was 6.835% through January 31, 2003, and would be reset at that date at 5.715% plus a spread as determined under the terms of the MOPPRS. In connection with the original issuance, the Operating Partnership
granted a remarketing option to one of the underwriters for the MOPPRS, the consideration for which was reflected in the premium price of the bonds and aggregated $3.5 million. This consideration was deferred and included in deferred financing cost
and was amortized to income over the term of the MOPPRS. The option, if exercised, allowed the option holder to purchase the MOPPRS on January 31, 2003 from the holders for $125.0 million and then resell the MOPPRS in a new offering to new investors
at the reset interest rate (5.715% plus the spread). If the option holder did not exercise the option, the Operating Partnership would be required to repurchase the MOPPRS for $125.0 million plus any accrued interest. The Operating Partnership also
had a one-time right to redeem the MOPPRS from the option holder on January 31, 2003 for $125.0 million plus the then present value of the remarketing option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On January 28, 2003, the Operating Partnership, the option holder and an intermediary entered into an agreement under which
the option holder agreed to exercise its option to acquire the MOPPRS on January 31, 2003 and the intermediary agreed to acquire the MOPPRS from the option holder for $142.7 million. The intermediary and the Operating Partnership also agreed to
exchange the MOPPRS for new Operating Partnership debt instruments in the future, subject to certain terms and conditions. The MOPPRS transactions between the option holder and the intermediary occurred on January 31, 2003 and the interest rate on
the MOPPRS was reset at 8.975%. On February 4, 2003, a new $142.8 million mortgage loan with a third party, secured by 24 of the Operating Partnerships properties, was executed; this loan bears a fixed interest rate of 6.03% and matures in
February 2013. The intermediary received the proceeds from the new mortgage loan, and the mortgage loan and the MOPPRS were then exchanged between the Operating Partnership and the intermediary. The Operating Partnership then retired the MOPPRS. The
retirement of the MOPPRS has been accounted for as an extinguishment (See Note 18 to the Consolidated Financial Statements). Accordingly, $14.7 million was charged to loss on extinguishment of debt in the quarter ended March 31, 2003.



F-28



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. MORTGAGES AND NOTES PAYABLE
- Continued



The following table sets forth the principal payments due on the Operating Partnerships
long-term debt as of December 31, 2003 ($ in thousands):



|                           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|-------------------------- |  | ----- | --------- | ------------------------------------------- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | ---------- | ------ |  | - | ------- |  | - | -------
|                           |  |       |           | Amounts due during year ending December 31,
|                           |  | Total |           | 2004                                        |   | 2005    |  | 2006 |         | 2007 |   | 2008    |  | Thereafter
|Fixed Rate Debt:           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Unsecured (1):             |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Put Option Notes (2)       |  | $     | 100,000   |                                             | $ | 100,000 |  | $    |        |      | $ |        |  | $          |       |  | $ |        |  | $ |       
|Notes                      |  |       | 460,000   |                                             |   |        |  |      |        |      |   | 110,000 |  |            |       |  |   | 100,000 |  |   | 250,000
|Secured:                   |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Mortgage loans payable (3) |  |       | 777,849   |                                             |   | 12,871  |  |      | 81,447  |      |   | 19,362  |  |            | 79,476 |  |   | 14,343  |  |   | 570,350
|                           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total Fixed Rate Debt      |  |       | 1,337,849 |                                             |   | 112,871 |  |      | 81,447  |      |   | 129,362 |  |            | 79,476 |  |   | 114,343 |  |   | 820,350
|                           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Variable Rate Debt: (4)    |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Unsecured:                 |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Term Loans                 |  |       | 120,000   |                                             |   |        |  |      | 120,000 |      |   |        |  |            |       |  |   |        |  |   |       
|Revolving Loan (5)         |  |       | 46,000    |                                             |   |        |  |      |        |      |   | 46,000  |  |            |       |  |   |        |  |   |       
|Secured:                   |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Mortgage loans payable (3) |  |       | 204,916   |                                             |   | 235     |  |      | 279     |      |   | 201,175 |  |            | 3,227  |  |   |        |  |   |       
|                           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total Variable Rate Debt   |  |       | 370,916   |                                             |   | 235     |  |      | 120,279 |      |   | 247,175 |  |            | 3,227  |  |   |        |  |   |       
|                           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total Long Term Debt       |  | $     | 1,708,765 |                                             | $ | 113,106 |  | $    | 201,726 |      | $ | 376,537 |  | $          | 82,703 |  | $ | 114,343 |  | $ | 820,350
|                           |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        

---

|(1) | The Operating Partnerships $560.0 million of unsecured notes bear interest at rates ranging from 7.0% to 8.125% with interest payable semi-annually in arrears. Any premium and
discount related to the issuance of the unsecured notes together with other issuance costs is being amortized over the life of the respective notes as an adjustment to interest expense. All of the unsecured notes, except for the Put Option Notes,
are redeemable at any time prior to maturity at the Operating Partnerships option, subject to certain conditions including the payment of make-whole amounts. The Operating Partnerships fixed rate mortgage loans generally are either
locked out to prepayment for all or a portion of their term, or are pre-payable subject to certain conditions including prepayment penalties.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The Put Option Notes were extinguished in June 2004.
|--- | ----------------------------------------------------



|(3) | The mortgage loans payable are secured by real estate assets with an aggregate carrying value of $1.6 billion at December 31, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



|(4) | The Operating Partnership has various interest rate hedging arrangements, as described in Note 10 to the Consolidated Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



|(5) | In July 2003, the Operating Partnership amended and restated its existing revolving loan and two bank term loans. The amended and restated $250.0 million revolving loan (the
Revolving Loan) is from a group of nine lender banks, matures in July 2006 and replaces its previous $300.0 million revolving loan.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In March 2004, the Operating Partnership amended its Revolving Loan and two bank term loans. The changes modified certain definitions used in all three
loans to determine amounts that are used to compute financial covenants and also adjusted one of the financial ratio covenants.



In June 2004, the Operating Partnership further amended its Revolving Loan and two bank term loans. The changes excluded the $12.5 million charge taken
related to the refinancing of the Put Option Notes from the calculations used to compute financial covenants.



In August 2004, the Operating Partnership further amended its Revolving Loan and two bank term loans. The changes excluded the effects of accounting for
three sales transactions as financing and/or profit sharing arrangements under SFAS No. 66, as described in Note 18, from the calculations used to compute financial covenants, adjusted one financial covenant and temporarily adjusted a second
financial covenant until the earlier of December 31, 2004 or the period when the Operating Partnership can record income from the anticipated settlement of a claim against WorldCom (see Note 20).



In early October 2004, the Operating Partnership obtained a waiver from the
lenders of the Operating Partnerships Revolving Loan and two bank term loans for certain covenant violations caused by the effects of the loss on debt extinguishment from the MOPPRS transaction in early 2003, as described above and in Note 18.



F-29



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. MORTGAGES AND NOTES PAYABLE
- Continued



The aforementioned modifications did not change the economic terms of the loans. In connection with
these modifications, the Operating Partnership incurred certain loan costs that are capitalized and amortized over the remaining term of the loans.



The Revolving Loan carries an interest rate based upon the Operating Partnerships senior unsecured credit ratings. As a result, interest currently
accrues on borrowings under the Revolving Loan at an average rate of LIBOR plus 105 basis points. The terms of the Revolving Loan require the Operating Partnership to pay an annual facility fee equal to .25% of the aggregate amount of the Revolving
Loan. The Operating Partnership currently has a credit rating of BBB- assigned by Standard & Poors and Fitch Inc. In August 2003, Moodys Investor Service downgraded the Operating Partnerships assigned credit rating from Baa3 to
Ba1. If Standard and Poors or Fitch Inc. were to lower the Operating Partnerships credit ratings without a corresponding increase by Moodys, the interest rate on borrowings under the Revolving Loan would be automatically increased
by 60 basis points.



Other Information



The terms of the Revolving Loan and the indenture that governs the
Companys outstanding notes require the Operating Partnership to comply with certain operating and financial covenants and performance ratios. The Operating Partnership is currently in compliance with all such requirements.



Total interest capitalized was approximately $1.2 million, $7.0 million and
$16.9 million in 2003, 2002 and 2001, respectively.



As of
December 31, 2003, the Operating Partnership had $19.3 million of deferred financing costs, with $6.7 million of accumulated amortization. Deferred financing costs include loan fees, loan closing costs, premiums and discounts on bonds, notes payable
and public debt issuance costs. Amortization of bond premiums and discounts is included in contractual interest expense. All other amortization is shown as amortization of deferred financing costs. The scheduled future amortization of these deferred
financings costs will be as follows ($ in thousands):



|           |  |                     |       |                   |   |        |  |   |       
|---------- |  | ------------------- | ----- | ----------------- | - | ------ |  | - | ------
|           |  | ContractualInterest |       | DeferredFinancing |   | Total 
|2004       |  | $                   | 15    |                   | $ | 3,416  |  | $ | 3,431 
|2005       |  |                     | 251   |                   |   | 2,840  |  |   | 3,091 
|2006       |  |                     | 239   |                   |   | 1,354  |  |   | 1,593 
|2007       |  |                     | 111   |                   |   | 823    |  |   | 934   
|2008       |  |                     | 70    |                   |   | 654    |  |   | 724   
|Thereafter |  |                     | 336   |                   |   | 2,438  |  |   | 2,774 
|           |  |                     |       |                   |   |        |  |   |       
|           |  | $                   | 1,022 |                   | $ | 11,525 |  | $ | 12,547
|           |  |                     |       |                   |   |        |  |   |       



In June 2004, $0.9
million of unamortized deferred financing costs were written off in connection with the early extinguishment of the $136.2 million secured loan related to the MG-HIW Orlando assets sold to a 40.0% owned joint venture with Kapital Consult, as
described in Note 4.



F-30



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



6. EMPLOYEE BENEFIT PLANS



Management Compensation Program



The officers of the Company, which is the sole general partner of the
Operating Partnership, participate in an annual cash incentive bonus program whereby they are eligible for cash bonuses based on a percentage of their annual base salary. Each officers target level bonus is determined by competitive analysis
and the executives ability to influence overall performance of the executives business unit and/or of the Companys as a whole, and ranges from 40.0% to 85.0% of base salary depending on position in the Company. The eligible bonus
percentage for each officer is determined by a weighted average of business unit and Companys actual performance using various financial and operating metrics that can change from year to year. To the extent this weighted average is less than
or exceeds the targeted performance level for these metrics, the bonus percentage paid is proportionally reduced or increased on a predetermined scale. Depending on the Companys actual performance, annual incentive bonuses could range from
zero to 200% of an officers target level bonus. Bonuses are accrued in the year earned and are included in accrued expenses in the Consolidated Balance Sheets.



Certain other members of management participate in an annual cash incentive bonus program whereby a target level cash bonus
is established based upon the job responsibilities of their position. Cash bonus eligibility ranges from 5.0% to 40.0%. The actual cash bonus is determined by the overall performance of the Operating Partnership and the individuals performance
during each year. These bonuses are also accrued in the year earned and are included in accrued expenses in the Consolidated Balance Sheets.



On January 1, 1999, the Company established a compensation program that allows officers and certain other members of management to participate in a
long-term incentive plan that includes annual grants of stock options, restricted shares and grants of units in the Shareholder Value Plan. Twenty-five percent of the number of shares in each option grant vests at the end of each of the first four
years from date of grant. The options remain outstanding for ten years from date of grant.



The restricted shares generally vest 50.0% three years from the date of grant and the remaining 50.0% five years from date of grant. Such shares are no longer restricted after the vesting date. The restricted share
awards are amortized to expense over the restriction periods. Recipients are eligible to receive dividends on restricted stock issued. Restricted stock and annual expense information is as follows:



|                                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                              |  | Year Ended December 31, |          
|                                                              |  | 2003                    |           |   | 2002 |   |           | 2001 | 
|Restricted shares outstanding at January 1                    |  |                         | 252,355   |   |      |   | 211,669   |      |  |   | 127,008   |  
|Number of restricted shares awarded                           |  |                         | 104,076   |   |      |   | 78,969    |      |  |   | 89,910    |  
|Restricted shares vested                                      |  |                         | (21,693   | ) |      |   | (7,876    | )    |  |   |           |  
|Restricted shares repurchased upon cancellation or forfeiture |  |                         | (556      | ) |      |   | (30,407   | )    |  |   | (5,249    | )
|                                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|Restricted shares outstanding at December 31                  |  |                         | 334,182   |   |      |   | 252,355   |      |  |   | 211,669   |  
|                                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|Annual expense                                                |  | $                       | 1,937,000 |   |      | $ | 1,158,000 |      |  | $ | 1,053,000 |  
|                                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|Average fair value per share at date of grant                 |  | $                       | 24.03     |   |      | $ | 24.90     |      |  | $ | 24.82     |  
|                                                              |  |                         |           |   |      |   |           |      |  |   |           |  



Under the Shareholder
Value Plan participating officers are granted units in the plan each year. The units will produce a cash payment at the end of three years if the Companys total return measured by increases in the market value of the Common Stock plus the
dividends on those shares exceeds a comparable index of the Companys peers over a three year period. If the Companys performance is not at least 100.0% of the peer group index, no payout is made. To the extent performance exceeds the
peer group, the payout increases. A new three-year plan cycle begins each year under this program. There were no cash payouts under this plan for the years ended December 31, 2003, 2002 or 2001, respectively. This plan is accounted for under
variable plan accounting and accordingly, at each period-end, a liability equal to the current computed value under the plan for all outstanding plan units, adjusted for the three-year vesting period, is recorded with corresponding charges or
credits to compensation expense. Compensation expense (income) recognized under this plan amounted to $0.0 million in 2003, $(0.8) million in 2002 and $0.8 million in 2001.



F-31



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



6. EMPLOYEE BENEFIT PLANS - Continued



In 1997, the Company adopted the 1997 Performance Award Plan under which 349,990 option shares
granted to certain executive officers were accompanied by a dividend equivalent right (DER). No other options granted by the Company since 1997 have been accompanied by a DER. The Plan provided that if the total return on a share of
common stock exceeded certain thresholds during the five-year vesting period ending in 2002, the exercise price of the options would be reduced by an amount based on dividends and other distributions made with respect to such a share during the
period beginning on the date of grant of the stock options and ending when the options are exercised or expire. At the end of the five-year vesting period, the total return performance resulted in a reduction in the option exercise price of $6.098
per share. Since then, the exercise price per option share has been further reduced by $2.02 through December 31, 2003 as a result of the dividend payments on common shares. Because of the exercise price reduction feature, the stock options
accompanied by a DER are accounted using variable accounting as provided in FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. As a result, the Company recorded compensation expense of $1.2
million, $0.4 million, and $1.2 million for the years ended December 31, 2003, 2002, and 2001, respectively. At December 31, 2003 there were 244,569 options with an accompanying DER still outstanding.



The Company also established a deferred compensation plan pursuant to which
various officers may elect to defer a portion of the compensation that otherwise would be paid in exchange for investment in units of phantom common stock in the Company or in other investments unrelated to the Companys securities. At the end
of each calendar quarter, any officer that elects to defer compensation in phantom stock is credited with units of phantom stock at a 15.0% discount. The units of phantom stock accrue dividends in an amount equal to the dividends paid on the
Companys common stock. If the officer leaves the Companys employment for any reason (other than death, disability, normal retirement or voluntary termination by the Company) within two years after the end of the year in which such
officer has deferred compensation, such officer will incur a penalty with respect to amounts deferred in phantom stock. The Company records compensation expense for the full amount of compensation deferred by participating officers in each deferral
period. Over the two-year vesting period, the Company records additional compensation expense equal to the 15.0% discount, the accrued dividends and any changes in the market value of the Companys Common Stock from the date of the deferral,
which aggregated $0.7 million, $0.2 million and $0.0 million for the years ended December 31, 2003, 2002 and 2001, respectively.



The Companys obligations to its executive officers are reimbursed by the Operating Partnership.



401(k) Savings Plan



The Company has a 401(k) savings plan covering substantially all employees who meet certain age and employment criteria. The
Company matches the first 6.0% of compensation deferred at the rate of 75.0% of employee contributions. During 2003, 2002 and 2001, the Company contributed $1.0 million, $0.9 million and $0.6 million, respectively, to the 401(k) savings plan.
Administrative expenses of the plan are paid by the Company. The Companys obligations under and related to the 401(k) savings plan are reimbursed by the Operating Partnership.



Employee Stock Purchase Plan



The Company has an Employee Stock Purchase Plan for all active employees, under which employees can elect to contribute up to 25.0% of their base
compensation. At the end of each three-month offering period, the contributions in each participants account balance is applied to acquire shares of Common Stock at a cost that is calculated at 85.0% of the lower of the average closing price
on the New York Stock Exchange on the five consecutive days preceding the first day of the quarter or the five days preceding the last day of the quarter. With each share of Common Stock issued under the Employee Stock Purchase Plan, the Operating
Partnership issues one Common Unit to the Company in exchange for the price paid by the employee for the share of Common Stock. Employees purchased 50,812, 47,488 and 40,935 shares of Common Stock under the Employee Stock Purchase Plan during the
years ended December 31, 2003, 2002 and 2001, respectively. The discount on issued shares is expensed by the Company as additional compensation and aggregated $0.2 million, $0.1 million and $0.0 million in 2003, 2002 and 2001, respectively.



F-32



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



7. RENTAL INCOME



The Operating Partnerships real estate assets are leased to tenants under operating leases, substantially all of which
expire over the next 10 years. The minimum rental amounts under the leases are generally either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Generally, the leases also require that the tenants reimburse the
Operating Partnership for increases in certain costs above the base- year costs.



Expected future minimum rents to be received over the next five years and thereafter from tenants for leases in effect at December 31, 2003 for the Operating Partnerships Wholly Owned Properties are as follows
($ in thousands):



|           |  |   |          
|---------- |  | - | ---------
|2004       |  | $ | 375,284  
|2005       |  |   | 329,378  
|2006       |  |   | 273,647  
|2007       |  |   | 223,458  
|2008       |  |   | 171,331  
|Thereafter |  |   | 427,043  
|           |  |   |          
|           |  | $ | 1,800,141
|           |  |   |          



8. RELATED
PARTY TRANSACTIONS



The
Operating Partnership has previously reported that it has had a contract to acquire development land in the Bluegrass Valley office development project from GAPI, Inc., a corporation controlled by an executive officer/director. On January 17, 2003,
the Operating Partnership acquired an additional 23.5 acres of this land from GAPI, Inc. for cash and shares of Common Stock valued at $2.3 million. In May 2003, 4.0 acres of the remaining acres not yet acquired by the Operating Partnership was
taken by the Georgia Department of Transportation to develop a roadway interchange for consideration of $1.8 million. The Department of Transportation took possession and title of the property in June 2003. As part of the terms of the contract
between the Operating Partnership and GAPI, Inc., the Operating Partnership was entitled to the proceeds from the condemnation of $1.8 million, less the contracted purchase price between the Operating Partnership and GAPI, Inc. for the condemned
property of $0.7 million. On September 30, 2003, as a result of the condemnation, the Operating Partnership received proceeds of $1.8 million. A related party payable of $0.7 million to GAPI, Inc. related to the condemnation of the development land
is included in accounts payable, accrued expenses and other liabilities in the Operating Partnerships Consolidated Balance Sheet at December 31, 2003 and a gain of $1.0 million related to the condemnation of the development land is included in
gain on disposition of land in the Operating Partnerships Consolidated Statement of Income for the year ended December 31, 2003. The Operating Partnership believes that the purchase price with respect to each transaction did not exceed market
value. These transactions were unanimously approved by the executive committee and the full Board of Directors (with the related executive officer/director abstaining from the vote).



During 2000, in connection with the formation of MG-HIW Peachtree Corners III, LLC, a construction loan was made by an
affiliate of the Operating Partnership to this joint venture. Interest accrued at a rate of LIBOR plus 200 basis points. This construction loan was repaid in full in July 2003 when the Operating Partnership was assigned its partners 50.0%
equity interest in the single property encompassing 53,896 square feet owned by MG-HIW Peachtree Corners III, LLC.



From 1998 to 2002, the Operating Partnership advanced a total of $0.8 million to an officer/director of the Company related to certain expenses to be paid
by the Operating Partnership on behalf of that officer/director. During 2002, this advance, along with accrued interest, was repaid by the officer/director.



F-33



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



9. PARTNERS CAPITAL



Distributions



Distributions paid on Common Units (including Redeemable Common Units) were $1.86, $2.34 and $2.31 per common unit for the
years ended December 31, 2003, 2002 and 2001, respectively.



The Companys and the Operating Partnerships tax returns have not been examined by the IRS and, therefore, the taxability of dividends is subject to change. As of December 31, 2003, the tax basis of the Companys assets and
liabilities was $2.5 billion and $1.5 billion, respectively.



On February 2, 2004, the Board of Directors of the general partner declared a distribution of $0.425 per Common Unit payable on March 5, 2004 to common unitholders of record on February 13, 2004. On April 29, 2004, the Board of Directors
declared a distribution of $0.425 per Common Unit payable on June 4, 2004 to unitholders of record on May 10, 2004. On July 27, 2004, the Board declared a distribution of $0.425 per Common Unit payable on September 3, 2004 to unitholders of record
on August 9, 2004. On October 26, 2004, the Board declared a distribution of $0.425 per Common Unit payable on December 3, 2004 to common unitholders of record on November 8, 2004.



Redeemable Common Units



Generally, the Operating Partnership is obligated to redeem each Redeemable Common Unit at the request of the holder thereof for cash equal to the fair
market value of one share of the Companys Common Stock at the time of such redemption, provided that the Company at its option may elect to acquire any such Redeemable Common Unit presented for redemption for cash or one share of Common Stock.
When a common unitholder redeems a Redeemable Common Unit for a share of Common Stock or cash, the minority interest in the Operating Partnership will be reduced and the Companys share in the Operating Partnership will be increased. The Common
Units owned by the Company are not redeemable for cash.



Preferred Units



On February 12, 1997, the Company issued 125,000 8 5/8%
Series A Cumulative Redeemable Preferred Shares (the Series A Preferred Shares). The Series A Preferred Shares are non-voting and have a liquidation preference of $1,000.00 per share for an aggregate liquidation preference of $125.0
million plus accrued and unpaid dividends. Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by the Companys Board of Directors out of funds legally available for payment of dividends, cumulative
preferential cash distributions at a rate of 8 5/8% of the liquidation preference per annum (equivalent to $86.25 per share). Of the $86.25 dividend paid per Series A Preferred Share in 2003, $49.24 was taxable as ordinary income and $37.01 was
taxable as capital gain. On or after February 12, 2027, the Series A Preferred Shares may be redeemed for cash at the option of the Company. The redemption price (other than the portion thereof consisting of accrued and unpaid dividends) is payable
solely out of the sale proceeds of other capital shares of the Company, which may include shares of other series of preferred stock. The net proceeds (after underwriting commission and other offering costs) were contributed by the Company to the
Operating Partnership in exchange for 125,000 Series A Preferred Units (the Series A Preferred Units) in the Operating Partnership. The terms of the Series A Preferred Units as to dividends, liquidation and redemption rights generally
parallel those of the Series A Preferred Shares. The Company is holder of 100% of the Series A Preferred Units outstanding at December 31, 2003.



On June 19, 2001, the Company repurchased, in a privately negotiated transaction, 20,055 Series A Preferred Shares at $922.50 per share, for a total
purchase price of $18.5 million. For each Series A Preferred Share repurchased by the Company, one equivalent Series A Preferred Unit of the Operating Partnership was retired. In accordance with Emerging Issues Task Force Topic D-42, The
Effect on Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock, the Operating Partnership has classified the excess of the original net proceeds received for the Preferred Units over the repurchase
value as an increase in the income available to common unitholders.



F-34



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



9. PARTNERS CAPITAL - Continued



On September 25, 1997, the Company issued 6,900,000 8% Series B Cumulative Redeemable Preferred
Shares (the Series B Preferred Shares). The Series B Preferred Shares are non-voting and have a liquidation preference of $25.00 per share for an aggregate liquidation preference of $172.5 million plus accrued and unpaid dividends.
Holders of the Series B Preferred Shares are entitled to receive, when, as and if declared by the Companys Board of Directors out of funds legally available for payment of dividends, cumulative preferential cash distributions at a rate of 8%
of the liquidation preference per annum (equivalent to $2.00 per share). On or after September 25, 2002, the Series B Preferred Shares may be redeemed for cash at the option of the Company. The redemption price (other than the portion thereof
consisting of accrued and unpaid dividends) is payable solely out of the sale proceeds of other capital shares of the Company, which may include shares of other series of preferred stock. Of the $2.00 dividend paid per Series B Preferred Share in
2003, $1.14 was taxable as ordinary income and $0.86 was taxable as capital gain. The net proceeds (after underwriting commission and other offering costs) were contributed by the Company to the Operating Partnership in exchange for 6,900,000 Series
B Preferred Units (the Series B Preferred Units) in the Operating Partnership. The terms of the Series B Preferred Units as to dividends, liquidation and redemption rights generally parallel those of the Series B Preferred Shares. The
Company is holder of 100% of the Series B Preferred Units outstanding at December 31, 2003.



On April 23, 1998, the Company issued 4,000,000 depositary shares (the Series D Depositary Shares). Each Series D Depositary Share represents a 1/10 fractional interest in an 8% Series D Cumulative
Redeemable Preferred Share (the Series D Preferred Shares). The Series D Preferred Shares are non-voting and have a liquidation preference of $250.00 per share for an aggregate liquidation preference of $100.0 million plus accrued and
unpaid dividends. Holders of the Series D Preferred Shares are entitled to receive, when, as and if declared by the Companys Board of Directors out of funds legally available for payment of dividends, cumulative preferential cash distributions
at a rate of 8% of the liquidation preference per annum (equivalent to $20.00 per share). On or after April 23, 2003, the Series D Preferred Shares may be redeemed for cash at the option of the Company. The redemption price (other than the portion
thereof consisting of accrued and unpaid dividends) is payable solely out of the sale proceeds of other capital shares of the Company, which may include shares of other series of preferred stock. Of the $20.00 dividend paid per Series D Preferred
Share in 2003, $11.42 was taxable as ordinary income and $8.58 was taxable as capital gain. The net proceeds (after underwriting commission and other offering costs) were contributed by the Company to the Operating Partnership in exchange for
400,000 Series D Preferred Units (the Series D Preferred Units) in the Operating Partnership. The terms of the Series D Preferred Units as to dividends, liquidation and redemption rights generally parallel those of the Series D Preferred
Shares. The Company is holder of 100% of the Series D Preferred Units outstanding at December 31, 2003.



Stockholder Rights Plan



The Company currently has in effect a stockholder rights plan pursuant to which existing stockholders would have the ability to acquire additional Common Stock at a significant discount in the event a person or group attempts to acquire the
Company on terms of which the Companys current board does not approve. These rights are designed to deter a hostile takeover by increasing the takeover cost. As a result, such rights could discourage offers for the Company or make an
acquisition of the Company more difficult, even when an acquisition is in the best interest of the Companys stockholders. The rights plan should not interfere with any merger or other business combination the board of directors approves since
the Company may generally terminate the plan at any time at nominal cost.



Unit Repurchases



During 2003, the Operating
Partnership repurchased a total of 446,600 shares of Common Units at a weighted average price of $21.59 per unit. Since 1999, the Operating Partnership has repurchased 2.4 million Common Units at a weighted average price of $24.21 per unit for a
total purchase price of $58.3 million.



F-35



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



10. DERIVATIVE FINANCIAL INSTRUMENTS



SFAS No. 133, as amended by SFAS No. 149 requires the Operating Partnership
to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or will be recognized in Accumulated Other Comprehensive Loss (AOCL) until the hedged item is
recognized in earnings. The ineffective portion of a derivatives change in fair value is recognized in earnings.



The Operating Partnerships interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and
to lower overall borrowing costs. To achieve these objectives, the Operating Partnership may enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate its interest rate risk with respect
to various debt instruments. The Operating Partnership does not hold these derivatives for trading or speculative purposes.



The interest rate on all of the Operating Partnerships variable rate debt is currently adjusted at one to three month intervals, subject to
settlements under these contracts. The Operating Partnership received only a nominal amount of payments under the interest rate hedge contracts in 2003. Net payments made to counter parties under interest rate hedge contracts were $0.4 million and
$1.0 million in 2002 and 2001, respectively, and were recorded as increases to interest expense.



The Operating Partnership is exposed to certain losses in the event of non-performance by the counter party under the interest rate hedge contract. The
Operating Partnership expects the counter party, which is a major financial institution, to perform fully under the contract. However, if the counter party was to default on its obligations under the interest rate hedge contract, the Operating
Partnership could be required to pay the full rates on its debt, even if such rates were in excess of the rate in the contract.



On the date that the Operating Partnership enters into a derivative contract, the Operating Partnership designates the derivative as (1) a hedge of the
variability of cash flows that are to be received or paid in connection with a recognized liability (a cash flow hedge), (2) a hedge of changes in the fair value of an asset or a liability attributable to a particular risk (a fair
value hedge) or (3) an instrument that is held as a non-hedge derivative. Changes in the fair value of highly effective cash flow hedges, to the extent that the hedges are effective, are recorded in AOCL, until earnings are affected by the
hedged transaction (i.e., until periodic settlements of a variable-rate liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in
the cash flows of the transaction) is recorded in current-period earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in current-period
earnings. Changes in the fair value of non-hedging instruments are reported in current-period earnings.



The Operating Partnership formally documents all relationships between hedging instruments and hedged items as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to (1) specific assets and liabilities on the balance sheet or (2) forecasted transactions. The Operating
Partnership also assesses and documents, both at the hedging instruments inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with
the hedged items. When the Operating Partnership determines that a derivative is not (or has ceased to be) highly effective as a hedge, the Operating Partnership discontinues hedge accounting prospectively.



During the year ended December 31, 2003, the Operating Partnership entered
into and subsequently terminated a treasury lock agreement to hedge the change in the fair market value of the MOPPRS and related remarketing option issued by the Operating Partnership. The termination of this treasury lock agreement resulted in a
payment of $1.5 million to the Operating Partnership, which was included as part of the $14.7 million loss on extinguishment recorded in early 2003  see Note 5.



F-36



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



10. DERIVATIVE FINANCIAL INSTRUMENTS -
Continued



In addition, during the year ended December 31, 2003, the Operating Partnership entered into and
subsequently terminated three interest rate swap agreements related to a ten-year fixed rate financing completed on December 1, 2003. These swap agreements were designated as cash flow hedges. The unamortized effective portion of the cumulative gain
on these derivative instruments was $3.9 million at December 31, 2003 and is being reported as a component of AOCL in stockholders equity. This deferred gain will be recognized in net income as a reduction of interest expense in the same
period or periods during which interest expense on the hedged fixed rate financing affects net income. The Operating Partnership expects that approximately $0.3 million will be recognized in 2004.



In 2003, the Operating Partnership also entered into two interest rate swaps
related to a floating rate credit facility. The swaps effectively fixed the one month LIBOR rate on $20.0 million of floating rate debt at 0.99% from August 1, 2003 to January 1, 2004 and at 1.59% from January 2, 2004 until May 31, 2005. These swap
agreements are designated as cash flow hedges and the effective portion of the cumulative gain on these derivative instruments was $0.02 million at December 31, 2003. The Operating Partnership expects that the portion of the cumulative gain recorded
in AOCL at December 31, 2003 associated with these derivative instruments, which will be recognized within the next 12 months, will be approximately $0.04 million.



At December 31, 2003, approximately $6.0 million of deferred financing costs from past cash flow hedging instruments
remained in AOCL. These costs will be recognized as interest expense as the underlying debt is repaid. The Operating Partnership expects that the portion of the cumulative loss recorded in AOCL at December 31, 2003 associated with these derivative
instruments, which will be recognized as interest expense within the next 12 months, will be approximately $0.8 million.



11. OTHER COMPREHENSIVE INCOME/(LOSS)



Other comprehensive income/(loss) represents net income plus the results of certain partners capital changes not
reflected in the Consolidated Statements of Income. The components of other comprehensive income/(loss) are as follows (in thousands):



|                                                                                                           |  |                   |        |                   |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ----------------- | - | ------ | -
|                                                                                                           |  | December 31, 2003 |        | December 31, 2002 |  
|Net income                                                                                                 |  | $                 | 50,419 |                   | $ | 90,564 |  
|Other comprehensive income/(loss):                                                                         |  |                   |        |                   |   |        |  
|Realized derivative gains/(losses) on cashflow hedges                                                      |  |                   | 3,866  |                   |   | (1,306 | )
|Amortization as interest expense of hedging gains and losses included in other comprehensive income/(loss) |  |                   | 1,688  |                   |   | 1,543  |  
|                                                                                                           |  |                   |        |                   |   |        |  
|Total other comprehensive income                                                                           |  |                   | 5,554  |                   |   | 237    |  
|                                                                                                           |  |                   |        |                   |   |        |  
|Total comprehensive income                                                                                 |  | $                 | 55,973 |                   | $ | 90,801 |  
|                                                                                                           |  |                   |        |                   |   |        |  



12. DISCONTINUED
OPERATIONS AND THE IMPAIRMENT OF LONG-LIVED ASSETS



In October 2001, the FASB issued SFAS No. 144, which supercedes SFAS No. 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of and the accounting and reporting provisions for disposals of a segment of business as addressed in APB Opinion No. 30. SFAS No. 144 was effective as of January 1, 2002 and extended
the reporting requirements of discontinued operations to include those long-lived assets that: were classified as held for sale at December 31, 2003 as a result of disposal activities that were initiated subsequent to January 1, 2002, or were sold
during 2002 or 2003 as a result of disposal activities that were initiated subsequent to January 1, 2002, and the operations and cash flows have been or will be eliminated from the ongoing operations of the Operating Partnership and the Operating
Partnership will not have any significant continuing involvement in the operations after the disposal transaction. As a result, assets, which do not satisfy these requirements, have been excluded from discontinued operations.



Per SFAS No. 144, those long-lived assets that were sold during 2002 as a
result of disposal activities initiated prior to January 1, 2002 should be accounted for in accordance with SFAS No. 121 and APB Opinion No. 30. During 2002, the Operating Partnership sold three properties as a result of disposal activities
initiated prior to January 1, 2002, and the gains realized on these sales are appropriately included in the gains on disposition of property, net in the Operating Partnerships Consolidated Statements of Income.



F-37



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



12. DISCONTINUED OPERATIONS AND
THE IMPAIRMENT OF LONG-LIVED ASSETS - Continued



As part of its business strategy, the Operating Partnership will from time to time selectively
dispose of non-core properties or other properties in order to use the net proceeds for investments or other purposes. The table below sets forth the net operating results and net carrying value of those assets classified as discontinued operations
in the Companys Consolidated Financial Statements. These assets classified as discontinued operations comprise 2.3 million square feet of property and 7.8 acres of revenue-producing land sold during 2002 and 2003 and 0.3 million square feet of
property and 88 apartment units held for sale at December 31, 2003. These long-lived assets relate to disposal activities that were initiated subsequent to the effective date of SFAS No. 144 or that met certain stipulations prescribed by SFAS No.
144. The operations and cash flows of these assets have been or will be eliminated from the ongoing operations of the Operating Partnership and the Operating Partnership will not have any significant continuing involvement in the operations after
the disposal transaction (in thousands):



|                                                                       |  |                         |        |      |   |        |  |   |        
|---------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | -------
|                                                                       |  | Year Ended December 31,
|                                                                       |  | 2003                    |        | 2002 |   | 2001  
|Rental and other revenues                                              |  | $                       | 6,525  |      | $ | 22,827 |  | $ | 27,076 
|Operating expenses:                                                    |  |                         |        |      |   |        |  |   |        
|Rental property and other expenses                                     |  |                         | 2,281  |      |   | 6,834  |  |   | 7,961  
|Depreciation and amortization                                          |  |                         | 1,354  |      |   | 5,399  |  |   | 5,538  
|                                                                       |  |                         |        |      |   |        |  |   |        
|Total operating expenses                                               |  |                         | 3,635  |      |   | 12,233 |  |   | 13,499 
|Other income                                                           |  |                         | 33     |      |   | 150    |  |   | 323    
|                                                                       |  |                         |        |      |   |        |  |   |        
|Income from discontinued operations                                    |  |                         | 2,923  |      |   | 10,744 |  |   | 13,900 
|                                                                       |  |                         |        |      |   |        |  |   |        
|Gain on sale of discontinued operations                                |  |                         | 8,834  |      |   | 13,122 |  |   |       
|Total discontinued operations                                          |  | $                       | 11,757 |      | $ | 23,866 |  | $ | 13,900 
|                                                                       |  |                         |        |      |   |        |  |   |        
|Carrying value of assets held for sale and assets sold during the year |  | $                       | 24,268 |      | $ | 66,522 |  | $ | 183,048
|                                                                       |  |                         |        |      |   |        |  |   |        



SFAS No. 144 also
requires that a long-lived asset classified as held for sale be measured at the lower of the carrying value or fair value less cost to sell. During 2003, the Operating Partnership had determined that the carrying value of one office property held
for sale, which has now been sold, was greater than its fair value less cost to sell and has recognized a $0.1 million impairment loss, which is included in gain on sale of discontinued operations in the Consolidated Statements of Income for the
year ended December 31, 2003. For 2002, the impairment loss related to two additional properties whose carrying value was greater than their fair value less cost to sell, which have now been sold, was $4.1 million. This impairment loss is included
in gain on sale of discontinued operations in the Consolidated Statement of Income for the year ended December 31, 2002.



SFAS No. 144 also requires that if indicators of impairment exist, the carrying value of a long-lived asset classified as held for use be compared to the
sum of its estimated undiscounted future cash flows. If the carrying value is greater than the sum of its undiscounted future cash flows, an impairment loss should be recognized for the excess of the carrying amount of the asset over its estimated
fair value. At December 31, 2003, because there were no properties held for use with indicators of impairment where the carrying value exceeds the sum of undiscounted future cash flows, no impairment loss related to properties held for use was
recognized during the year ended December 31, 2003. For the year ended December 31, 2002, the impairment loss based on this criteria was $0.8 million. In addition, in 2002, the Company recognized a $9.1 million impairment loss related to one office
property that has been demolished and may be redeveloped into a class A suburban office property in the future. The carrying value of this property exceeded the sum of its undiscounted future cash flows. These impairment losses aggregating $9.9
million are included as impairment of assets held for use in the Consolidated Statements of Income for the year ended December 31, 2002.



F-38



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



13. EARNINGS PER COMMON UNIT



The following table sets forth the computation of basic and diluted earnings
per Common Unit:



|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                                  |  | 2003                                     |         |   | 2002 |   |         | 2001 | 
|                                                                                                                                  |  | ($ in thousands, except per unitamounts) |        
|Numerator:                                                                                                                        |  |                                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                                        |  | $                                        | 50,419  |   |      | $ | 90,564  |      |  | $ | 130,899 |  
|Non-convertible preferred unit distributions                                                                                      |  |                                          | (30,852 | ) |      |   | (30,852 | )    |  |   | (31,500 | )
|Excess of preferred unit carrying value over repurchase value                                                                     |  |                                          |        |   |      |   |        |      |  |   | 1,012   |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|Numerator for basic earnings per Common Unit  net income available for Class A Common Unit holders                               |  | $                                        | 19,567  |   |      | $ | 59,712  |      |  | $ | 100,411 |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|Numerator for diluted earnings per Common Unit  net income available for Class A Common Unit holders  after assumed
conversions |  | $                                        | 19,567  |   |      | $ | 59,712  |      |  | $ | 100,411 |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|Denominator:                                                                                                                      |  |                                          |         |   |      |   |         |      |  |   |         |  
|Denominator for basic earnings per Common Unit  weighted-average shares                                                          |  |                                          | 59,156  |   |      |   | 59,707  |      |  |   | 61,234  |  
|Add:                                                                                                                              |  |                                          |         |   |      |   |         |      |  |   |         |  
|Employee stock options                                                                                                            |  |                                          | 247     |   |      |   | 356     |      |  |   | 420     |  
|Warrants                                                                                                                          |  |                                          | 3       |   |      |   | 5       |      |  |   | 6       |  
|Non-vested restricted units                                                                                                       |  |                                          | 332     |   |      |   | 256     |      |  |   | 196     |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|Denominator for diluted earnings per Common Unit  adjusted weighted average Common Units and assumed conversions                 |  |                                          | 59,738  |   |      |   | 60,324  |      |  |   | 61,856  |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|Basic earnings per Common Unit                                                                                                    |  | $                                        | 0.33    |   |      | $ | 1.00    |      |  | $ | 1.64    |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  
|Diluted earnings per Common Unit                                                                                                  |  | $                                        | 0.33    |   |      | $ | 0.99    |      |  | $ | 1.62    |  
|                                                                                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |  

---

|(1) | For additional disclosures regarding outstanding preferred stock, employee stock options and warrants, see Notes 9 and 14 included herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



The number of Common Units that could be issued upon the exercise of warrants
and stock options are as follows:



|                                                 |  |                   |  |                  
|------------------------------------------------ |  | ----------------- |  | -----------------
|                                                 |  | December 31, 2003 |  | December 31, 2002
|Outstanding warrants                             |  | 921,715           |  | 921,715          
|Outstanding stock options                        |  | 4,370,648         |  | 3,672,245        
|Possible future issuance under stock option plan |  | 656,285           |  | 1,410,988        
|                                                 |  |                   |  |                  
|                                                 |  | 5,948,648         |  | 6,004,948        
|                                                 |  |                   |  |                  



14. STOCK
OPTIONS AND WARRANTS



As of December 31, 2003, 6.0 million shares of the Companys authorized Common Stock were reserved for issuance under the Amended and Restated 1994 Stock Option Plan. Stock options granted under this plan generally vest over a four or
five-year period beginning with the date of grant. Upon exercise of a stock option, the Company will contribute the exercise price to the Operating Partnership in exchange for a Common Unit; therefore, the Operating Partnership accounts for such
options as if issued by the Operating Partnership.



F-39



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



14. STOCK OPTIONS AND WARRANTS
- Continued



In 1995, the FASB issued SFAS No. 123. SFAS No. 123 recommends the use of a fair value based method
of accounting for an employee stock option whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period (generally the vesting period of the award). However, SFAS No. 123
specifically allows an entity to continue to measure compensation cost under APB Opinion No. 25 so long as pro forma disclosures of net income and earnings per share are made as if SFAS No. 123 had been adopted. Through December 31, 2002, the
Operating Partnership elected to follow APB Opinion No. 25 and related interpretations in accounting for its employee stock options. In 2002 and 2001, 494,329 and 95,443 options were exercised whereby the Company simultaneously repurchased shares
from the employees sufficient to pay for the option exercise price and the employees withholding taxes. Accordingly, these option exercises were considered to represent new measurement dates and the entire intrinsic value of the options was
expensed in accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Options, an Interpretation of APB Opinion No. 25. The amounts expensed aggregated $3.7 million and $1.2 million during the years
ended December 31, 2002 and 2001, respectively. There were no similar option exercises during the year ended December 31, 2003.



In December 2002, the FASB issued SFAS No. 148 to provide alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results. On January 1, 2003, the Operating Partnership adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123. The Operating
Partnership applied the prospective method of accounting and expenses all employee stock options (and similar awards) issued on or after January 1, 2003 over the vesting period based on the fair value of the award on the date of grant. The adoption
of this statement did not have a material impact on the Operating Partnerships results of operations.



Under SFAS No. 123, the fair value of a stock option is estimated by using an option-pricing model that takes into account as of the grant date the
exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option. SFAS No. 123 provides
examples of possible pricing models and includes the Black-Scholes pricing model, which the Operating Partnership used to develop its pro forma disclosures. The Black-Scholes model was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable rather than for use in estimating the fair value of employee stock options subject to vesting and transferability restrictions.



F-40



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



14. STOCK OPTIONS AND WARRANTS
- Continued



Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, only
options granted subsequent to that date were valued using the Black-Scholes model. The fair values of the options granted in 2003 were estimated at the grant dates using the following weighted average assumptions: risk-free interest rates of 2.98%
and 3.94%, dividend yield of 8.71% and 11.05%, expected volatility of 17.10% and 20.39% and a weighted average expected life of the options of four years. The fair value of the options granted in 2002 was estimated at the grant dates using the
following weighted average assumptions: risk-free interest rates ranging between 3.64% and 4.06%, dividend yield of 8.70%, expected volatility of 22.72% and a weighted average expected life of the options of four years. The fair values of the
options granted in 2001 were estimated at the grant dates using the following weighted average assumptions: risk-free interest rates ranging between 5.76% and 6.11%, dividend yield of 9.00%, expected volatility of 17.20% and a weighted average
expected life of the options of four years. Had the compensation cost for the Companys stock option plans for options issued before January 1, 2003 been determined based on the fair values at the grant dates for awards granted between January
1, 1995 and December 31, 2002 consistent with the provisions of SFAS No. 123, the Operating Partnerships net income and net income per unit would have decreased to the pro forma amounts indicated below:



|                                                                                                 |  |                                          |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                 |  | Year Ended December 31,                  |       
|                                                                                                 |  | 2003                                     |        |   | 2002 |   |        | 2001 | 
|                                                                                                 |  | ($ in thousands, except per unitamounts) |       
|Net income available for common unitholders - as reported                                        |  | $                                        | 19,567 |   |      | $ | 59,712 |      |  | $ | 100,411 |  
|Add: Stock option expense included in reported net income                                        |  |                                          | 1,249  |   |      |   | 354    |      |  |   | 1,190   |  
|Deduct: Total stock option expense determined under fair value recognition method for all awards |  |                                          | (1,840 | ) |      |   | (1,142 | )    |  |   | (3,428  | )
|                                                                                                 |  |                                          |        |   |      |   |        |      |  |   |         |  
|Pro forma net income available for common unitholders                                            |  | $                                        | 18,976 |   |      | $ | 58,924 |      |  | $ | 98,173  |  
|                                                                                                 |  |                                          |        |   |      |   |        |      |  |   |         |  
|Basic net income per common unit - as reported                                                   |  | $                                        | 0.33   |   |      | $ | 1.00   |      |  | $ | 1.64    |  
|Basic net income per common unit - pro forma                                                     |  | $                                        | 0.32   |   |      | $ | 0.99   |      |  | $ | 1.60    |  
|Diluted net income per common unit - as reported                                                 |  | $                                        | 0.33   |   |      | $ | 0.99   |      |  | $ | 1.62    |  
|Diluted net income per common unit - pro forma                                                   |  | $                                        | 0.32   |   |      | $ | 0.98   |      |  | $ | 1.59    |  



The following table
summarizes information about employees and directors stock options outstanding at December 31, 2003, 2002 and 2001:



|                              |  |                     |   |  |                              |      
|----------------------------- |  | ------------------- | - |  | ---------------------------- | -----
|                              |  | Options Outstanding
|                              |  | Number ofShares     |   |  | WeightedAverageExercisePrice
|Balances at December 31, 2000 |  | 3,273,658           |   |  | $                            | 22.93
|Options granted               |  | 741,883             |   |  |                              | 25.02
|Options terminated            |  | (119,123            | ) |  |                              | 26.98
|Options exercised             |  | (95,443             | ) |  |                              | 13.36
|                              |  |                     |   |  |                              |      
|Balances at December 31, 2001 |  | 3,800,975           |   |  |                              | 23.29
|Options granted               |  | 570,338             |   |  |                              | 26.96
|Options terminated            |  | (204,739            | ) |  |                              | 25.68
|Options exercised             |  | (494,329            | ) |  |                              | 19.64
|                              |  |                     |   |  |                              |      
|Balances at December 31, 2002 |  | 3,672,245           |   |  |                              | 24.03
|Options granted               |  | 756,953             |   |  |                              | 21.03
|Options terminated            |  | (2,250              | ) |  |                              | 30.34
|Options exercised             |  | (56,300             | ) |  |                              | 19.08
|                              |  |                     |   |  |                              |      
|Balances at December 31, 2003 |  | 4,370,648           |   |  | $                            | 24.40
|                              |  |                     |   |  |                              |      



F-41



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



14. STOCK OPTIONS AND WARRANTS
- Continued



|                  |  |                     |  |                              |      
|----------------- |  | ------------------- |  | ---------------------------- | -----
|                  |  | Options Exercisable
|                  |  | Number ofShares     |  | WeightedAverageExercisePrice
|December 31, 2001 |  | 1,712,626           |  | $                            | 23.76
|December 31, 2002 |  | 1,729,325           |  | $                            | 23.55
|December 31, 2003 |  | 2,478,781           |  | $                            | 23.60



Exercise prices for
options outstanding as of December 31, 2003 ranged from $12.57 to $31.14. The weighted average remaining contractual life of those options is 6.4 years. Using the Black-Scholes options valuation model, the weighted average fair values of options
granted during 2003, 2002 and 2001 were $0.93, $0.72 and $1.11, respectively, per option.



Warrants



In connection
with various acquisitions in 1995, 1996 and 1997, the Company issued warrants to purchase shares of Common Stock.



The following table sets forth information regarding warrants outstanding as of December 31, 2003:



|                 |  |                   |  |               |      
|---------------- |  | ----------------- |  | ------------- | -----
|Date of Issuance |  | Number ofWarrants |  | ExercisePrice
|February 1995    |  | 35,000            |  | $             | 21.00
|April 1996       |  | 150,000           |  | $             | 28.00
|October 1997     |  | 626,715           |  | $             | 32.50
|December 1997    |  | 110,000           |  | $             | 34.13
|                 |  |                   |  |               |      
|Total            |  | 921,715           |  |               |      
|                 |  |                   |  |               |      



The warrants granted
in February 1995, April 1996 and December 1997 expire 10 years from the respective dates of issuance. All warrants are exercisable from the dates of issuance. The warrants granted in October 1997 do not have an expiration date. Upon exercise of a
warrant, the Company will contribute the exercise price to the Operating Partnership in exchange for a Common Unit; therefore, the Operating Partnership accounts for such warrants as if issued by the Operating Partnership.



15. COMMITMENTS AND CONTINGENCIES



Concentration of Credit Risk



The Operating Partnership maintains its cash and cash equivalent investments
at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Management of the Operating Partnership believes that the potential risk of loss is remote.



Land Leases



Certain
properties in the Operating Partnerships wholly owned portfolio are subject to land leases expiring through 2082. Rental payments on these leases are adjusted annually based on either the consumer price index or on a predetermined schedule.
Land leases subject to increases under a pre-determined schedule are accounted for under the straight-line method.



For three properties, the Operating Partnership has the option to purchase the leased land during the lease term at the greater of 85.0% of appraised
value or $0.03 million per acre.



F-42



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



The Operating Partnerships payment obligations for future minimum lease payments are as follows
($ in thousands):



|           |  |   |       
|---------- |  | - | ------
|2004       |  | $ | 1,269 
|2005       |  |   | 1,273 
|2006       |  |   | 1,213 
|2007       |  |   | 1,194 
|2008       |  |   | 1,194 
|Thereafter |  |   | 42,766
|           |  |   |       
|           |  | $ | 48,909
|           |  |   |       



Contracts



The Operating Partnership has entered into contracts related to tenant
improvements and the development of certain properties totaling $23.5 million as of December 31, 2003. The amounts remaining to be paid under these contracts as of December 31, 2003 totaled $17.6 million.



Environmental Matters



Substantially all of the Operating Partnerships in-service properties have been subjected to Phase I environmental
assessments (and, in certain instances, Phase II environmental assessments). Such assessments and/or updates have not revealed, nor is management aware of, any environmental liability that management believes would have a material adverse effect on
the accompanying Consolidated Financial Statements.



Joint Ventures



Certain properties owned in joint ventures with
unaffiliated parties have buy/sell options that may be exercised to acquire the other partners interest by either the Operating Partnership or its joint venture partner if certain conditions are met as set forth in the respective joint venture
agreement.



F-43



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



Guarantees and Other Obligations



The following is a tabular presentation and related discussion of various guarantees and other obligations as of December
31, 2003 and additional guarantees and obligations that arose after December 31, 2003:



|                                                             |  |                                       |  |                         |        |                      |        
|------------------------------------------------------------ |  | ------------------------------------- |  | ----------------------- | ------ | -------------------- | -------
|Entity or Transaction                                        |  | Type of Guarantee or Other Obligation |  | AmountRecorded/Deferred |        | DateGuaranteeExpires
|                                                             |  |                                       |  | ($ in thousands)        |        |                     
|MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC (8)     |  | Purchase option                       |  | $                       |       |                      | 3/2004 
|MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC (1),(8) |  | Debt                                  |  | $                       |       |                      | 3/2004 
|Des Moines Joint Ventures (1),(9)                            |  | Debt                                  |  | $                       |       |                      | Various
|MG-HIW, LLC (2),(6)                                          |  | Letter of credit                      |  | $                       |       |                      | 3/2004 
|MG-HIW, LLC (3),(5)                                          |  | Return of investment                  |  | $                       | 60,991 |                      | 3/2004 
|MG-HIW, LLC (3),(5)                                          |  | Rent and leasing costs                |  | $                       |       |                      | 3/2004 
|RRHWoods, LLC (2),(10)                                       |  | Debt                                  |  | $                       |       |                      | 8/2006 
|Plaza Colonnade (2),(11)                                     |  | Construction loan and completion      |  | $                       | 2,844  |                      | 2/2006 
|Plaza Colonnade (2),(11)                                     |  | Letter of credit                      |  | $                       |       |                      | 12/2004
|SF-HIW Harborview, LP (3),(7)                                |  | Rent and tenant improvement (4)       |  | $                       |       |                      | 9/2007 
|SF-HIW Harborview, LP (3),(7)                                |  | Purchase obligation                   |  | $                       | 13,566 |                      | 9/2015 
|Eastshore (Capital One) (3),(12)                             |  | Rent (4)                              |  | $                       |       |                      | 11/2007
|Capital One (3),(13)                                         |  | Rent (4)                              |  | $                       | 3,136  |                      | 10/2009
|Industrial (3),(14)                                          |  | Rent (4)                              |  | $                       | 2,347  |                      | 12/2006
|Highwoods DLF 97/26 DLF 99/32, LP (2),(15)                   |  | Rent (4)                              |  | $                       | 855    |                      | 6/2008 
|                                                             |  |                                       | 
|Guarantees that arose after December 31, 2003:               |  |                                       |  |                         |        |                      |        
|RRHWoods, LLC and Dallas County Partners (2),(16)            |  | Indirect Debt (4)                     |  | $                       | 1,290  |                      | 6/2014 
|HIW-KC Orlando, LLC (3),(17)                                 |  | Rent (4)                              |  | $                       | 629    |                      | 4/2011 
|HIW-KC Orlando, LLC (3),(17)                                 |  | Leasing costs                         |  | $                       | 4,101  |                      | 12/2024

---

|(1) | Represents guarantees entered into prior to the January 1, 2003 effective date of FIN 45 for initial recognition and measurement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



|(2) | Represents guarantees that fall under the initial recognition and measurement requirements of FIN 45.
|--- | -----------------------------------------------------------------------------------------------------



|(3) | Represents guarantees that are excluded from the fair value accounting and disclosure provisions of FIN 45 since the existence of such guarantees prevents sale treatment and/or the
recognition of profit from the sale transaction.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The maximum potential amount of future payments described below for these guarantees assumes the Operating Partnership pays the maximum possible liability under the guarantee with
no offsets or reductions. If the space is leased, it assumes the existing tenant defaults at December 31, 2003 and the space remains unleased through the remainder of the guarantee term. If the space is vacant, it assumes the space remains vacant
through the expiration of the guarantee. Since it is assumed that no new tenant will occupy the space, lease commissions, if applicable, are excluded.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | As more fully described in Note 3, in December 2000, the Operating Partnership guaranteed its 80.0% partner in the MG-HIW, LLC joint venture a 20.0% leveraged internal rate of
return on that partners $50.0 million equity investment in the Orlando City Group. This transaction was accounted for as a financing arrangement and the Operating Partnership adjusted the related financing obligation each period up to the
20.0% internal rate of return guarantee, which was $61.0 million at December 31, 2003. The Operating Partnership settled its obligation for $62.5 million in cash in March 2004 as described in Note 3. In addition, as described in Notes 3 and 18, the
Operating Partnership guaranteed certain rents and leasing costs. In 2004, and prior to the Company acquiring Miller Globals 80.0% interest on March 2, 2004, the Company paid $0.4 million related to these guaranteed rents and leasing costs.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | On July 29, 2003, the Operating Partnership entered into an option agreement to acquire Miller Globals 80.0% interest in the Orlando City Group. In connection with the option
agreement, the Operating Partnership entered into a letter of credit in the amount of $7.5 million in favor of Miller Global, which could have been drawn by Miller Global in the event the Operating Partnership did not exercise its option to purchase
Miller Globals 80.0% interest in the Orlando City Group of MG-HIW, LLC by March 24, 2004. Since the Operating Partnership exercised its option in March 2004, the fair value of the letter of credit guarantee liability is not recorded in the
Operating Partnerships Balance Sheet. See Note 3 for further discussion.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-44



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



|(7) | As more fully described in Note 3, in 2002 the Operating Partnership granted its partner in SF-HIW Harborview, LP a put option and also entered into a master lease arrangement for
five years covering vacant space in the building owned by the partnership and agreed to pay certain tenant improvement costs. The maximum potential amount of future payments as of December 31, 2004 the Company could be required to make related to
the rent guarantee and tenant improvement is $1.4 million.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | As more fully described in Note 2, in July 2003, the Operating Partnership entered into an option agreement with its partner, Miller Global, to acquire Miller Globals 50.0%
interest in the assets encompassing 87,832 square feet of property and 7.0 acres of development land of MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million. The $7.4 million construction loan to fund the development of this
property, of which $7.3 million was outstanding at December 31, 2003, was either to be paid in full or assumed by the Operating Partnership in connection with the acquisition. On January 29, 2002, the Operating Partnership guaranteed 50.0% of the
construction loan such that if the joint venture is unable to repay the outstanding balance, the Operating Partnership would have been required, under the terms of the agreement, to repay 50.0% of the outstanding balance. The maximum potential
amount of future payments by the Operating Partnership under the guarantee agreement was $3.7 million. However, the Operating Partnership had the contractual right to seek recourse from its partner for 50.0% of that amount. The Operating Partnership
exercised its option on March 2, 2004 and acquired its partners 50.0% interest in MG-HIW Metrowest I, LLC and MG-HIW Metrowest II, LLC for $3.2 million. The $7.4 million construction loan was paid in full by the Operating Partnership at
closing.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | In connection with the Des Moines joint ventures, the Operating Partnership has guaranteed certain loans of the joint ventures; such guarantees were in place prior to January 1,
2003. The maximum potential amount of future payments the Operating Partnership could be required to make under the guarantees is $25.5 million. Of this amount, $8.6 million arose from housing revenue bonds that require credit enhancements in
addition to the real estate mortgages. The bonds bear a floating interest rate, which at December 31, 2003 averaged 1.3%, and mature in 2015. Guarantees totaling $9.5 million will expire upon two industrial buildings becoming 93.8% and 95.0% leased
or when the related loans mature. As of December 31, 2003, these buildings were 90.0% and 64.0% leased, respectively. The remaining $7.4 million in guarantees relate to loans on four office buildings that were in the lease-up phase at the time the
loans were initiated. Each of the loans will expire by May 2008. The average occupancy of the four buildings at December 31, 2003 was 91.0%. If the joint ventures are unable to repay the outstanding balances under the loans, the Operating
Partnership will be required, under the terms of the agreements, to repay the outstanding balances. Recourse provisions exist to enable the Operating Partnership to recover some or all of such payments from the joint ventures assets and/or the
other partner. The joint ventures currently generate sufficient cash flow to cover the debt service required by the loans.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | In connection with the RRHWoods, LLC joint venture, the Operating Partnership renewed its guarantee of $6.2 million to a bank in July 2003; this guarantee expires in August 2006 and
may be renewed by the Operating Partnership. The bank provides a letter of credit securing industrial revenue bonds that mature in 2015. The Operating Partnership would be required to perform under the guarantee should the joint venture be unable to
repay the bonds. The Operating Partnership has recourse provisions in order to recover from the joint ventures assets and the other partner for amounts paid in excess of its proportionate share. The property collateralizing the bonds is 100.0%
leased and currently generates sufficient cash flow to cover the debt service required by the bond financing. As a result, no liability has been recorded in the Operating Partnerships Balance Sheet.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | With respect to the Plaza Colonnade, LLC joint venture, the Operating Partnership has included $2.8 million in other liabilities and adjusted the investment in unconsolidated
affiliates by $2.8 million on its Consolidated Balance Sheet at December 31, 2003 related to two separate guarantees of a construction loan agreement and a construction completion agreement, which were subsequently terminated in December 2004. The
construction loan was scheduled to mature in February 2006, with two one-year options to extend the maturity date that were conditional on completion and lease-up of the project. The term of the construction completion agreement required the core
and shell of the building to be completed by December 15, 2005; the core and shell were completed in November 2004. Both guarantees arose from the formation of the joint venture to construct an office building. If the joint venture were unable to
repay the outstanding balance under the construction loan agreement or complete the construction of the office building, the Operating Partnership could have been required, under the terms of the agreements, to repay its 50.0% share of the
outstanding balance under the construction loan and complete the construction of the office building. As of December 31, 2003, the Operating Partnerships potential amount of future payments under the construction loan and completion agreements
was $34.9 million.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-45



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



On March 30, 2004, the Industrial Development Authority of the City of Kansas City, Missouri issued
$18.5 million in non-recourse bonds to finance public improvements made by the joint venture for the benefit of the Kansas City Missouri Public Library. Since the joint venture leases the land for the office building from the library, the joint
venture is obligated to build certain public improvements. The net bond proceeds of $16.3 million have been deposited with a trustee for the payment of project costs, interest and issuance costs. The joint venture is reimbursed for qualified project
costs as they are certified. The joint venture has recorded this obligation on its balance sheet. The bonds are ultimately paid by the Tax Increment Financing Revenue generated by the building and its tenants. As funds are transferred from the bond
fund to the construction lender, the Operating Partnerships exposure is reduced.



As a result of the bond proceeds, the Operating Partnerships maximum potential amount of future payments under the construction loan and completion agreements was reduced to $27.6 million at March 31, 2004
assuming the construction loan was fully funded. No recourse provisions existed that would have enabled the Operating Partnership to recover from the other partner amounts paid under the guarantee. However, given that the loan is collateralized by
the building, the Operating Partnership and their partner could have obtained and liquidated the building to recover the amounts paid should the Operating Partnership have been required to perform under the guarantees.



In addition to the Plaza Colonnade, LLC construction loan and completion
agreement described above, the partners collectively had provided $12.0 million in letters of credit in December 2002, $6.0 million by the Operating Partnership and $6.0 million by its partner. The Operating Partnership and its partner could have
been held liable under the letter of credit agreements had the joint venture not completed construction of the building. No recourse provisions existed that would have enabled the Operating Partnership to recover from the other partner amounts drawn
under the letter of credit.



In December 2004, the joint
venture secured a $50.0 million non-recourse permanent loan and the $34.9 million construction loan was paid off. The related letters of credit were cancelled, and the aforementioned guarantee obligations terminated when the construction loan was
paid off.



|(12) | As more fully described in Note 3, in connection with the sale of three office buildings to a third party in 2002 (the Eastshore transaction), the Operating Partnership
agreed to guarantee rent shortfalls and any re-tenanting costs for a five-year period of time from the date of sale (i.e., through November 2007). The maximum potential amount of future payments related to this guarantee the Operating Partnership
could be required to make as of December 31, 2003 is $15.9 million. These three buildings are currently leased to a single tenant, Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc., under leases that expire from May
2006 to March 2010.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | In connection with an unrelated disposition of 298,000 square feet of property in 2003, which was fully leased to Capital One Services, Inc., a subsidiary of Capital One Financial
Services, Inc., the Operating Partnership agreed to guarantee to the buyer, over various contingency periods through October 2009, any rent shortfalls on certain space. Because of this guarantee, in accordance with SFAS No. 66, the Operating
Partnership deferred $4.4 million of the total $8.4 million gain. The deferred portion of the gain is recognized when each contingency period is concluded. As a result, the Company recognized $1.3 million of the deferred gain in 2003. The Operating
Partnerships total contingent liability of $3.1 million with respect to the guarantee is included in the deferred gain as of December 31, 2003.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | In December 2003, the Operating Partnership sold 1.9 million square feet of industrial property for $58.4 million in cash, a $5.0 million note receivable that bears interest at
12.0% and a $1.7 million note receivable that bears interest at 8.0%. In addition, the Operating Partnership agreed to guarantee, over various contingency periods through December 2006, any rent shortfalls on 16.3% of the rentable square footage of
the industrial property, which is occupied by two tenants. The Operating Partnerships contingent liability with respect to such guarantee as of December 31, 2003 was $2.4 million. The total gain as a result of the transaction was $5.2 million.
Because the terms of the notes require only interest payments to be made by the buyer until 2005, in accordance with SFAS No. 66, the entire $5.2 million gain was deferred and offset against the note receivable on the balance sheet. The cost
recovery method is being used for this transaction. Accordingly, once sufficient principal amounts have been paid on the note receivable so that the note receivable balance is equal to the deferred gain, the gain will be recognized as additional
payments are made on the notes.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-46



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



|(15) | In the Highwoods DLF 97/26 DLF 99/32, LP joint venture, a single tenant currently leases an entire building under a lease scheduled to expire June 30, 2008. The tenant also leases
space in other buildings owned by the Operating Partnership. In conjunction with an overall restructuring of the tenants leases with the Operating Partnership and with this joint venture, the Operating Partnership agreed to certain changes to
the lease with the joint venture in September 2003. The modifications include allowing the tenant to terminate the lease on January 1, 2006, reducing the rent obligation by 50.0% and converting the net lease to a full service
lease with the tenant liable for 50.0% of these costs beginning on January 1, 2006. In turn, the Operating Partnership agreed to compensate the joint venture for any economic losses incurred as a result of these lease modifications. Based on this
lease guarantee agreement, the Operating Partnership recorded approximately $0.9 million in other liabilities and recorded a deferred charge of $0.9 million in September 2003. However, should new tenants occupy the vacated space during the two and a
half year guarantee period, the Operating Partnerships liability under the guarantee would diminish. The Operating Partnerships maximum potential amount of future payments with regard to this guarantee is $1.1 million. No recourse
provisions exist to enable the Operating Partnership to recover the amounts paid to the joint venture under this lease guarantee arrangement.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(16) | RRHWoods, LLC and Dallas County Partners each developed a new office building in Des Moines, Iowa. On June 25, 2004, the joint ventures financed both buildings with a $7.4 million
10-year loan from a bank. As an inducement to make the loan at a 6.3% long-term rate, the Operating Partnership and its partner agreed to master lease the vacant space and guaranteed $1.6 million, or $0.8 million each, with limited recourse. As
leasing improves, the obligations under the loan agreement diminish. As of June 30, 2004, the Operating Partnership recorded $1.3 million in other liabilities and $1.3 million as a deferred charge on its Consolidated Balance Sheet with respect to
this guarantee. The maximum potential amount of future payments that the Operating Partnership could be required to make based on the current leases in place is approximately $4.8 million. The likelihood of the Operating Partnership paying on its
$0.8 million guarantee is remote since the master lease payments provide the required 1.3 debt coverage ratio. Should the Operating Partnership have to pay, it would recover the $0.8 million from other joint venture assets.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(17) | As more fully described in Note 4, in connection with the formation of HIW-KC Orlando, LLC, the Operating Partnership agreed to guarantee rent to the joint venture for 3,248
rentable square feet commencing in August 2004 and expiring in April 2011. Additionally, the Operating Partnership agreed to guarantee leasing costs for approximately 11% of the joint ventures total square footage. The Operating Partnership
believes its estimate related to the leasing costs guarantee is accurate. However, if its assumptions prove to be incorrect, future losses may occur.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Litigation



The Operating Partnership is party to a variety of legal proceedings arising in the ordinary course of its business. The Operating Partnership believes
that it is adequately covered by insurance. Accordingly, none of these proceedings are expected to have a material adverse effect on the Operating Partnerships business, financial condition and results of operations.



The Operating Partnership accrued $2.7 million for litigation expense related
to various legal proceedings from previously completed mergers and acquisitions during 2002. These were fully settled in early 2003.



16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS



The following disclosures of estimated fair value were
determined by management using available market information and appropriate valuation methodologies. Considerable judgment is used to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Operating Partnership could realize upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated
fair values. The carrying amounts and estimated fair values of the Operating Partnerships financial instruments at December 31, 2003 were as follows:



|                              |  |                  |           |            |   |          
|----------------------------- |  | ---------------- | --------- | ---------- | - | ---------
|                              |  | Carrying Amount  |           | Fair Value
|                              |  | ($ in thousands)
|Cash and cash equivalents     |  | $                | 21,329    |            | $ | 21,329   
|Accounts and notes receivable |  | $                | 28,157    |            | $ | 28,157   
|Mortgages and notes payable   |  | $                | 1,708,765 |            | $ | 1,790,249
|Financing obligation          |  | $                | 124,063   |            | $ | 125,888  



F-47



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



16. DISCLOSURE ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS - Continued



The fair values of the Operating Partnerships fixed rate mortgages and notes payable were
estimated using discounted cash flow analysis based on the Operating Partnerships estimated incremental borrowing rate at December 31, 2003 for similar types of borrowing arrangements. The carrying amounts of the Operating Partnerships
variable rate borrowings approximate fair value.



Disclosures
about the fair value of financial instruments are based on relevant information available to the Operating Partnership at December 31, 2003. Although management is not aware of any factors that would have a material effect on the fair value amounts
reported herein, such amounts have not been revalued since that date and current estimates of fair value may significantly differ from the amounts presented herein.



17. SEGMENT INFORMATION



The sole business of the Operating Partnership is the acquisition, development and operation of rental real estate
properties. The Operating Partnership operates office, industrial and retail properties and apartment units. There are no material inter-segment transactions.



The Operating Partnerships chief operating decision maker (CDM) assesses and measures operating results based upon property level net
operating income. The operating results for the individual assets within each property type have been aggregated since the CDM evaluates operating results and allocates resources on a property-by-property basis within the various property types.



The accounting policies of the segments are the same as those
described in Note 1 included herein. Further, all operations are within the United States and at December 31, 2003, no tenant of the Operating Partnerships Wholly Owned Properties comprised more than 3.4% of consolidated revenues. The
following table summarizes the restated rental income, net operating income and assets for each reportable segment for the years ended December 31, 2003, 2002 and 2001 ($ in thousands):



|                                                                                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                 |  | Year Ended December 31, |         
|                                                                                                                                 |  | 2003                    |          |   | 2002 |   |          | 2001 | 
|Rental and Other Revenues (1):                                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Office segment                                                                                                                   |  | $                       | 422,870  |   |      | $ | 441,415  |      |  | $ | 448,439  |  
|Industrial segment                                                                                                               |  |                         | 41,647   |   |      |   | 40,916   |      |  |   | 42,413   |  
|Retail segment                                                                                                                   |  |                         | 38,819   |   |      |   | 38,193   |      |  |   | 36,476   |  
|Apartment segment                                                                                                                |  |                         | 1,117    |   |      |   | 1,103    |      |  |   | 7,905    |  
|                                                                                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  
|Total Rental and Other Revenues                                                                                                  |  | $                       | 504,453  |   |      | $ | 521,627  |      |  | $ | 535,233  |  
|                                                                                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                                                                 |  |                         |         
|Net Operating Income (1):                                                                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Office segment                                                                                                                   |  | $                       | 265,924  |   |      | $ | 292,704  |      |  | $ | 302,629  |  
|Industrial segment                                                                                                               |  |                         | 33,059   |   |      |   | 32,925   |      |  |   | 35,044   |  
|Retail segment                                                                                                                   |  |                         | 27,005   |   |      |   | 26,603   |      |  |   | 24,812   |  
|Apartment segment                                                                                                                |  |                         | 568      |   |      |   | 668      |      |  |   | 4,135    |  
|                                                                                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  
|Total Net Operating Income                                                                                                       |  |                         | 326,556  |   |      |   | 352,900  |      |  |   | 366,620  |  
|                                                                                                                                 |  |                         |         
|Reconciliation to income before disposition of property, co-venture expense and equity in earnings of unconsolidated
affiliates: |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                                                                    |  |                         | (142,073 | ) |      |   | (140,788 | )    |  |   | (127,574 | )
|Impairment of assets held for use                                                                                                |  |                         |         |   |      |   | (9,919   | )    |  |   |         |  
|General and administrative expenses                                                                                              |  |                         | (24,641  | ) |      |   | (25,227  | )    |  |   | (23,082  | )
|Litigation expense                                                                                                               |  |                         |         |   |      |   | (2,700   | )    |  |   |         |  
|Interest expense                                                                                                                 |  |                         | (141,261 | ) |      |   | (135,125 | )    |  |   | (134,077 | )
|Other income/expense                                                                                                             |  |                         | 7,673    |   |      |   | 7,310    |      |  |   | 13,031   |  
|                                                                                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  
|Income before disposition of property, co-venture expense and equity in earnings of unconsolidated affiliates                    |  | $                       | 26,254   |   |      | $ | 46,451   |      |  | $ | 94,918   |  
|                                                                                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  



F-48



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



17. SEGMENT INFORMATION - Continued



|                    |  |              |           |      |   |           |  |   |          
|------------------- |  | ------------ | --------- | ---- | - | --------- |  | - | ---------
|                    |  | December 31,
|                    |  | 2003         |           | 2002 |   | 2001     
|Total Assets:       |  |              |           |      |   |           |  |   |          
|Office segment      |  | $            | 2,791,774 |      | $ | 2,958,903 |  | $ | 3,091,442
|Industrial segment  |  |              | 271,540   |      |   | 354,399   |  |   | 343,606  
|Retail segment      |  |              | 272,182   |      |   | 255,666   |  |   | 263,622  
|Apartment segment   |  |              | 11,956    |      |   | 11,017    |  |   | 10,397   
|Corporate and other |  |              | 179,606   |      |   | 138,863   |  |   | 204,358  
|                    |  |              |           |      |   |           |  |   |          
|Total Assets        |  | $            | 3,527,058 |      | $ | 3,718,848 |  | $ | 3,913,425
|                    |  |              |           |      |   |           |  |   |          

---

|(1) | Net of discontinued operations.
|--- | -------------------------------



18. RESTATED FINANCIAL DATA



Overview



The Operating Partnership has restated its Consolidated Financial Statements as of December 31, 2003 and 2002 and for the years ended December 31, 2003,
2002 and 2001. The restatements relate to the following general matters, as discussed further below. The tables that follow provide a reconciliation between amounts previously reported and the restated amounts in the Income Statements for the years
ended December 31, 2003, 2002 and 2001 and in the Balance Sheets as of December 31, 2003 and 2002. In addition, some of the adjustments impacted periods prior to 2001 and the net effect of these prior adjustments is a $21.5 million reduction in
total Partners Capital at January 1, 2001.



Accounting
for real estate sales transactions with continuing involvement by the Operating Partnership. Since 1999, the Operating Partnership completed several real estate sale transactions that involved either (i) sales of real estate to third parties or
to joint ventures in which the Operating Partnership retained an interest, and/or (ii) continuing involvement by the Operating Partnership in the real estate in the form of a put option, guarantee of the sellers return on investment, seller
financing, and guarantee of rental income from specific tenants or specific spaces, including re-tenanting costs. In its historical financial statements filed prior to the date hereof, the Operating Partnership believed that such transactions should
be accounted for as sales and deferred some or all of the resultant gains in consideration of the continuing involvement until such time as the continuing involvement obligation expired. Under this method of accounting, deferred gains are either
subsequently reduced as obligations are paid or recognized as the obligations expire. Furthermore, at the time those transactions occurred, the Operating Partnership identified those with guarantees and other types of continuing involvement and
disclosed the nature and amount of any material continuing involvement relationships (guarantees, etc.). The Operating Partnership has now determined that certain adjustments should be made with respect to the accounting treatment for certain of
those transactions where the Operating Partnership had some form of continuing involvement to conform with paragraphs 25 through 29 of SFAS No. 66. For three of the transactions, the largest of which is the sale in late 2000 of properties into the
previously disclosed MG-HIW, LLC joint venture, the Operating Partnership has adjusted its Consolidated Financial Statements to account for these three transactions as financing and/or profit-sharing arrangements rather than as sales, as more fully
described in Notes 1 and 3. Under these methods, the assets, related liabilities and operations are now included in the Operating Partnerships Consolidated Financial Statements. In the other instances, the transactions have continued to be
reported as sales, but the timing and amount of gain recognition was changed due to the Operating Partnerships continuing involvement, including certain transactions that occurred prior to January 1, 2001. These adjustments in the aggregate
resulted in (decreases) to previously reported net income as follows: $(3.6) million in 2003, $(15.9) million in 2002 and $(14.6) million in 2001.



F-49



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



18. RESTATED FINANCIAL DATA - Continued



Presentation and classification of discontinued operations with continuing involvement by the
Operating Partnership. In the Operating Partnerships previous Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001, the Operating Partnership had classified as discontinued operations under SFAS No. 144
several properties that were sold or transferred to joint ventures in which the Operating Partnership retained a financial interest and other sold properties where the Operating Partnership was retained by the new owner to provide management and
leasing services. However, the Operating Partnership has now determined that because of such continuing involvement, these sold properties do not qualify for discontinued operations classification under SFAS No. 144. Accordingly, the results of
operations from such properties have now been reclassified into income from continuing operations for the years ended December 31, 2003, 2002 and 2001 in the accompanying Consolidated Financial Statements. In addition, in 2002 the Operating
Partnership recorded an impairment loss related to a property that was demolished in connection with a redevelopment project. That loss was previously classified with gains and losses of sold assets, and the Operating Partnership has now determined
that such loss should be included in continuing operations and has so classified the loss in the accompanying Consolidated Financial Statements. These reclassifications did not impact net income in any period.



Accounting for MOPPRS transaction. This transaction is described in
detail in Note 5. The Operating Partnership had previously accounted for the transaction as an exchange of indebtedness under EITF 96-19 and recorded in deferred financing cost $14.7 million, representing the excess of amounts paid to retire the
MOPPRS and the related remarketing option over the MOPPRS net carrying value and related deferred credits. The Operating Partnership has now determined that this transaction should have been accounted for as a debt extinguishment under EITF
96-19. Accordingly, the $14.7 million has been charged to loss on debt extinguishment in the first quarter of 2003 rather than as deferred financing costs as previously recorded. In addition, the amortization expense related to the previous net
deferred financing costs, which aggregated approximately $250,000 in the first quarter of 2003 and approximately $370,000 per quarter thereafter, have been reversed in the restated Consolidated Financial Statements. In total, these adjustments
reduced net income in 2003 by $13.3 million.



Other
matters. In addition to the above, the Operating Partnership identified several other matters that have been adjusted, which in the aggregate resulted in increases or (decreases) in net income as follows: $4.6 million in 2003, $(1.5) million in
2002 and $(4.7) million in 2001. These adjustments included: (1) adjustments to defer, to the extent of the Operating Partnerships ownership interests, certain leasing, development and certain other fee income charged by the Operating
Partnership to joint ventures and which the joint ventures capitalized in their financial statements, and to recognize such deferred amounts as fee income during periods in which the related capitalized amounts in the joint ventures financial
statements are recognized as expense, which reduced net income in all periods; (2) accounting for the impact of dividend equivalent rights that were granted in 1997, which reduced net income in all periods; (3) over- and under-accruals of bonus
expense in 2002 and 2001; (4) adjustments in the method of accounting for exercised stock options which reduced net income in 2001, 2000 and 1999; (5) reclassification of certain revenue and expense items to present them on a gross basis instead of
a net basis which resulted in no impact on net income in any period; (6) recognizing as a financing obligation the fixed tax assessment related to certain tax increment financing (TIF) bonds issued in late 1998 by a municipality and as
real estate assets the related parking garage asset constructed from the TIF proceeds, together with related income and expenses, in accordance with EITF 91-10; and (7) adjustments to reflect preferred units at their redemption values rather than at
net cash proceeds received for each series of preferred units.



Following is a description of the three transactions previously accounted for as sales but now accounted for as financing and/or profit-sharing arrangements.



- MG-HIW, LLC



As discussed in Note 3, in December 2000, the Operating Partnership created a joint venture named MG-HIW, LLC with Miller Global, pursuant to which the
Operating Partnership sold or contributed to MG-HIW, LLC 19 office properties in Atlanta, Raleigh, Tampa and Orlando (each a City Group). The Operating Partnership retained a 20.0% interest and Miller Global obtained an 80.0% interest.



F-50



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



18. RESTATED FINANCIAL DATA - Continued



With respect to the properties originally contributed by the Operating Partnership to the Orlando
City Group, the Operating Partnership assumed obligations to make improvements to the assets, as well as master lease obligations and guarantees on certain vacant space. The Operating Partnership also provided a guaranteed leveraged internal rate of
return (IRR) of 20.0% on the approximate $50.0 million of Miller Globals equity that related to the properties in the Orlando City Group. The IRR guarantee was for the duration of MG-HIW, LLC.



The Operating Partnership treated the transaction with respect to the Orlando
City Group and the non-Orlando City Groups as a sale in 2000 and recognized partial gain after establishing accruals for estimated obligations, at that time. During the duration of MG-HIW, LLC (which concluded prior to the date hereof as explained
below), the Operating Partnership paid out approximately $14.6 million in guarantee obligations to MG-HIW, LLC, which was comprised of $6.7 million in building improvements, tenant improvements and lease commissions and $7.9 million of rental
support.



The Operating Partnership has now concluded under
SFAS No. 66 that the sale of the 80.0% interest in the properties in the Orlando City Group should be accounted for as a financing rather than as a sale due to the 20.0% IRR guarantee. Consequently, in these Consolidated Financial Statements the
assets, liabilities and operations related to the properties in the Orlando City Group remain on the books of the Operating Partnership and a financing obligation has been established for the amount of equity contributed by Miller Global related to
the Orlando City Group. This financing obligation is adjusted each period by accreting the obligation up to the 20.0% guaranteed internal rate of return by a charge to interest expense, such that the financing obligation equals at the end of each
period the amount due to Miller Global, including the 20.0% guaranteed return. The Operating Partnership continues to depreciate the Orlando properties and records all the depreciation on its books. On March 2, 2004, the Operating Partnership
exercised an option and acquired Miller Globals 80.0% interest in the Orlando City Group. See Note 3.



Based on the nature and extent of certain rental guarantees made by the Operating Partnership with respect to the non-Orlando City Group properties, the
Operating Partnership has also now concluded that the sale of the non-Orlando properties to MG-HIW, LLC should be accounted for as a profit-sharing arrangement. Under this profit-sharing arrangement, in these Consolidated Financial Statements the
assets, liabilities and operations of the properties in the non-Orlando City Groups remain on the books of the Operating Partnership, and a co-venture obligation has been established for the amount of equity contributed by Miller Global related to
the non-Orlando City Groups. The income from operations of the properties, excluding depreciation, is allocated 80.0% to Miller Global and reported as co-venture expense in the Operating Partnerships Consolidated Financial
Statements. The Operating Partnership continues to depreciate the non-Orlando properties and records all the depreciation on its books. In July 2003, the Operating Partnership repurchased Miller Globals interest in the non-Orlando City Groups
for $28.0 million, which resulted in a gain of $16.3 million related to the settlement of the co-venture obligation. See Note 3.



- SF-HIW Harborview, LP



As discussed in Note 3, on September 11, 2002, the Operating Partnership contributed Harborview Plaza to SF-HIW Harborview, LP, a newly formed entity, in
exchange for a 20.0% limited partnership interest and $35.4 million in cash. The other partner contributed $12.6 million of cash and a new loan was obtained by the partnership for $22.8 million. In connection with this disposition, the Operating
Partnership entered into a master lease agreement with SF-HIW Harborview, LP for five years on the vacant space in the building (approximately 20.0%). The Operating Partnership also guaranteed to SF-HIW Harborview, LP the payment of tenant
improvements and lease commissions of $1.2 million. The Operating Partnerships maximum exposure to loss under this master lease agreement was $2.1 million at September 11, 2002 and was $1.4 million at December 31, 2003. Additionally, the
Operating Partnerships partner in SF-HIW Harborview, LP was granted the right to put its 80.0% equity interest in SF-HIW Harborview, LP to the Operating Partnership in exchange for cash at any time during the one-year period commencing on
September 11, 2014. The value of the 80.0% equity interest will be determined at the time, if ever, that such partner elects to exercise its put right, based upon the then fair market value of SF-HIW Harborview, LPs assets and liabilities less
3.0%, which was intended to cover normal costs of a sale transaction.



F-51



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



18. RESTATED FINANCIAL DATA - Continued



The Operating Partnership originally recorded the transaction as a sale and deferred recognition of a
$4.3 million gain. Because the put option and the master lease agreement are deemed to be forms of continuing involvement as discussed in paragraphs 26 and 28 of SFAS No. 66, the Operating Partnership has now concluded that Harborview should be
accounted for as a financing transaction. Consequently, in these Consolidated Financial Statements the assets, liabilities and operations related to Harborview Plaza, the property owned by Harborview LP, including any new financing by the
partnership, remain on the books of the Operating Partnership. The Operating Partnership established a financing obligation equal to the net equity contributed by the other partner. At the end of each reporting period, the balance of the financing
obligation is adjusted to equal the current fair value but not less than the original financing obligation. This adjustment is amortized prospectively through September 2014. Additionally, the net income from the operations before depreciation of
Harborview Plaza allocable to the 80.0% partner is recorded as interest expense on the financing obligation. The Operating Partnership depreciates the property and records all of the depreciation on its books. Additionally, any payments made under
the master lease agreement are expensed as incurred ($0.4 million and $0.3 million was expensed during the years ended December 31, 2003 and 2002, respectively) and any amounts paid under the tenant improvement and lease commission guarantee are
capitalized and amortized to expense over the remaining lease term. At such time as the put option expires or otherwise is terminated, the Operating Partnership will record the transaction as a sale and recognize gain on sale.



- Eastshore



As discussed in Note 3, on November 26, 2002 the Operating Partnership sold
three buildings located in Richmond, Virginia for a total purchase price of $28.5 million in cash, which was paid in full by the buyer at closing. These three buildings are currently leased to a single tenant, Capital One Services, Inc., a
subsidiary of Capital One Financial Services, Inc., under leases that expire from May 2006 to March 2010. The Operating Partnership originally recorded the transaction as a sale and deferred a $6.9 million gain.



In connection with the sale, the Operating Partnership entered into a rental
guarantee agreement for each building for the benefit of the buyer to guarantee any rent shortfalls which may be incurred for the payment of rent and re-tenanting costs for a five-year period from the date of sale (through November 2007). The
Operating Partnerships maximum exposure to loss under the rental guarantee agreements was $18.7 million at the date of sale and was $15.9 million at December 31, 2003.



The Operating Partnership has now concluded that these rent guarantees are a form of continuing involvement as discussed in
paragraph 28 of SFAS No. 66. Because the guarantee is for the entire space occupied by a single tenant under a triple-net lease arrangement, the Operating Partnerships guarantee is considered a guaranteed return on the buyers investment
for an extended period of time. Therefore, in these Consolidated Financial Statements, the transaction is accounted for as a financing transaction, following the accounting method described in Note 1 and described further in Note 3.



F-52



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



18. RESTATED FINANCIAL DATA - Continued



The following condensed Consolidated Balance Sheet and Income Statement data reconciles previously
reported and restated financial information (in thousands, except per unit amounts):



Balance Sheet



|                                                         |  |                   |           |                        |   |         |          |  |              |           |                        |   |           |                                       |   |                        |   |  |          |           |  |   |         |   |  |   |          
|-------------------------------------------------------- |  | ----------------- | --------- | ---------------------- | - | ------- | -------- |  | ------------ | --------- | ---------------------- | - | --------- | ------------------------------------- | - | ---------------------- | - |  | -------- | --------- |  | - | ------- | - |  | - | ---------
|                                                         |  | December 31, 2003 |           | December 31, 2002     
|                                                         |  | As Presented      |           | RestatementAdjustments |   |         | Restated |  | As Presented |           | DiscontinuedOperations |   |           | As ReportedwithDiscontinuedOperations |   | RestatementAdjustments |   |  | Restated
|Net real estate assets                                   |  | $                 | 2,979,289 |                        | $ | 232,991 |          |  | $            | 3,212,280 |                        | $ | 3,003,919 |                                       | $ | (42,617                | ) |  | $        | 2,961,302 |  | $ | 373,706 |   |  | $ | 3,335,008
|Property held for sale                                   |  |                   | 65,724    |                        |   |        |          |  |              | 65,724    |                        |   | 104,779   |                                       |   | 42,645                 |   |  |          | 147,424   |  |   |        |   |  |   | 147,424  
|Cash, cash equivalents and restricted cash               |  |                   | 24,662    |                        |   | 1,269   |          |  |              | 25,931    |                        |   | 19,312    |                                       |   |                       |   |  |          | 19,312    |  |   | 6,835   |   |  |   | 26,147   
|Accounts, notes and straight-line rents receivable, net  |  |                   | 84,674    |                        |   | 2,395   |          |  |              | 87,069    |                        |   | 72,115    |                                       |   |                       |   |  |          | 72,115    |  |   | 5,356   |   |  |   | 77,471   
|Investments in unconsolidated affiliates                 |  |                   | 71,253    |                        |   | (12,248 | )        |  |              | 59,005    |                        |   | 75,019    |                                       |   |                       |   |  |          | 75,019    |  |   | (19,151 | ) |  |   | 55,868   
|Other assets, net                                        |  |                   | 85,589    |                        |   | (8,540  | )        |  |              | 77,049    |                        |   | 69,910    |                                       |   | (28                    | ) |  |          | 69,882    |  |   | 7,048   |   |  |   | 76,930   
|                                                         |  |                   |           |                        |   |         |          |  |              |           |                        |   |           |                                       |   |                        |   |  |          |           |  |   |         |   |  |   |          
|Total Assets                                             |  | $                 | 3,311,191 |                        | $ | 215,867 |          |  | $            | 3,527,058 |                        | $ | 3,345,054 |                                       | $ |                       |   |  | $        | 3,345,054 |  | $ | 373,794 |   |  | $ | 3,718,848
|                                                         |  |                   |           |                        |   |         |          |  |              |           |                        |   |           |                                       |   |                        |   |  |          |           |  |   |         |   |  |   |          
|Mortgages and notes payable                              |  | $                 | 1,549,758 |                        | $ | 159,007 |          |  | $            | 1,708,765 |                        | $ | 1,489,220 |                                       | $ |                       |   |  | $        | 1,489,220 |  | $ | 265,040 |   |  | $ | 1,754,260
|Accounts payable, accrued expenses and other liabilities |  |                   | 106,055   |                        |   | (10,210 | )        |  |              | 95,845    |                        |   | 114,870   |                                       |   |                       |   |  |          | 114,870   |  |   | (10,451 | ) |  |   | 104,419  
|Financing obligations                                    |  |                   |          |                        |   | 124,063 |          |  |              | 124,063   |                        |   |          |                                       |   |                       |   |  |          |          |  |   | 121,012 |   |  |   | 121,012  
|Co-venture obligation                                    |  |                   |          |                        |   |        |          |  |              |          |                        |   |          |                                       |   |                       |   |  |          |          |  |   | 43,511  |   |  |   | 43,511   
|                                                         |  |                   |           |                        |   |         |          |  |              |           |                        |   |           |                                       |   |                        |   |  |          |           |  |   |         |   |  |   |          
|Total Liabilities                                        |  |                   | 1,655,813 |                        |   | 272,860 |          |  |              | 1,928,673 |                        |   | 1,604,090 |                                       |   |                       |   |  |          | 1,604,090 |  |   | 419,112 |   |  |   | 2,023,202
|Redeemable operating partnership units                   |  |                   | 524,043   |                        |   | 10,949  |          |  |              | 534,992   |                        |   | 520,633   |                                       |   |                       |   |  |          | 520,633   |  |   | 10,949  |   |  |   | 531,582  
|Total Partners Capital                                  |  |                   | 1,131,335 |                        |   | (67,942 | )        |  |              | 1,063,393 |                        |   | 1,220,331 |                                       |   |                       |   |  |          | 1,220,331 |  |   | (56,267 | ) |  |   | 1,164,064
|                                                         |  |                   |           |                        |   |         |          |  |              |           |                        |   |           |                                       |   |                        |   |  |          |           |  |   |         |   |  |   |          
|Total Liabilities and Partners Capital                  |  | $                 | 3,311,191 |                        | $ | 215,867 |          |  | $            | 3,527,058 |                        | $ | 3,345,054 |                                       | $ |                       |   |  | $        | 3,345,054 |  | $ | 373,794 |   |  | $ | 3,718,848
|                                                         |  |                   |           |                        |   |         |          |  |              |           |                        |   |           |                                       |   |                        |   |  |          |           |  |   |         |   |  |   |          



F-53



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



18. RESTATED FINANCIAL DATA - Continued



Income Statement



|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------------- | - | ------- | -------- |  | - | ----------- | - |  | ---------------------- | ------- | - | ------------------------------------- | - | ------- | ---------------------- |  | - | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                              |  | December 31, 2003 |         |   | December 31, 2002      |  
|                                                              |  | AsPresented       |         |   | RestatementAdjustments |   |         | Restated |  |   | AsPresented |   |  | DiscontinuedOperations |         |   | As ReportedwithDiscontinuedOperations |   |         | RestatementAdjustments |  |   | Restated |  
|Rental and other revenues                                     |  | $                 | 421,816 |   |                        | $ | 82,637  |          |  | $ | 504,453     |   |  | $                      | 454,122 |   |                                       | $ | (21,155 | )                      |  | $ | 432,967  |   |  | $ | 88,660  |   |  | $ | 521,627 |  
|Operating expenses:                                           |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Rental property and other expenses                            |  |                   | 146,870 |   |                        |   | 31,027  |          |  |   | 177,897     |   |  |                        | 142,686 |   |                                       |   | (5,701  | )                      |  |   | 136,985  |   |  |   | 31,742  |   |  |   | 168,727 |  
|Depreciation and amortization                                 |  |                   | 129,195 |   |                        |   | 12,878  |          |  |   | 142,073     |   |  |                        | 126,636 |   |                                       |   | (4,890  | )                      |  |   | 121,746  |   |  |   | 19,042  |   |  |   | 140,788 |  
|Impairment of assets held and used                            |  |                   |        |   |                        |   |        |          |  |   |            |   |  |                        |        |   |                                       |   |        |                        |  |   |         |   |  |   | 9,919   |   |  |   | 9,919   |  
|General and administrative                                    |  |                   | 24,187  |   |                        |   | 454     |          |  |   | 24,641      |   |  |                        | 23,644  |   |                                       |   |        |                        |  |   | 23,644   |   |  |   | 1,583   |   |  |   | 25,227  |  
|Litigation expense                                            |  |                   |        |   |                        |   |        |          |  |   |            |   |  |                        | 2,700   |   |                                       |   |        |                        |  |   | 2,700    |   |  |   |        |   |  |   | 2,700   |  
|Interest expense:                                             |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Contractual                                                   |  |                   | 110,832 |   |                        |   | 8,333   |          |  |   | 119,165     |   |  |                        | 108,503 |   |                                       |   |        |                        |  |   | 108,503  |   |  |   | 10,664  |   |  |   | 119,167 |  
|Amortization of deferred financing costs                      |  |                   | 3,078   |   |                        |   | 1,327   |          |  |   | 4,405       |   |  |                        | 1,394   |   |                                       |   |        |                        |  |   | 1,394    |   |  |   | 2,076   |   |  |   | 3,470   |  
|Financing obligations                                         |  |                   |        |   |                        |   | 17,691  |          |  |   | 17,691      |   |  |                        |        |   |                                       |   |        |                        |  |   |         |   |  |   | 12,488  |   |  |   | 12,488  |  
|Other income/expense:                                         |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Interest and other income                                     |  |                   | 11,608  |   |                        |   | (5,583  | )        |  |   | 6,025       |   |  |                        | 13,164  |   |                                       |   | (88     | )                      |  |   | 13,076   |   |  |   | (5,388  | ) |  |   | 7,688   |  
|Loss on debt extinguishments                                  |  |                   |        |   |                        |   | (14,653 | )        |  |   | (14,653     | ) |  |                        | (378    | ) |                                       |   |        |                        |  |   | (378     | ) |  |   |        |   |  |   | (378    | )
|Gain on extinguishment of co-venture obligation               |  |                   |        |   |                        |   | 16,301  |          |  |   | 16,301      |   |  |                        |        |   |                                       |   |        |                        |  |   |         |   |  |   |        |   |  |   |        |  
|Gain on disposition of property, net                          |  |                   | 3,776   |   |                        |   | 8,540   |          |  |   | 12,316      |   |  |                        | 12,250  |   |                                       |   | (851    | )                      |  |   | 11,399   |   |  |   | 11,296  |   |  |   | 22,695  |  
|Co-venture expense                                            |  |                   |        |   |                        |   | (4,588  | )        |  |   | (4,588      | ) |  |                        |        |   |                                       |   |        |                        |  |   |         |   |  |   | (7,730  | ) |  |   | (7,730  | )
|Equity in earnings of unconsolidated affiliates               |  |                   | 4,463   |   |                        |   | 217     |          |  |   | 4,680       |   |  |                        | 7,675   |   |                                       |   |        |                        |  |   | 7,675    |   |  |   | (2,393  | ) |  |   | 5,282   |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Income from continuing operations                             |  |                   | 27,501  |   |                        |   | 11,161  |          |  |   | 38,662      |   |  |                        | 81,270  |   |                                       |   | (11,503 | )                      |  |   | 69,767   |   |  |   | (3,069  | ) |  |   | 66,698  |  
|Discontinued operations:                                      |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Income                                                        |  |                   | 16,305  |   |                        |   | (13,382 | )        |  |   | 2,923       |   |  |                        | 14,423  |   |                                       |   | 10,652  |                        |  |   | 25,075   |   |  |   | (14,331 | ) |  |   | 10,744  |  
|Gain on sale                                                  |  |                   | 18,997  |   |                        |   | (10,163 | )        |  |   | 8,834       |   |  |                        | 12,271  |   |                                       |   | 851     |                        |  |   | 13,122   |   |  |   |        |   |  |   | 13,122  |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Net income                                                    |  |                   | 62,803  |   |                        |   | (12,384 | )        |  |   | 50,419      |   |  |                        | 107,964 |   |                                       |   |        |                        |  |   | 107,964  |   |  |   | (17,400 | ) |  |   | 90,564  |  
|Distributions on preferred units                              |  |                   | (30,852 | ) |                        |   |        |          |  |   | (30,852     | ) |  |                        | (30,852 | ) |                                       |   |        |                        |  |   | (30,852  | ) |  |   |        |   |  |   | (30,852 | )
|Excess of preferred unit carrying value over repurchase value |  |                   |        |   |                        |   |        |          |  |   |            |   |  |                        |        |   |                                       |   |        |                        |  |   |         |   |  |   |        |   |  |   |        |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Net income available for Class A common units                 |  | $                 | 31,951  |   |                        | $ | (12,384 | )        |  | $ | 19,567      |   |  | $                      | 77,112  |   |                                       | $ |        |                        |  | $ | 77,112   |   |  | $ | (17,400 | ) |  | $ | 59,712  |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Net income per common unit  basic:                           |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Income from continuing operations                             |  | $                 | (0.05   | ) |                        | $ | 0.18    |          |  | $ | 0.13        |   |  | $                      | 0.84    |   |                                       | $ | (0.19   | )                      |  | $ | 0.65     |   |  | $ | (0.05   | ) |  | $ | 0.60    |  
|Discontinued operations                                       |  |                   | 0.59    |   |                        |   | (0.39   | )        |  |   | 0.20        |   |  |                        | 0.45    |   |                                       |   | 0.19    |                        |  |   | 0.64     |   |  |   | (0.24   | ) |  |   | 0.40    |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Net income (1)                                                |  | $                 | 0.54    |   |                        | $ | (0.21   | )        |  | $ | 0.33        |   |  | $                      | 1.29    |   |                                       | $ |        |                        |  | $ | 1.29     |   |  | $ | (0.29   | ) |  | $ | 1.00    |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Net income per common unit  diluted:                         |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Income from continuing operations                             |  | $                 | (0.05   | ) |                        | $ | 0.18    |          |  | $ | 0.13        |   |  | $                      | 0.83    |   |                                       | $ | (0.18   | )                      |  | $ | 0.65     |   |  | $ | (0.06   | ) |  | $ | 0.59    |  
|Discontinued operations                                       |  |                   | 0.59    |   |                        |   | (0.39   | )        |  |   | 0.20        |   |  |                        | 0.45    |   |                                       |   | 0.18    |                        |  |   | 0.63     |   |  |   | (0.23   | ) |  |   | 0.40    |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  
|Net income (1)                                                |  | $                 | 0.54    |   |                        | $ | (0.21   | )        |  | $ | 0.33        |   |  | $                      | 1.28    |   |                                       | $ |        |                        |  | $ | 1.28     |   |  | $ | (0.29   | ) |  | $ | 0.99    |  
|                                                              |  |                   |         |   |                        |   |         |          |  |   |             |   |  |                        |         |   |                                       |   |         |                        |  |   |          |   |  |   |         |   |  |   |         |  



|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------------- | - | ------- | ------------------------------------- |  | - | ---------------------- | - |  | -------- | ------- | - |  | - | ------- | -
|                                                              |  | December 31, 2001 |        
|                                                              |  | AsPresented       |         |   | DiscontinuedOperations |   |         | As ReportedwithDiscontinuedOperations |  |   | RestatementAdjustments |   |  | Restated |        
|Rental and other revenues                                     |  | $                 | 505,278 |   |                        | $ | (55,492 | )                                     |  | $ | 449,786                |   |  | $        | 85,447  |   |  | $ | 535,233 |  
|Operating expenses:                                           |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Rental property and other expenses                            |  |                   | 154,539 |   |                        |   | (15,601 | )                                     |  |   | 138,938                |   |  |          | 29,675  |   |  |   | 168,613 |  
|Depreciation and amortization                                 |  |                   | 120,989 |   |                        |   | (11,896 | )                                     |  |   | 109,093                |   |  |          | 18,481  |   |  |   | 127,574 |  
|Impairment of assets held and used                            |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          |        |   |  |   |        |  
|General and administrative                                    |  |                   | 21,100  |   |                        |   | (14     | )                                     |  |   | 21,086                 |   |  |          | 1,996   |   |  |   | 23,082  |  
|Litigation expense                                            |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          |        |   |  |   |        |  
|Interest expense:                                             |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Contractual                                                   |  |                   | 102,468 |   |                        |   |        |                                       |  |   | 102,468                |   |  |          | 15,730  |   |  |   | 118,198 |  
|Amortization of deferred financing costs                      |  |                   | 2,005   |   |                        |   |        |                                       |  |   | 2,005                  |   |  |          | 2,033   |   |  |   | 4,038   |  
|Financing obligations                                         |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          | 11,841  |   |  |   | 11,841  |  
|Other income/expense:                                         |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Interest and other income                                     |  |                   | 22,317  |   |                        |   | (426    | )                                     |  |   | 21,891                 |   |  |          | (8,146  | ) |  |   | 13,745  |  
|Loss on debt extinguishments                                  |  |                   | (714    | ) |                        |   |        |                                       |  |   | (714                   | ) |  |          |        |   |  |   | (714    | )
|Gain on extinguishment of co-venture obligation               |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          |        |   |  |   |        |  
|Gain on disposition of property, net                          |  |                   | 16,197  |   |                        |   |        |                                       |  |   | 16,197                 |   |  |          | 5,738   |   |  |   | 21,935  |  
|Co-venture expense                                            |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          | (6,859  | ) |  |   | (6,859  | )
|Equity in earnings of unconsolidated affiliates               |  |                   | 8,276   |   |                        |   |        |                                       |  |   | 8,276                  |   |  |          | (1,271  | ) |  |   | 7,005   |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Income from continuing operations                             |  |                   | 150,253 |   |                        |   | (28,407 | )                                     |  |   | 121,846                |   |  |          | (4,847  | ) |  |   | 116,999 |  
|Discontinued operations:                                      |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Income                                                        |  |                   |        |   |                        |   | 28,407  |                                       |  |   | 28,407                 |   |  |          | (14,507 | ) |  |   | 13,900  |  
|Gain on sale                                                  |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          |        |   |  |   |        |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Net income                                                    |  |                   | 150,253 |   |                        |   |        |                                       |  |   | 150,253                |   |  |          | (19,354 | ) |  |   | 130,899 |  
|Distributions on preferred units                              |  |                   | (31,500 | ) |                        |   |        |                                       |  |   | (31,500                | ) |  |          |        |   |  |   | (31,500 | )
|Excess of preferred unit carrying value over repurchase value |  |                   |        |   |                        |   |        |                                       |  |   |                       |   |  |          | 1,012   |   |  |   | 1,012   |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Net income available for Class A common units                 |  | $                 | 118,753 |   |                        | $ |        |                                       |  | $ | 118,753                |   |  | $        | (18,342 | ) |  | $ | 100,411 |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Net income per common unit  basic:                           |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Income from continuing operations                             |  | $                 | 1.93    |   |                        | $ | (0.46   | )                                     |  | $ | 1.47                   |   |  | $        | (0.06   | ) |  | $ | 1.41    |  
|Discontinued operations                                       |  |                   |        |   |                        |   | 0.46    |                                       |  |   | 0.46                   |   |  |          | (0.23   | ) |  |   | 0.23    |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Net income (1)                                                |  | $                 | 1.93    |   |                        | $ |        |                                       |  | $ | 1.93                   |   |  | $        | (0.29   | ) |  | $ | 1.64    |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Net income per common unit  diluted:                         |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Income from continuing operations                             |  | $                 | 1.92    |   |                        | $ | (0.46   | )                                     |  | $ | 1.46                   |   |  | $        | (0.06   | ) |  | $ | 1.40    |  
|Discontinued operations                                       |  |                   |        |   |                        |   | 0.46    |                                       |  |   | 0.46                   |   |  |          | (0.24   | ) |  |   | 0.22    |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  
|Net income (1)                                                |  | $                 | 1.92    |   |                        | $ |        |                                       |  | $ | 1.92                   |   |  | $        | (0.30   | ) |  | $ | 1.62    |  
|                                                              |  |                   |         |   |                        |   |         |                                       |  |   |                        |   |  |          |         |   |  |   |         |  

---

|(1) | Amounts represent net income available to Class A Common Units, which is after deducting preferred distributions and adding excess of preferred units carrying value over repurchase
value.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-54



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



19. RESTATED QUARTERLY FINANCIAL DATA (Unaudited)



The Operating Partnership has set forth selected
quarterly financial data for the years ended December 31, 2003 and 2002. As discussed in the Note above, the Operating Partnership restated results for the years ended December 31, 2003, 2002 and 2001. Because certain of the data set forth in the
following tables varies from amounts previously reported on the Form 10-Q for the applicable period, the following tables reconcile the amounts given with those previously reported and describe the reason for the differences.



The following table sets forth quarterly financial information for the
Operating Partnerships fiscal year ended December 31, 2003 ($ in thousands except per unit amounts):



|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------ |  | ------------- | ------- | - | ---------------------- | - | ------ | --------------------------- |  | - | --------------------- | - |  | -------- | ------- | - | ----------- | - | ------- | ---------------------- |  | - | --------------------------- | - |  | --------------------- | ------ | - | -------- | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                       |  | First Quarter |         |   | Second Quarter         |  
|                                                       |  | AsPresented   |         |   | DiscontinuedOperations |   |        | AsReportedwithDiscont.Oper. |  |   | RestatementAdjustment |   |  | Restated |         |   | AsPresented |   |         | DiscontinuedOperations |  |   | AsReportedwithDiscont.Oper. |   |  | RestatementAdjustment |        |   | Restated |  
|Rental and other revenues                              |  | $             | 108,960 |   |                        | $ | (5,051 | )                           |  | $ | 103,909               |   |  | $        | 23,507  |   |             | $ | 127,416 |                        |  | $ | 105,596                     |   |  | $                     | (2,002 | ) |          | $ | 103,594 |   |  | $ | 23,164 |   |  | $ | 126,758 |  
|Rental property and other expenses                     |  |               | 37,016  |   |                        |   | (1,439 | )                           |  |   | 35,577                |   |  |          | 7,516   |   |             |   | 43,093  |                        |  |   | 36,813                      |   |  |                       | (751   | ) |          |   | 36,062  |   |  |   | 8,190  |   |  |   | 44,252  |  
|Depreciation and amortization                          |  |               | 33,286  |   |                        |   | (1,365 | )                           |  |   | 31,921                |   |  |          | 4,456   |   |             |   | 36,377  |                        |  |   | 32,405                      |   |  |                       | (520   | ) |          |   | 31,885  |   |  |   | 4,118  |   |  |   | 36,003  |  
|General and administrative                             |  |               | 5,215   |   |                        |   |       |                             |  |   | 5,215                 |   |  |          | (672    | ) |             |   | 4,543   |                        |  |   | 6,409                       |   |  |                       |       |   |          |   | 6,409   |   |  |   | 436    |   |  |   | 6,845   |  
|Interest expense                                       |  |               | 28,175  |   |                        |   |       |                             |  |   | 28,175                |   |  |          | 22,286  |   |             |   | 50,461  |                        |  |   | 28,468                      |   |  |                       |       |   |          |   | 28,468  |   |  |   | 6,778  |   |  |   | 35,246  |  
|Other income/expense                                   |  |               | 2,870   |   |                        |   | (31    | )                           |  |   | 2,839                 |   |  |          | (1,622  | ) |             |   | 1,217   |                        |  |   | 3,200                       |   |  |                       | (21    | ) |          |   | 3,179   |   |  |   | (1,288 | ) |  |   | 1,891   |  
|Gain on disposition of property, net                   |  |               | 883     |   |                        |   |       |                             |  |   | 883                   |   |  |          | (78     | ) |             |   | 805     |                        |  |   | 1,632                       |   |  |                       |       |   |          |   | 1,632   |   |  |   | (22    | ) |  |   | 1,610   |  
|Co-venture expense                                     |  |               |        |   |                        |   |       |                             |  |   |                      |   |  |          | (2,086  | ) |             |   | (2,086  | )                      |  |   |                            |   |  |                       |       |   |          |   |        |   |  |   | (2,169 | ) |  |   | (2,169  | )
|Equity in earnings (loss) of unconsolidated affiliates |  |               | 1,714   |   |                        |   |       |                             |  |   | 1,714                 |   |  |          | (608    | ) |             |   | 1,106   |                        |  |   | (526                        | ) |  |                       |       |   |          |   | (526    | ) |  |   | 1,866  |   |  |   | 1,340   |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income from continuing operations                      |  |               | 10,735  |   |                        |   | (2,278 | )                           |  |   | 8,457                 |   |  |          | (14,473 | ) |             |   | (6,016  | )                      |  |   | 5,807                       |   |  |                       | (752   | ) |          |   | 5,055   |   |  |   | 2,029  |   |  |   | 7,084   |  
|Discontinued operations                                |  |               | 2,323   |   |                        |   | 2,278  |                             |  |   | 4,601                 |   |  |          | (3,658  | ) |             |   | 943     |                        |  |   | 5,845                       |   |  |                       | 752    |   |          |   | 6,597   |   |  |   | (4,597 | ) |  |   | 2,000   |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income                                             |  |               | 13,058  |   |                        |   |       |                             |  |   | 13,058                |   |  |          | (18,131 | ) |             |   | (5,073  | )                      |  |   | 11,652                      |   |  |                       |       |   |          |   | 11,652  |   |  |   | (2,568 | ) |  |   | 9,084   |  
|Distributions on preferred units                       |  |               | (7,713  | ) |                        |   |       |                             |  |   | (7,713                | ) |  |          |        |   |             |   | (7,713  | )                      |  |   | (7,713                      | ) |  |                       |       |   |          |   | (7,713  | ) |  |   |       |   |  |   | (7,713  | )
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income available for common unitholders            |  | $             | 5,345   |   |                        | $ |       |                             |  | $ | 5,345                 |   |  | $        | (18,131 | ) |             | $ | (12,786 | )                      |  | $ | 3,939                       |   |  | $                     |       |   |          | $ | 3,939   |   |  | $ | (2,568 | ) |  | $ | 1,371   |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income per unit-basic:                             |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations               |  | $             | 0.05    |   |                        | $ | (0.04  | )                           |  | $ | 0.01                  |   |  | $        | (0.24   | ) |             | $ | (0.23   | )                      |  | $ | (0.03                       | ) |  | $                     | (0.01  | ) |          | $ | (0.04   | ) |  | $ | 0.03   |   |  | $ | (0.01   | )
|Discontinued operations                                |  |               | 0.04    |   |                        |   | 0.04   |                             |  |   | 0.08                  |   |  |          | (0.06   | ) |             |   | 0.02    |                        |  |   | 0.10                        |   |  |                       | 0.01   |   |          |   | 0.11    |   |  |   | (0.08  | ) |  |   | 0.03    |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income (1)                                         |  | $             | 0.09    |   |                        | $ |       |                             |  | $ | 0.09                  |   |  | $        | (0.30   | ) |             | $ | (0.21   | )                      |  | $ | 0.07                        |   |  | $                     |       |   |          | $ | 0.07    |   |  | $ | (0.05  | ) |  | $ | 0.02    |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income per unit-diluted:                           |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations               |  | $             | 0.05    |   |                        | $ | (0.04  | )                           |  | $ | 0.01                  |   |  | $        | (0.24   | ) |             | $ | (0.23   | )                      |  | $ | (0.03                       | ) |  | $                     | (0.01  | ) |          | $ | (0.04   | ) |  | $ | 0.03   |   |  | $ | (0.01   | )
|Discontinued operations                                |  |               | 0.04    |   |                        |   | 0.04   |                             |  |   | 0.08                  |   |  |          | (0.06   | ) |             |   | 0.02    |                        |  |   | 0.10                        |   |  |                       | 0.01   |   |          |   | 0.11    |   |  |   | (0.08  | ) |  |   | 0.03    |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income (1)                                         |  | $             | 0.09    |   |                        | $ |       |                             |  | $ | 0.09                  |   |  | $        | (0.30   | ) |             | $ | (0.21   | )                      |  | $ | 0.07                        |   |  | $                     |       |   |          | $ | 0.07    |   |  | $ | (0.05  | ) |  | $ | 0.02    |  
|                                                       |  |               |         |   |                        |   |        |                             |  |   |                       |   |  |          |         |   |             |   |         |                        |  |   |                             |   |  |                       |        |   |          |   |         |   |  |   |        |   |  |   |         |  



|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|------------------------------------------------------ |  | ------------- | ------- | - | ---------------------- | - | ---- | --------------------------- |  | - | --------------------- | - |  | -------- | ------ | - | ----------- | - | ------- | --------------------- |  | - | -------- | - |  | - | ------ | - |  | - | ------- | -
|                                                       |  | Third Quarter |         |   | Fourth Quarter         |  
|                                                       |  | AsPresented   |         |   | DiscontinuedOperations |   |      | AsReportedwithDiscont.Oper. |  |   | RestatementAdjustment |   |  | Restated |        |   | AsPresented |   |         | RestatementAdjustment |  |   | Restated |  
|Rental and other revenues                              |  | $             | 106,923 |   |                        | $ | (455 | )                           |  | $ | 106,468               |   |  | $        | 16,799 |   |             | $ | 123,267 |                       |  | $ | 107,845  |   |  | $ | 19,167 |   |  | $ | 127,012 |  
|Rental property and other expenses                     |  |               | 37,107  |   |                        |   | (124 | )                           |  |   | 36,983                |   |  |          | 6,735  |   |             |   | 43,718  |                       |  |   | 38,248   |   |  |   | 8,586  |   |  |   | 46,834  |  
|Depreciation and amortization                          |  |               | 31,536  |   |                        |   | (193 | )                           |  |   | 31,343                |   |  |          | 3,217  |   |             |   | 34,560  |                       |  |   | 34,046   |   |  |   | 1,087  |   |  |   | 35,133  |  
|General and administrative                             |  |               | 6,046   |   |                        |   |     |                             |  |   | 6,046                 |   |  |          | 474    |   |             |   | 6,520   |                       |  |   | 6,517    |   |  |   | 216    |   |  |   | 6,733   |  
|Interest expense                                       |  |               | 28,866  |   |                        |   |     |                             |  |   | 28,866                |   |  |          | 7,182  |   |             |   | 36,048  |                       |  |   | 28,401   |   |  |   | 5,758  |   |  |   | 34,159  |  
|Other income/expense                                   |  |               | 2,326   |   |                        |   |     |                             |  |   | 2,326                 |   |  |          | 15,225 |   |             |   | 17,551  |                       |  |   | 3,264    |   |  |   | (1,597 | ) |  |   | 1,667   |  
|Gain on disposition of property, net                   |  |               | 864     |   |                        |   |     |                             |  |   | 864                   |   |  |          | 4,692  |   |             |   | 5,556   |                       |  |   | 397      |   |  |   | 3,948  |   |  |   | 4,345   |  
|Co-venture expense                                     |  |               |        |   |                        |   |     |                             |  |   |                      |   |  |          | (333   | ) |             |   | (333    | )                     |  |   |         |   |  |   |       |   |  |   |        |  
|Equity in earnings (loss) of unconsolidated affiliates |  |               | 1,562   |   |                        |   |     |                             |  |   | 1,562                 |   |  |          | (542   | ) |             |   | 1,020   |                       |  |   | 1,713    |   |  |   | (499   | ) |  |   | 1,214   |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Income from continuing operations                      |  |               | 8,120   |   |                        |   | (138 | )                           |  |   | 7,982                 |   |  |          | 18,233 |   |             |   | 26,215  |                       |  |   | 6,007    |   |  |   | 5,372  |   |  |   | 11,379  |  
|Discontinued operations                                |  |               | 15,517  |   |                        |   | 138  |                             |  |   | 15,655                |   |  |          | (7,256 | ) |             |   | 8,399   |                       |  |   | 8,449    |   |  |   | (8,034 | ) |  |   | 415     |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Net income                                             |  |               | 23,637  |   |                        |   |     |                             |  |   | 23,637                |   |  |          | 10,977 |   |             |   | 34,614  |                       |  |   | 14,456   |   |  |   | (2,662 | ) |  |   | 11,794  |  
|Distributions on preferred units                       |  |               | (7,713  | ) |                        |   |     |                             |  |   | (7,713                | ) |  |          |       |   |             |   | (7,713  | )                     |  |   | (7,713   | ) |  |   |       |   |  |   | (7,713  | )
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Net income available for common unitholders            |  | $             | 15,924  |   |                        | $ |     |                             |  | $ | 15,924                |   |  | $        | 10,977 |   |             | $ | 26,901  |                       |  | $ | 6,743    |   |  | $ | (2,662 | ) |  | $ | 4,081   |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Net income per unit-basic:                             |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations               |  | $             | 0.01    |   |                        | $ |     |                             |  | $ | 0.01                  |   |  | $        | 0.30   |   |             | $ | 0.31    |                       |  | $ | (0.03    | ) |  | $ | 0.09   |   |  | $ | 0.06    |  
|Discontinued operations                                |  |               | 0.26    |   |                        |   |     |                             |  |   | 0.26                  |   |  |          | (0.12  | ) |             |   | 0.14    |                       |  |   | 0.14     |   |  |   | (0.13  | ) |  |   | 0.01    |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Net income (1)                                         |  | $             | 0.27    |   |                        | $ |     |                             |  | $ | 0.27                  |   |  | $        | 0.18   |   |             | $ | 0.45    |                       |  | $ | 0.11     |   |  | $ | (0.04  | ) |  | $ | 0.07    |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Net income per unit-diluted:                           |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Income/)loss) from continuing operations               |  | $             | 0.01    |   |                        | $ |     |                             |  | $ | 0.01                  |   |  | $        | 0.30   |   |             | $ | 0.31    |                       |  | $ | (0.03    | ) |  | $ | 0.09   |   |  | $ | 0.06    |  
|Discontinued operations                                |  |               | 0.26    |   |                        |   |     |                             |  |   | 0.26                  |   |  |          | (0.12  | ) |             |   | 0.14    |                       |  |   | 0.14     |   |  |   | (0.13  | ) |  |   | 0.01    |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  
|Net income (1)                                         |  | $             | 0.27    |   |                        | $ |     |                             |  | $ | 0.27                  |   |  | $        | 0.18   |   |             | $ | 0.45    |                       |  | $ | 0.11     |   |  | $ | (0.04  | ) |  | $ | 0.07    |  
|                                                       |  |               |         |   |                        |   |      |                             |  |   |                       |   |  |          |        |   |             |   |         |                       |  |   |          |   |  |   |        |   |  |   |         |  

---

|(1) | Amounts represent net income available to common unitholders per unit, which is after deducting preferred distributions.
|--- | ------------------------------------------------------------------------------------------------------------------------



F-55



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



19. RESTATED QUARTERLY FINANCIAL
DATA (Unaudited) - Continued



The following table sets forth quarterly financial information for the Operating Partnerships
fiscal year ended December 31, 2002 ($ in thousands except per share amounts):



|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|----------------------------------------------- |  | ------------- | ------- | - | -------------- | - | ------- | --------------------------- |  | - | --------------- | - |  | ------- | ------ | - | ----------- | - | ------- | ------------- |  | - | --------------------------- | - |  | --------------- | ------- | - | -------- | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                |  | First Quarter |         |   | Second Quarter |  
|                                                |  | AsPresented   |         |   | Discont.Oper.  |   |         | AsReportedwithDiscont.Oper. |  |   | RestatementAdj. |   |  | Restaed |        |   | AsPresented |   |         | Discont.Oper. |  |   | AsReportedwithDiscont.Oper. |   |  | RestatementAdj. |         |   | Restated |  
|Rental and other revenues                       |  | $             | 124,579 |   |                | $ | (13,352 | )                           |  | $ | 111,227         |   |  | $       | 22,425 |   |             | $ | 133,652 |               |  | $ | 118,224                     |   |  | $               | (12,597 | ) |          | $ | 105,627 |   |  | $ | 21,776 |   |  | $ | 127,403 |  
|Rental property and other expenses              |  |               | 38,258  |   |                |   | (3,669  | )                           |  |   | 34,589          |   |  |         | 7,101  |   |             |   | 41,690  |               |  |   | 36,682                      |   |  |                 | (3,359  | ) |          |   | 33,323  |   |  |   | 7,595  |   |  |   | 40,918  |  
|Depreciation and amortization                   |  |               | 31,280  |   |                |   | (3,046  | )                           |  |   | 28,234          |   |  |         | 4,601  |   |             |   | 32,835  |               |  |   | 31,291                      |   |  |                 | (2,818  | ) |          |   | 28,473  |   |  |   | 4,626  |   |  |   | 33,099  |  
|Impairment of assets held for use               |  |               |        |   |                |   |        |                             |  |   |                |   |  |         |       |   |             |   |        |               |  |   |                            |   |  |                 |        |   |          |   |        |   |  |   | 9,919  |   |  |   | 9,919   |  
|General and administrative                      |  |               | 5,184   |   |                |   | (4      | )                           |  |   | 5,180           |   |  |         | 20     |   |             |   | 5,200   |               |  |   | 8,749                       |   |  |                 | (3      | ) |          |   | 8,746   |   |  |   | (725   | ) |  |   | 8,021   |  
|Interest expense                                |  |               | 25,766  |   |                |   |        |                             |  |   | 25,766          |   |  |         | 6,536  |   |             |   | 32,302  |               |  |   | 26,858                      |   |  |                 |        |   |          |   | 26,858  |   |  |   | 5,792  |   |  |   | 32,650  |  
|Other income/expense                            |  |               | 3,272   |   |                |   | (98     | )                           |  |   | 3,174           |   |  |         | (1,338 | ) |             |   | 1,836   |               |  |   | 2,614                       |   |  |                 | (75     | ) |          |   | 2,539   |   |  |   | (1,222 | ) |  |   | 1,317   |  
|Gain on disposition of property, net            |  |               | 944     |   |                |   |        |                             |  |   | 944             |   |  |         | 505    |   |             |   | 1,449   |               |  |   | 9,364                       |   |  |                 | 828     |   |          |   | 10,192  |   |  |   | 10,011 |   |  |   | 20,203  |  
|Co-venture expense                              |  |               |        |   |                |   |        |                             |  |   |                |   |  |         | (2,363 | ) |             |   | (2,363  | )             |  |   |                            |   |  |                 |        |   |          |   |        |   |  |   | (2,022 | ) |  |   | (2,022  | )
|Equity in earnings of unconsolidated affiliates |  |               | 2,490   |   |                |   |        |                             |  |   | 2,490           |   |  |         | (784   | ) |             |   | 1,706   |               |  |   | 2,384                       |   |  |                 |        |   |          |   | 2,384   |   |  |   | (561   | ) |  |   | 1,823   |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income from continuing operations               |  |               | 30,797  |   |                |   | (6,731  | )                           |  |   | 24,066          |   |  |         | 187    |   |             |   | 24,253  |               |  |   | 29,006                      |   |  |                 | (5,664  | ) |          |   | 23,342  |   |  |   | 775    |   |  |   | 24,117  |  
|Discontinued operations                         |  |               | 230     |   |                |   | 6,731   |                             |  |   | 6,961           |   |  |         | (3,688 | ) |             |   | 3,273   |               |  |   | 3,013                       |   |  |                 | 5,664   |   |          |   | 8,677   |   |  |   | (3,777 | ) |  |   | 4,900   |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income                                      |  |               | 31,027  |   |                |   |        |                             |  |   | 31,027          |   |  |         | (3,501 | ) |             |   | 27,526  |               |  |   | 32,019                      |   |  |                 |        |   |          |   | 32,019  |   |  |   | (3,002 | ) |  |   | 29,017  |  
|Distributions on preferred units                |  |               | (7,713  | ) |                |   |        |                             |  |   | (7,713          | ) |  |         |       |   |             |   | (7,713  | )             |  |   | (7,713                      | ) |  |                 |        |   |          |   | (7,713  | ) |  |   |       |   |  |   | (7,713  | )
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income available for common unitholders     |  | $             | 23,314  |   |                | $ |        |                             |  | $ | 23,314          |   |  | $       | (3,501 | ) |             | $ | 19,813  |               |  | $ | 24,306                      |   |  | $               |        |   |          | $ | 24,306  |   |  | $ | (3,002 | ) |  | $ | 21,304  |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income per unit-basic:                      |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations        |  | $             | 0.39    |   |                | $ | (0.12   | )                           |  | $ | 0.27            |   |  | $       |       |   |             | $ | 0.27    |               |  | $ | 0.35                        |   |  | $               | (0.09   | ) |          | $ | 0.26    |   |  | $ | 0.01   |   |  | $ | 0.27    |  
|Discontinued operations                         |  |               |        |   |                |   | 0.12    |                             |  |   | 0.12            |   |  |         | (0.06  | ) |             |   | 0.06    |               |  |   | 0.05                        |   |  |                 | 0.09    |   |          |   | 0.14    |   |  |   | (0.06  | ) |  |   | 0.08    |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income (1)                                  |  | $             | 0.39    |   |                | $ |        |                             |  | $ | 0.39            |   |  | $       | (0.06  | ) |             | $ | 0.33    |               |  | $ | 0.40                        |   |  | $               |        |   |          | $ | 0.40    |   |  | $ | (0.05  | ) |  | $ | 0.35    |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income per unit-diluted:                    |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations        |  | $             | 0.39    |   |                | $ | (0.12   | )                           |  | $ | 0.27            |   |  | $       |       |   |             | $ | 0.27    |               |  | $ | 0.35                        |   |  | $               | (0.09   | ) |          | $ | 0.26    |   |  | $ | 0.01   |   |  | $ | 0.27    |  
|Discontinued operations                         |  |               |        |   |                |   | 0.12    |                             |  |   | 0.12            |   |  |         | (0.06  | ) |             |   | 0.06    |               |  |   | 0.05                        |   |  |                 | 0.09    |   |          |   | 0.14    |   |  |   | (0.06  | ) |  |   | 0.08    |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income (1)                                  |  | $             | 0.39    |   |                | $ |        |                             |  | $ | 0.39            |   |  | $       | (0.06  | ) |             | $ | 0.33    |               |  | $ | 0.40                        |   |  | $               |        |   |          | $ | 0.40    |   |  | $ | (0.05  | ) |  | $ | 0.35    |  
|                                                |  |               |         |   |                |   |         |                             |  |   |                 |   |  |         |        |   |             |   |         |               |  |   |                             |   |  |                 |         |   |          |   |         |   |  |   |        |   |  |   |         |  



|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|----------------------------------------------- |  | ------------- | ------- | - | -------------- | - | ------ | --------------------------- |  | - | --------------- | - |  | -------- | ------ | - | ----------- | - | ------- | ------------- |  | - | --------------------------- | - |  | --------------- | ------ | - | -------- | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                |  | Third Quarter |         |   | Fourth Quarter |  
|                                                |  | AsPresented   |         |   | Discont.Oper.  |   |        | AsReportedwithDiscont.Oper. |  |   | RestatementAdj. |   |  | Restated |        |   | AsPresented |   |         | Discont.Oper. |  |   | AsReportedwithDiscont.Oper. |   |  | RestatementAdj. |        |   | Restated |  
|Rental and other revenues                       |  | $             | 116,989 |   |                | $ | (8,011 | )                           |  | $ | 108,978         |   |  | $        | 20,992 |   |             | $ | 129,970 |               |  | $ | 112,336                     |   |  | $               | (5,201 | ) |          | $ | 107,135 |   |  | $ | 23,467 |   |  | $ | 130,602 |  
|Rental property and other expenses              |  |               | 36,723  |   |                |   | (2,185 | )                           |  |   | 34,538          |   |  |          | 8,828  |   |             |   | 43,366  |               |  |   | 35,954                      |   |  |                 | (1,419 | ) |          |   | 34,535  |   |  |   | 8,218  |   |  |   | 42,753  |  
|Depreciation and amortization                   |  |               | 31,513  |   |                |   | (1,841 | )                           |  |   | 29,672          |   |  |          | 4,782  |   |             |   | 34,454  |               |  |   | 36,585                      |   |  |                 | (1,218 | ) |          |   | 35,367  |   |  |   | 5,033  |   |  |   | 40,400  |  
|Impairment of assets held for use               |  |               |        |   |                |   |       |                             |  |   |                |   |  |          |       |   |             |   |        |               |  |   |                            |   |  |                 |       |   |          |   |        |   |  |   |       |   |  |   |        |  
|General and administrative                      |  |               | 6,832   |   |                |   |       |                             |  |   | 6,832           |   |  |          | 2,284  |   |             |   | 9,116   |               |  |   | 5,586                       |   |  |                 |       |   |          |   | 5,586   |   |  |   | 4      |   |  |   | 5,590   |  
|Interest expense                                |  |               | 27,666  |   |                |   |       |                             |  |   | 27,666          |   |  |          | 5,932  |   |             |   | 33,598  |               |  |   | 29,985                      |   |  |                 |       |   |          |   | 29,985  |   |  |   | 6,968  |   |  |   | 36,953  |  
|Other income/expense                            |  |               | 2,710   |   |                |   | (54    | )                           |  |   | 2,656           |   |  |          | (1,350 | ) |             |   | 1,306   |               |  |   | 4,723                       |   |  |                 | (16    | ) |          |   | 4,707   |   |  |   | (1,478 | ) |  |   | 3,229   |  
|Gain on disposition of property, net            |  |               | 908     |   |                |   | (496   | )                           |  |   | 412             |   |  |          | 357    |   |             |   | 769     |               |  |   | 202                         |   |  |                 | (351   | ) |          |   | (149    | ) |  |   | 423    |   |  |   | 274     |  
|Co-venture expense                              |  |               |        |   |                |   |       |                             |  |   |                |   |  |          | (1,838 | ) |             |   | (1,838  | )             |  |   |                            |   |  |                 |       |   |          |   |        |   |  |   | (1,507 | ) |  |   | (1,507  | )
|Equity in earnings of unconsolidated affiliates |  |               | 1,198   |   |                |   |       |                             |  |   | 1,198           |   |  |          | (450   | ) |             |   | 748     |               |  |   | 1,603                       |   |  |                 |       |   |          |   | 1,603   |   |  |   | (598   | ) |  |   | 1,005   |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income from continuing operations               |  |               | 19,071  |   |                |   | (4,535 | )                           |  |   | 14,536          |   |  |          | (4,115 | ) |             |   | 10,421  |               |  |   | 10,754                      |   |  |                 | (2,931 | ) |          |   | 7,823   |   |  |   | 84     |   |  |   | 7,907   |  
|Discontinued operations                         |  |               | (1,742  | ) |                |   | 4,535  |                             |  |   | 2,793           |   |  |          | (3,428 | ) |             |   | (635    | )             |  |   | 16,835                      |   |  |                 | 2,931  |   |          |   | 19,766  |   |  |   | (3,438 | ) |  |   | 16,328  |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income                                      |  |               | 17,329  |   |                |   |       |                             |  |   | 17,329          |   |  |          | (7,543 | ) |             |   | 9,786   |               |  |   | 27,589                      |   |  |                 |       |   |          |   | 27,589  |   |  |   | (3,354 | ) |  |   | 24,235  |  
|Distributions on preferred units                |  |               | (7,713  | ) |                |   |       |                             |  |   | (7,713          | ) |  |          |       |   |             |   | (7,713  | )             |  |   | (7,713                      | ) |  |                 |       |   |          |   | (7,713  | ) |  |   |       |   |  |   | (7,713  | )
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income available for common unitholders     |  | $             | 9,616   |   |                | $ |       |                             |  | $ | 9,616           |   |  | $        | (7,543 | ) |             | $ | 2,073   |               |  | $ | 19,876                      |   |  | $               |       |   |          | $ | 19,876  |   |  | $ | (3,354 | ) |  | $ | 16,522  |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income per unit-basic:                      |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations        |  | $             | 0.19    |   |                | $ | (0.08  | )                           |  | $ | 0.11            |   |  | $        | (0.06  | ) |             | $ | 0.05    |               |  | $ | 0.05                        |   |  | $               | (0.04  | ) |          | $ | 0.01    |   |  | $ | (0.01  | ) |  | $ |        |  
|Discontinued operations                         |  |               | (0.03   | ) |                |   | 0.08   |                             |  |   | 0.05            |   |  |          | (0.06  | ) |             |   | (0.01   | )             |  |   | 0.29                        |   |  |                 | 0.04   |   |          |   | 0.33    |   |  |   | (0.06  | ) |  |   | 0.27    |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income (1)                                  |  | $             | 0.16    |   |                | $ |       |                             |  | $ | 0.16            |   |  | $        | (0.12  | ) |             | $ | 0.04    |               |  | $ | 0.34                        |   |  | $               |       |   |          | $ | 0.34    |   |  | $ | (0.07  | ) |  | $ | 0.27    |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income per unit-diluted:                    |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Income/(loss) from continuing operations        |  | $             | 0.19    |   |                | $ | (0.08  | )                           |  | $ | 0.11            |   |  | $        | (0.07  | ) |             | $ | 0.04    |               |  | $ | 0.04                        |   |  | $               | (0.03  | ) |          | $ | 0.01    |   |  | $ | (0.01  | ) |  | $ |        |  
|Discontinued operations                         |  |               | (0.03   | ) |                |   | 0.08   |                             |  |   | 0.05            |   |  |          | (0.06  | ) |             |   | (0.01   | )             |  |   | 0.29                        |   |  |                 | 0.03   |   |          |   | 0.32    |   |  |   | (0.05  | ) |  |   | 0.27    |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  
|Net income (1)                                  |  | $             | 0.16    |   |                | $ |       |                             |  | $ | 0.16            |   |  | $        | (0.13  | ) |             | $ | 0.03    |               |  | $ | 0.33                        |   |  | $               |       |   |          | $ | 0.33    |   |  | $ | (0.06  | ) |  | $ | 0.27    |  
|                                                |  |               |         |   |                |   |        |                             |  |   |                 |   |  |          |        |   |             |   |         |               |  |   |                             |   |  |                 |        |   |          |   |         |   |  |   |        |   |  |   |         |  

---

|(1) | Amounts represent net income available to common unitholders per unit, which is after deducting preferred distributions.
|--- | ------------------------------------------------------------------------------------------------------------------------



F-56



---

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



20. OTHER EVENTS



Retirement of the Companys Chief Executive Officer



The Companys Chief Executive Officer retired on June 30, 2004. In
connection with his retirement, the Companys Board of Directors approved a retirement package for him that included a lump-sum cash payment, accelerated vesting of stock options and restricted stock, extended lives of stock options and
continued coverage under the Operating Partnerships health and life insurance plan for three years at the Operating Partnerships expense. Under GAAP, the changes to existing stock options and restricted stock give rise to new measurement
dates and revised compensation computations. The total cost recognized under GAAP for the six months ended June 30, 2004 was $4.6 million, comprised of a $2.2 million cash payment, $0.6 million related to stock options, $1.7 million related to
restricted shares and about $0.1 million for continued insurance coverage. The total expense is $1.7 million lower than the amount previously disclosed by the Operating Partnership in connection with its first quarter 2004 earnings due to an
adjustment to the method of valuing the accelerated vesting and extension of the lives of the stock options under SFAS No. 123 and No. 148. Previously, the Operating Partnership had recorded the intrinsic value of the options as of the date of the
Boards approval. However, the Operating Partnership has subsequently determined that these changes to the options should be accounted for using other valuation techniques, as set forth in SFAS No. 123 and No. 148. Certain components of this
retirement package were required to be recognized as of the Boards approval date, which was in the first quarter, while other components were required to be amortized from that date until his June 30, 2004 retirement date. Accordingly, $3.2
million was expensed in the first quarter and the remaining $1.4 million was expensed in the second quarter. The December 31, 2003 financial statements do not reflect any costs associated with the retirement package.



WorldCom/MCI Settlement



On July 21, 2002, WorldCom filed a voluntary petition with the United States Bankruptcy Court seeking relief under Chapter
11 of the United States Bankruptcy Code. In connection with the bankruptcy filing, WorldCom rejected leases with the Operating Partnership encompassing 819,653 square feet including the entire 816,000 square foot Highwoods Preserve office campus in
Tampa, Florida. The Operating Partnership submitted bankruptcy claims against WorldCom aggregating $21.2 million related to these rejected leases and other matters. WorldCom emerged from bankruptcy (now MCI, Inc.) on April 20, 2004. On August 27,
2004, the Operating Partnership and various MCI subsidiaries and affiliates (the MCI Entities) executed a settlement agreement. The agreement provided that the MCI Entities will pay the Operating Partnership approximately $8.6 million in
cash and also transfer to it approximately 340,000 shares of new MCI, Inc. stock. The Operating Partnership received the $8.6 million cash payment and the MCI, Inc. stock in September 2004. The Operating Partnership sold the stock for net proceeds
of approximately $5.8 million, and recorded the full settlement of approximately $14.4 million as Other Income in the third quarter of 2004.



F-57



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HIGHWOODS REALTY LIMITED PARTNERSHIP

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

For the years ended December 31, 2003, 2002 and 2001

($ in thousands)



|                                                            |  |                            |       |                   |   |            |  |   |                      |   |  |   |      
|----------------------------------------------------------- |  | -------------------------- | ----- | ----------------- | - | ---------- |  | - | -------------------- | - |  | - | -----
|                                                            |  | Balance atbeginning ofyear |       | Charged toexpense |   | Deductions |  |   | Balance atend ofyear
|Year ended December 31, 2003Allowance for doubtful accounts |  | $                          | 1,457 |                   | $ | 1,519      |  | $ | (1,741               | ) |  | $ | 1,235
|                                                            |  |                            |       |                   |   |            |  |   |                      |   |  |   |      
|Year ended December 31, 2002Allowance for doubtful accounts |  | $                          | 1,213 |                   | $ | 2,813      |  | $ | (2,569               | ) |  | $ | 1,457
|                                                            |  |                            |       |                   |   |            |  |   |                      |   |  |   |      
|Year ended December 31, 2001Allowance for doubtful accounts |  | $                          | 825   |                   | $ | 2,394      |  | $ | (2,006               | ) |  | $ | 1,213
|                                                            |  |                            |       |                   |   |            |  |   |                      |   |  |   |      



F-58



---



HIGHWOODS REALTY LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

12/31/2003

(In Thousands)



|                                  |  |         |      |                  |                        |              |      |                                          |  |                        |                                                |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|--------------------------------- |  | ------- | ---- | ---------------- | ---------------------- | ------------ | ---- | ---------------------------------------- |  | ---------------------- | ---------------------------------------------- |  | ---------------------- | - | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | ---- |  | ---------
|Description                       |  | City    |      | 2003Encumberance |                        | Initial Cost |      | CostCapitalizedSubsequent to Acquisition |  |                        | Gross Amountat Which Carried at Close ofPeriod |  | Building &Improvements |   | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                                  |  |         | Land |                  | Building &Improvements |              | Land |                                          |  | Building &Improvements |                                                |  | Land                   |   |       |       |                         |       
|Atlanta, GA                       |  |         |      |                  |                        |              |      |                                          |  |                        |                                                |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|1035 Fred Drive                   |  | Atlanta |      |                  |                        | 270          |      | 1,263                                    |  |                        |                                                |  | 577                    |   |       | 270   |                         | 1,840  |                     | 2,110  |                                     | 283   |  | 1973 |  | 5-40 yrs.
|1700 Century Center               |  | Atlanta |      |                  |                        | 1,115        |      | 3,163                                    |  |                        |                                                |  | 340                    |   |       | 1,115 |                         | 3,503  |                     | 4,618  |                                     | 723   |  | 1972 |  | 5-40 yrs.
|1700 Century Circle               |  | Atlanta |      |                  |                        |              |      | 2,482                                    |  |                        |                                                |  | 397                    |   |       |       |                         | 2,879  |                     | 2,879  |                                     | 178   |  | 1983 |  | 5-40 yrs.
|1800 Century Boulevard            |  | Atlanta |      |                  |                        | 1,441        |      | 29,037                                   |  |                        |                                                |  | 9,385                  |   |       | 1,441 |                         | 38,422 |                     | 39,863 |                                     | 5,747 |  | 1975 |  | 5-40 yrs.
|1825 Century Center (CDC)         |  | Atlanta |      |                  |                        | 864          |      |                                          |  |                        |                                                |  | 15,219                 |   |       | 864   |                         | 15,219 |                     | 16,083 |                                     | 664   |  | 2002 |  | 5-40 yrs.
|1875 Century Boulevard            |  | Atlanta |      |                  |                        |              |      | 8,910                                    |  |                        |                                                |  | 1,326                  |   |       |       |                         | 10,236 |                     | 10,236 |                                     | 1,782 |  | 1976 |  | 5-40 yrs.
|1900 Century Boulevard            |  | Atlanta |      |                  |                        |              |      | 4,737                                    |  |                        |                                                |  | 607                    |   |       |       |                         | 5,344  |                     | 5,344  |                                     | 1,109 |  | 1971 |  | 5-40 yrs.
|2200 Century Parkway              |  | Atlanta |      |                  |                        |              |      | 14,410                                   |  |                        |                                                |  | 1,416                  |   |       |       |                         | 15,826 |                     | 15,826 |                                     | 2,991 |  | 1971 |  | 5-40 yrs.
|2400 Century Center               |  | Atlanta |      |                  |                        |              |      |                                          |  |                        |                                                |  | 13,435                 |   |       |       |                         | 13,435 |                     | 13,435 |                                     | 1,706 |  | 1998 |  | 5-40 yrs.
|2600 Century Parkway              |  | Atlanta |      |                  |                        |              |      | 10,663                                   |  |                        |                                                |  | 765                    |   |       |       |                         | 11,428 |                     | 11,428 |                                     | 2,165 |  | 1973 |  | 5-40 yrs.
|2635 Century Parkway              |  | Atlanta |      |                  |                        |              |      | 21,610                                   |  |                        |                                                |  | 1,003                  |   |       |       |                         | 22,613 |                     | 22,613 |                                     | 3,994 |  | 1980 |  | 5-40 yrs.
|2800 Century Parkway              |  | Atlanta |      |                  |                        |              |      | 20,418                                   |  |                        |                                                |  | 379                    |   |       |       |                         | 20,797 |                     | 20,797 |                                     | 3,643 |  | 1983 |  | 5-40 yrs.
|400 North Business Park           |  | Atlanta |      |                  |                        | 979          |      | 6,235                                    |  |                        |                                                |  | 469                    |   |       | 979   |                         | 6,704  |                     | 7,683  |                                     | 1,128 |  | 1985 |  | 5-40 yrs.
|50 Glenlake                       |  | Atlanta |      |                  |                        | 2,500        |      | 20,006                                   |  |                        |                                                |  | 112                    |   |       | 2,500 |                         | 20,118 |                     | 22,618 |                                     | 3,038 |  | 1997 |  | 5-40 yrs.
|5125 Fulton Industrial Drive      |  | Atlanta |      |                  |                        | 578          |      | 3,116                                    |  | (578                   | )                                              |  | (3,116                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1973 |  | 5-40 yrs.
|6348 Northeast Expressway         |  | Atlanta |      |                  |                        | 277          |      | 1,668                                    |  |                        |                                                |  | 178                    |   |       | 277   |                         | 1,846  |                     | 2,123  |                                     | 305   |  | 1978 |  | 5-40 yrs.
|6438 Northeast Expressway         |  | Atlanta |      |                  |                        | 181          |      | 2,233                                    |  |                        |                                                |  | 130                    |   |       | 181   |                         | 2,363  |                     | 2,544  |                                     | 438   |  | 1981 |  | 5-40 yrs.
|Bluegrass 12.72 Acres             |  | Atlanta |      |                  |                        | 16           |      |                                          |  |                        |                                                |  |                        |   |       | 16    |                         |        |                     | 16     |                                     |       |  | N/A  |  | N/A      
|Bluegrass Fl 12.13 Acres          |  | Atlanta |      |                  |                        | 15           |      |                                          |  | 4                      |                                                |  |                        |   |       | 19    |                         |        |                     | 19     |                                     |       |  | N/A  |  | N/A      
|Bluegrass Lakes I                 |  | Atlanta |      |                  |                        | 816          |      |                                          |  |                        |                                                |  | 4,044                  |   |       | 816   |                         | 4,044  |                     | 4,860  |                                     | 832   |  | 1999 |  | 5-40 yrs.
|Bluegrass Land Site V10           |  | Atlanta |      |                  |                        | 1,824        |      |                                          |  |                        |                                                |  |                        |   |       | 1,824 |                         |        |                     | 1,824  |                                     |       |  | 1999 |  | 5-40 yrs.
|Bluegrass Land Site V14           |  | Atlanta |      |                  |                        | 2,397        |      |                                          |  |                        |                                                |  |                        |   |       | 2,397 |                         |        |                     | 2,397  |                                     |       |  | 1999 |  | 5-40 yrs.
|Bluegrass PH 32.346 Acres         |  | Atlanta |      |                  |                        | 5,398        |      |                                          |  |                        |                                                |  |                        |   |       | 5,398 |                         |        |                     | 5,398  |                                     |       |  | N/A  |  | N/A      
|Bluegrass Phase 2                 |  | Atlanta |      |                  |                        | 6,303        |      |                                          |  |                        |                                                |  |                        |   |       | 6,303 |                         |        |                     | 6,303  |                                     |       |  | N/A  |  | N/A      
|Bluegrass Place I                 |  | Atlanta |      |                  |                        | 491          |      | 2,061                                    |  |                        |                                                |  | 55                     |   |       | 491   |                         | 2,116  |                     | 2,607  |                                     | 330   |  | 1995 |  | 5-40 yrs.
|Bluegrass Place II                |  | Atlanta |      |                  |                        | 412          |      | 2,583                                    |  |                        |                                                |  | 11                     |   |       | 412   |                         | 2,594  |                     | 3,006  |                                     | 413   |  | 1996 |  | 5-40 yrs.
|Bluegrass V93.04                  |  | Atlanta |      |                  |                        | 1,083        |      |                                          |  |                        |                                                |  |                        |   |       | 1,083 |                         |        |                     | 1,083  |                                     |       |  | N/A  |  | N/A      
|Bluegrass Valley                  |  | Atlanta |      |                  |                        | 1,500        |      |                                          |  |                        |                                                |  | 4,249                  |   |       | 1,500 |                         | 4,249  |                     | 5,749  |                                     | 647   |  | 2000 |  | 5-40 yrs.
|Bluegrass Wet Land                |  | Atlanta |      |                  |                        | 2,675        |      |                                          |  |                        |                                                |  |                        |   |       | 2,675 |                         |        |                     | 2,675  |                                     |       |  | N/A  |  | N/A      
|Century Plaza I                   |  | Atlanta |      |                  |                        | 1,290        |      | 8,567                                    |  |                        |                                                |  | 1,285                  |   |       | 1,290 |                         | 9,852  |                     | 11,142 |                                     | 1,284 |  | 1981 |  | 5-40 yrs.
|Century Plaza II                  |  | Atlanta |      |                  |                        | 1,380        |      | 7,733                                    |  |                        |                                                |  | 1,319                  |   |       | 1,380 |                         | 9,052  |                     | 10,432 |                                     | 1,033 |  | 1984 |  | 5-40 yrs.
|Chastain Place I                  |  | Atlanta |      |                  |                        | 472          |      |                                          |  |                        |                                                |  | 3,314                  |   |       | 472   |                         | 3,314  |                     | 3,786  |                                     | 538   |  | 1997 |  | 5-40 yrs.
|Chastain Place II                 |  | Atlanta |      |                  |                        | 607          |      |                                          |  |                        |                                                |  | 2,025                  |   |       | 607   |                         | 2,025  |                     | 2,632  |                                     | 377   |  | 1998 |  | 5-40 yrs.
|Chastain Place III                |  | Atlanta |      |                  |                        | 539          |      |                                          |  |                        |                                                |  | 1,332                  |   |       | 539   |                         | 1,332  |                     | 1,871  |                                     | 141   |  | 1999 |  | 5-40 yrs.
|Chattahoochee Avenue              |  | Atlanta |      |                  |                        | 248          |      | 1,876                                    |  |                        |                                                |  | 118                    |   |       | 248   |                         | 1,994  |                     | 2,242  |                                     | 363   |  | 1970 |  | 5-40 yrs.
|Corporate Lakes                   |  | Atlanta |      |                  |                        | 1,275        |      | 7,300                                    |  |                        |                                                |  | 226                    |   |       | 1,275 |                         | 7,526  |                     | 8,801  |                                     | 1,338 |  | 1988 |  | 5-40 yrs.
|Cosmopolitan North                |  | Atlanta |      |                  |                        | 2,855        |      | 4,180                                    |  |                        |                                                |  | 1,174                  |   |       | 2,855 |                         | 5,354  |                     | 8,209  |                                     | 982   |  | 1980 |  | 5-40 yrs.
|Deerfield I                       |  | Atlanta |      | (3)              |                        | 1,204        |      | 3,900                                    |  |                        |                                                |  | (53                    | ) |       | 1,204 |                         | 3,847  |                     | 5,051  |                                     | 1,081 |  | 1999 |  | 5-40 yrs.
|Deerfield II                      |  | Atlanta |      | (3)              |                        | 1,705        |      | 5,521                                    |  |                        |                                                |  |                       |   |       | 1,705 |                         | 5,521  |                     | 7,226  |                                     | 1,121 |  | 1999 |  | 5-40 yrs.
|Deerfield III                     |  | Atlanta |      |                  |                        | 1,010        |      |                                          |  |                        |                                                |  | 3,768                  |   |       | 1,010 |                         | 3,768  |                     | 4,778  |                                     | 166   |  | 2001 |  | 5-40 yrs.
|EKA Chemical                      |  | Atlanta |      | (1)              |                        | 609          |      | 9,886                                    |  |                        |                                                |  |                        |   |       | 609   |                         | 9,886  |                     | 10,495 |                                     | 1,432 |  | 1998 |  | 5-40 yrs.
|Gwinnett Distribution Center      |  | Atlanta |      |                  |                        | 1,128        |      | 6,007                                    |  |                        |                                                |  | 572                    |   |       | 1,128 |                         | 6,579  |                     | 7,707  |                                     | 1,186 |  | 1991 |  | 5-40 yrs.
|Highwoods Center I at Tradeport   |  | Atlanta |      | (1)              |                        | 307          |      |                                          |  |                        |                                                |  | 3,273                  |   |       | 307   |                         | 3,273  |                     | 3,580  |                                     | 818   |  | 1999 |  | 5-40 yrs.
|Highwoods Center II at Tradeport  |  | Atlanta |      | (1)              |                        | 641          |      |                                          |  |                        |                                                |  | 4,230                  |   |       | 641   |                         | 4,230  |                     | 4,871  |                                     | 994   |  | 1999 |  | 5-40 yrs.
|Highwoods Center III at Tradeport |  | Atlanta |      | (1)              |                        | 409          |      |                                          |  |                        |                                                |  | 2,271                  |   |       | 409   |                         | 2,271  |                     | 2,680  |                                     | 120   |  | 2001 |  | 5-40 yrs.
|Kennestone Corporate Center       |  | Atlanta |      |                  |                        | 518          |      | 4,922                                    |  |                        |                                                |  | 279                    |   |       | 518   |                         | 5,201  |                     | 5,719  |                                     | 917   |  | 1985 |  | 5-40 yrs.
|La Vista Business Park            |  | Atlanta |      |                  |                        | 821          |      | 5,265                                    |  |                        |                                                |  | 925                    |   |       | 821   |                         | 6,190  |                     | 7,011  |                                     | 1,138 |  | 1973 |  | 5-40 yrs.
|Newpoint Place I                  |  | Atlanta |      |                  |                        | 825          |      |                                          |  |                        |                                                |  | 3,055                  |   |       | 825   |                         | 3,055  |                     | 3,880  |                                     | 435   |  | 1998 |  | 5-40 yrs.
|Newpoint Place II                 |  | Atlanta |      |                  |                        | 1,499        |      |                                          |  |                        |                                                |  | 4,858                  |   |       | 1,499 |                         | 4,858  |                     | 6,357  |                                     | 1,006 |  | 1999 |  | 5-40 yrs.
|Newpoint Place III                |  | Atlanta |      |                  |                        | 668          |      |                                          |  |                        |                                                |  | 2,382                  |   |       | 668   |                         | 2,382  |                     | 3,050  |                                     | 575   |  | 1998 |  | 5-40 yrs.
|Newpoint Place IV                 |  | Atlanta |      |                  |                        | 989          |      |                                          |  |                        |                                                |  | 4,726                  |   |       | 989   |                         | 4,726  |                     | 5,715  |                                     | 149   |  | 2001 |  | 5-40 yrs.
|Newpoint Place Land               |  | Atlanta |      |                  |                        | 2,129        |      |                                          |  |                        |                                                |  | 10                     |   |       | 2,129 |                         | 10     |                     | 2,139  |                                     |       |  | N/A  |  | N/A      
|Norcross I & II                   |  | Atlanta |      |                  |                        | 326          |      | 2,016                                    |  |                        |                                                |  | 65                     |   |       | 326   |                         | 2,081  |                     | 2,407  |                                     | 364   |  | 1970 |  | 5-40 yrs.
|Nortel                            |  | Atlanta |      |                  |                        | 3,342        |      | 32,111                                   |  |                        |                                                |  | 12                     |   |       | 3,342 |                         | 32,123 |                     | 35,465 |                                     | 4,652 |  | 1998 |  | 5-40 yrs.
|Oakbrook I                        |  | Atlanta |      | (2)              |                        | 873          |      | 4,955                                    |  |                        |                                                |  | 429                    |   |       | 873   |                         | 5,384  |                     | 6,257  |                                     | 1,023 |  | 1981 |  | 5-40 yrs.



F-59



---

|                                  |  |           |      |                   |                         |              |      |                                         |  |                         |                                             |  |                         |   |       |        |                         |        |                     |        |                                     |       |  |      |  |          
|--------------------------------- |  | --------- | ---- | ----------------- | ----------------------- | ------------ | ---- | --------------------------------------- |  | ----------------------- | ------------------------------------------- |  | ----------------------- | - | ----- | ------ | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | ---- |  | ---------
|Description                       |  | City      |      | 2003 Encumberance |                         | Initial Cost |      | CostCapitalizedSubsequentto Acquisition |  |                         | GrossAmountat WhichCarriedat Close ofPeriod |  | Building & Improvements |   | Total |        | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                                  |  |           | Land |                   | Building & Improvements |              | Land |                                         |  | Building & Improvements |                                             |  | Land                    |   |       |        |                         |       
|Oakbrook II                       |  | Atlanta   |      | (2)               |                         | 1,579        |      | 8,962                                   |  |                         |                                             |  | 661                     |   |       | 1,579  |                         | 9,623  |                     | 11,202 |                                     | 1,802 |  | 1983 |  | 5-40 yrs.
|Oakbrook III                      |  | Atlanta   |      | (2)               |                         | 1,480        |      | 8,399                                   |  |                         |                                             |  | 309                     |   |       | 1,480  |                         | 8,708  |                     | 10,188 |                                     | 1,580 |  | 1984 |  | 5-40 yrs.
|Oakbrook IV                       |  | Atlanta   |      | (2)               |                         | 953          |      | 5,408                                   |  |                         |                                             |  | 369                     |   |       | 953    |                         | 5,777  |                     | 6,730  |                                     | 1,168 |  | 1985 |  | 5-40 yrs.
|Oakbrook V                        |  | Atlanta   |      | (2)               |                         | 2,206        |      | 12,518                                  |  |                         |                                             |  | 464                     |   |       | 2,206  |                         | 12,982 |                     | 15,188 |                                     | 2,424 |  | 1985 |  | 5-40 yrs.
|Oakbrook Summit                   |  | Atlanta   |      |                   |                         | 950          |      | 6,688                                   |  |                         |                                             |  | 403                     |   |       | 950    |                         | 7,091  |                     | 8,041  |                                     | 1,258 |  | 1981 |  | 5-40 yrs.
|Oxford Lake Business Center       |  | Atlanta   |      |                   |                         | 855          |      | 7,155                                   |  |                         |                                             |  | 320                     |   |       | 855    |                         | 7,475  |                     | 8,330  |                                     | 1,289 |  | 1985 |  | 5-40 yrs.
|Peachtree Corners II              |  | Atlanta   |      | (3)               |                         | 1,923        |      | 7,992                                   |  |                         |                                             |  |                        |   |       | 1,923  |                         | 7,992  |                     | 9,915  |                                     | 2,127 |  | 1999 |  | 5-40 yrs.
|Peachtree Corners III             |  | Atlanta   |      |                   |                         | 880          |      | 2,014                                   |  |                         |                                             |  | 1,658                   |   |       | 880    |                         | 3,672  |                     | 4,552  |                                     | 205   |  | 2002 |  | 5-40 yrs.
|Peachtree Corners Land            |  | Atlanta   |      |                   |                         | 1,221        |      |                                         |  |                         |                                             |  |                         |   |       | 1,221  |                         |        |                     | 1,221  |                                     |       |  | N/A  |  | N/A      
|South Park Residential Land       |  | Atlanta   |      |                   |                         | 50           |      |                                         |  |                         |                                             |  |                         |   |       | 50     |                         |        |                     | 50     |                                     |       |  | N/A  |  | N/A      
|Southside Distribution Center     |  | Atlanta   |      |                   |                         | 810          |      | 4,589                                   |  |                         |                                             |  | 163                     |   |       | 810    |                         | 4,752  |                     | 5,562  |                                     | 828   |  | 1988 |  | 5-40 yrs.
|Tradeport I                       |  | Atlanta   |      |                   |                         | 557          |      |                                         |  |                         |                                             |  | 2,457                   |   |       | 557    |                         | 2,457  |                     | 3,014  |                                     | 318   |  | 1999 |  | 5-40 yrs.
|Tradeport II                      |  | Atlanta   |      |                   |                         | 557          |      |                                         |  |                         |                                             |  | 3,073                   |   |       | 557    |                         | 3,073  |                     | 3,630  |                                     | 630   |  | 1999 |  | 5-40 yrs.
|Tradeport III                     |  | Atlanta   |      |                   |                         | 673          |      |                                         |  |                         |                                             |  | 4,464                   |   |       | 673    |                         | 4,464  |                     | 5,137  |                                     | 953   |  | 1999 |  | 5-40 yrs.
|Tradeport IV                      |  | Atlanta   |      |                   |                         | 667          |      |                                         |  |                         |                                             |  | 3,857                   |   |       | 667    |                         | 3,857  |                     | 4,524  |                                     | 374   |  | 2001 |  | 5-40 yrs.
|Tradeport V                       |  | Atlanta   |      |                   |                         | 463          |      |                                         |  |                         |                                             |  | 2,327                   |   |       | 463    |                         | 2,327  |                     | 2,790  |                                     | 105   |  | 2002 |  | 5-40 yrs.
|Tradeport Land                    |  | Atlanta   |      |                   |                         | 5,314        |      |                                         |  | 38                      |                                             |  | 23                      |   |       | 5,352  |                         | 23     |                     | 5,375  |                                     | 2     |  | N/A  |  | N/A      
|Two Point Royal                   |  | Atlanta   |      | (1)               |                         | 1,793        |      | 14,964                                  |  |                         |                                             |  | 255                     |   |       | 1,793  |                         | 15,219 |                     | 17,012 |                                     | 2,395 |  | 1997 |  | 5-40 yrs.
|                                  |  |           |      |                   |                         |              |      |                                         |  |                         |                                             | 
|Baltimore, MD                     |  |           |      |                   |                         |              |      |                                         |  |                         |                                             |  |                         |   |       |        |                         |        |                     |        |                                     |       |  |      |  |          
|Sportsman Club Land               |  | Baltimore |      |                   |                         | 24,931       |      |                                         |  | (961                    | )                                           |  |                         |   |       | 23,970 |                         |        |                     | 23,970 |                                     |       |  | N/A  |  | N/A      
|                                  |  |           |      |                   |                         |              |      |                                         |  |                         |                                             | 
|Charlotte, NC                     |  |           |      |                   |                         |              |      |                                         |  |                         |                                             |  |                         |   |       |        |                         |        |                     |        |                                     |       |  |      |  |          
|4101 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 70           |      | 512                                     |  |                         |                                             |  | 118                     |   |       | 70     |                         | 630    |                     | 700    |                                     | 153   |  | 1984 |  | 5-40 yrs.
|4105 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 26           |      | 190                                     |  |                         |                                             |  | 4                       |   |       | 26     |                         | 194    |                     | 220    |                                     | 41    |  | 1984 |  | 5-40 yrs.
|4109 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 87           |      | 639                                     |  |                         |                                             |  | 40                      |   |       | 87     |                         | 679    |                     | 766    |                                     | 144   |  | 1984 |  | 5-40 yrs.
|4201 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 110          |      | 812                                     |  |                         |                                             |  | 87                      |   |       | 110    |                         | 899    |                     | 1,009  |                                     | 199   |  | 1982 |  | 5-40 yrs.
|4205 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 134          |      | 984                                     |  |                         |                                             |  | 47                      |   |       | 134    |                         | 1,031  |                     | 1,165  |                                     | 222   |  | 1982 |  | 5-40 yrs.
|4209 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 91           |      | 669                                     |  |                         |                                             |  | 29                      |   |       | 91     |                         | 698    |                     | 789    |                                     | 152   |  | 1982 |  | 5-40 yrs.
|4215 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 133          |      | 983                                     |  |                         |                                             |  | 45                      |   |       | 133    |                         | 1,028  |                     | 1,161  |                                     | 214   |  | 1982 |  | 5-40 yrs.
|4301 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 232          |      | 1,710                                   |  |                         |                                             |  | 129                     |   |       | 232    |                         | 1,839  |                     | 2,071  |                                     | 354   |  | 1982 |  | 5-40 yrs.
|4321 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         | 73           |      | 537                                     |  |                         |                                             |  | 37                      |   |       | 73     |                         | 574    |                     | 647    |                                     | 123   |  | 1982 |  | 5-40 yrs.
|4601 Park Square                  |  | Charlotte |      |                   |                         | 2,601        |      | 7,808                                   |  |                         |                                             |  | 1,027                   |   |       | 2,601  |                         | 8,835  |                     | 11,436 |                                     | 1,200 |  | 1972 |  | 5-40 yrs.
|First Citizens Building           |  | Charlotte |      |                   |                         | 647          |      | 5,505                                   |  |                         |                                             |  | 486                     |   |       | 647    |                         | 5,991  |                     | 6,638  |                                     | 1,443 |  | 1989 |  | 5-40 yrs.
|Mallard Creek I                   |  | Charlotte |      | (4)               |                         | 1,248        |      | 4,184                                   |  |                         |                                             |  | 781                     |   |       | 1,248  |                         | 4,965  |                     | 6,213  |                                     | 661   |  | 1986 |  | 5-40 yrs.
|Mallard Creek III                 |  | Charlotte |      |                   |                         | 845          |      | 4,810                                   |  |                         |                                             |  | 267                     |   |       | 845    |                         | 5,077  |                     | 5,922  |                                     | 705   |  | 1990 |  | 5-40 yrs.
|Mallard Creek IV                  |  | Charlotte |      |                   |                         | 348          |      | 1,164                                   |  |                         |                                             |  | (9                      | ) |       | 348    |                         | 1,155  |                     | 1,503  |                                     | 164   |  | 1993 |  | 5-40 yrs.
|Mallard Creek V                   |  | Charlotte |      | (4)               |                         | 1,665        |      |                                         |  |                         |                                             |  | 11,809                  |   |       | 1,665  |                         | 11,809 |                     | 13,474 |                                     | 2,307 |  | 1999 |  | 5-40 yrs.
|Mallard Creek VI                  |  | Charlotte |      |                   |                         | 845          |      |                                         |  |                         |                                             |  |                         |   |       | 845    |                         |        |                     | 845    |                                     |       |  | N/A  |  | N/A      
|Oakhill Business Park English Oak |  | Charlotte |      | (2)               |                         | 750          |      | 4,254                                   |  |                         |                                             |  | 211                     |   |       | 750    |                         | 4,465  |                     | 5,215  |                                     | 823   |  | 1984 |  | 5-40 yrs.
|Oakhill Business Park Laurel Oak  |  | Charlotte |      | (2)               |                         | 471          |      | 2,675                                   |  |                         |                                             |  | 268                     |   |       | 471    |                         | 2,943  |                     | 3,414  |                                     | 630   |  | 1984 |  | 5-40 yrs.
|Oakhill Business Park Live Oak    |  | Charlotte |      |                   |                         | 1,403        |      | 5,620                                   |  |                         |                                             |  | 1,286                   |   |       | 1,403  |                         | 6,906  |                     | 8,309  |                                     | 1,519 |  | 1989 |  | 5-40 yrs.
|Oakhill Business Park Scarlet Oak |  | Charlotte |      | (2)               |                         | 1,073        |      | 6,087                                   |  |                         |                                             |  | 312                     |   |       | 1,073  |                         | 6,399  |                     | 7,472  |                                     | 1,264 |  | 1982 |  | 5-40 yrs.
|Oakhill Business Park Twin Oak    |  | Charlotte |      | (2)               |                         | 1,243        |      | 7,057                                   |  |                         |                                             |  | 847                     |   |       | 1,243  |                         | 7,904  |                     | 9,147  |                                     | 1,549 |  | 1985 |  | 5-40 yrs.
|Oakhill Business Park Water Oak   |  | Charlotte |      | (2)               |                         | 1,623        |      | 9,209                                   |  |                         |                                             |  | 831                     |   |       | 1,623  |                         | 10,040 |                     | 11,663 |                                     | 1,897 |  | 1985 |  | 5-40 yrs.
|Oakhill Business Park Willow Oak  |  | Charlotte |      | (2)               |                         | 442          |      | 2,510                                   |  |                         |                                             |  | 553                     |   |       | 442    |                         | 3,063  |                     | 3,505  |                                     | 722   |  | 1982 |  | 5-40 yrs.
|Oakhill Land                      |  | Charlotte |      |                   |                         | 3,899        |      |                                         |  |                         |                                             |  |                         |   |       | 3,899  |                         |        |                     | 3,899  |                                     |       |  | N/A  |  | N/A      
|Pinebrook                         |  | Charlotte |      |                   |                         | 846          |      | 4,630                                   |  |                         |                                             |  | 397                     |   |       | 846    |                         | 5,027  |                     | 5,873  |                                     | 865   |  | 1986 |  | 5-40 yrs.
|Ridgefield                        |  | Charlotte |      |                   |                         | 795          |      |                                         |  |                         |                                             |  |                         |   |       | 795    |                         |        |                     | 795    |                                     |       |  | N/A  |  | N/A      
|One Parkway Plaza Building        |  | Charlotte |      |                   |                         | 1,110        |      | 4,748                                   |  |                         |                                             |  | 993                     |   |       | 1,110  |                         | 5,741  |                     | 6,851  |                                     | 1,273 |  | 1982 |  | 5-40 yrs.
|Two Parkway Plaza Building        |  | Charlotte |      |                   |                         | 1,694        |      | 6,785                                   |  |                         |                                             |  | 869                     |   |       | 1,694  |                         | 7,654  |                     | 9,348  |                                     | 1,616 |  | 1983 |  | 5-40 yrs.
|Three Parkway Plaza Building      |  | Charlotte |      | (5)               |                         | 1,570        |      | 6,282                                   |  |                         |                                             |  | 710                     |   |       | 1,570  |                         | 6,992  |                     | 8,562  |                                     | 1,475 |  | 1984 |  | 5-40 yrs.
|Six Parkway Plaza Building        |  | Charlotte |      |                   |                         |              |      |                                         |  |                         |                                             |  | 2,640                   |   |       |        |                         | 2,640  |                     | 2,640  |                                     | 458   |  | 1996 |  | 5-40 yrs.
|Seven Parkway Plaza Building      |  | Charlotte |      |                   |                         |              |      | 4,648                                   |  |                         |                                             |  | 269                     |   |       |        |                         | 4,917  |                     | 4,917  |                                     | 1,024 |  | 1985 |  | 5-40 yrs.
|Eight Parkway Plaza Building      |  | Charlotte |      |                   |                         |              |      | 4,698                                   |  |                         |                                             |  | 214                     |   |       |        |                         | 4,912  |                     | 4,912  |                                     | 1,010 |  | 1986 |  | 5-40 yrs.
|Eleven Parkway Plaza              |  | Charlotte |      |                   |                         | 160          |      |                                         |  |                         |                                             |  | 2,222                   |   |       | 160    |                         | 2,222  |                     | 2,382  |                                     | 363   |  | 1999 |  | 5-40 yrs.
|Twelve Parkway Plaza              |  | Charlotte |      |                   |                         | 112          |      |                                         |  |                         |                                             |  | 1,804                   |   |       | 112    |                         | 1,804  |                     | 1,916  |                                     | 434   |  | 1999 |  | 5-40 yrs.
|Fourteen Parkway Plaza Building   |  | Charlotte |      |                   |                         | 483          |      |                                         |  |                         |                                             |  | 7,086                   |   |       | 483    |                         | 7,086  |                     | 7,569  |                                     | 1,552 |  | 1999 |  | 5-40 yrs.
|University Center                 |  | Charlotte |      |                   |                         | 1,245        |      |                                         |  |                         |                                             |  | 209                     |   |       | 1,245  |                         | 209    |                     | 1,454  |                                     | 15    |  | 2001 |  | 5-40 yrs.
|University Center East            |  | Charlotte |      |                   |                         | 1,289        |      |                                         |  | 15                      |                                             |  |                         |   |       | 1,304  |                         |        |                     | 1,304  |                                     |       |  | N/A  |  | N/A      
|University Center - Land          |  | Charlotte |      |                   |                         | 7,122        |      |                                         |  | (1,640                  | )                                           |  |                         |   |       | 5,482  |                         |        |                     | 5,482  |                                     |       |  | N/A  |  | N/A      
|                                  |  |           |      |                   |                         |              |      |                                         |  |                         |                                             | 
|Columbia, SC                      |  |           |      |                   |                         |              |      |                                         |  |                         |                                             |  |                         |   |       |        |                         |        |                     |        |                                     |       |  |      |  |          
|Centerpoint I                     |  | Columbia  |      |                   |                         | 1,313        |      | 7,452                                   |  |                         |                                             |  | 346                     |   |       | 1,313  |                         | 7,798  |                     | 9,111  |                                     | 1,551 |  | 1988 |  | 5-40 yrs.
|Centerpoint II                    |  | Columbia  |      |                   |                         | 1,183        |      | 8,045                                   |  |                         |                                             |  | 38                      |   |       | 1,183  |                         | 8,083  |                     | 9,266  |                                     | 1,464 |  | 1996 |  | 5-40 yrs.





---

|                               |  |              |      |                  |                        |              |      |                                         |  |                        |                                            |  |                        |   |       |        |                         |         |                     |         |                                     |        |  |           |  |          
|------------------------------ |  | ------------ | ---- | ---------------- | ---------------------- | ------------ | ---- | --------------------------------------- |  | ---------------------- | ------------------------------------------ |  | ---------------------- | - | ----- | ------ | ----------------------- | ------- | ------------------- | ------- | ----------------------------------- | ------ |  | --------- |  | ---------
|Description                    |  | City         |      | 2003Encumberance |                        | Initial Cost |      | CostCapitalizedSubsequentto Acquisition |  |                        | GrossAmountat WhichCarriedat CloseofPeriod |  | Building &Improvements |   | Total |        | AccumulatedDepreciation |         | Date ofConstruction |         | Life onWhichDepreciationis Computed
|                               |  |              | Land |                  | Building &Improvements |              | Land |                                         |  | Building &Improvements |                                            |  | Land                   |   |       |        |                         |        
|Centerpoint V                  |  | Columbia     |      |                  |                        | 265          |      |                                         |  |                        |                                            |  | 1,414                  |   |       | 265    |                         | 1,414   |                     | 1,679   |                                     | 261    |  | 1997      |  | 5-40 yrs.
|Centerpoint VI                 |  | Columbia     |      |                  |                        | 276          |      |                                         |  |                        |                                            |  |                        |   |       | 276    |                         |         |                     | 276     |                                     |        |  | N/A       |  | N/A      
|Fontaine I                     |  | Columbia     |      |                  |                        | 1,219        |      | 6,907                                   |  |                        |                                            |  | 1,462                  |   |       | 1,219  |                         | 8,369   |                     | 9,588   |                                     | 1,782  |  | 1985      |  | 5-40 yrs.
|Fontaine II                    |  | Columbia     |      |                  |                        | 941          |      | 5,335                                   |  |                        |                                            |  | 164                    |   |       | 941    |                         | 5,499   |                     | 6,440   |                                     | 1,015  |  | 1987      |  | 5-40 yrs.
|Fontaine III                   |  | Columbia     |      |                  |                        | 853          |      | 4,832                                   |  |                        |                                            |  | (533                   | ) |       | 853    |                         | 4,299   |                     | 5,152   |                                     | 879    |  | 1988      |  | 5-40 yrs.
|Fontaine V                     |  | Columbia     |      |                  |                        | 395          |      | 2,240                                   |  |                        |                                            |  | 16                     |   |       | 395    |                         | 2,256   |                     | 2,651   |                                     | 412    |  | 1990      |  | 5-40 yrs.
|                               |  |              |      |                  |                        |              |      |                                         |  |                        |                                            | 
|Greenville, SC                 |  |              |      |                  |                        |              |      |                                         |  |                        |                                            |  |                        |   |       |        |                         |         |                     |         |                                     |        |  |           |  |          
|385 Building 1                 |  | Greenville   |      |                  |                        | 1,413        |      |                                         |  |                        |                                            |  | 4,188                  |   |       | 1,413  |                         | 4,188   |                     | 5,601   |                                     | 1,271  |  | 1998      |  | 5-40 yrs.
|385 Land                       |  | Greenville   |      |                  |                        | 1,800        |      |                                         |  |                        |                                            |  |                        |   |       | 1,800  |                         |         |                     | 1,800   |                                     |        |  | N/A       |  | N/A      
|770 Pelham Road                |  | Greenville   |      |                  |                        | 705          |      | 2,812                                   |  |                        |                                            |  | 371                    |   |       | 705    |                         | 3,183   |                     | 3,888   |                                     | 508    |  | 1989      |  | 5-40 yrs.
|Bank of America Plaza          |  | Greenville   |      |                  |                        | 642          |      | 9,485                                   |  |                        |                                            |  | 2,406                  |   |       | 642    |                         | 11,891  |                     | 12,533  |                                     | 2,521  |  | 1973      |  | 5-40 yrs.
|Brookfield Plaza               |  | Greenville   |      | (2)              |                        | 1,489        |      | 8,450                                   |  |                        |                                            |  | 760                    |   |       | 1,489  |                         | 9,210   |                     | 10,699  |                                     | 1,982  |  | 1987      |  | 5-40 yrs.
|Brookfield-Jacobs-Sirrine      |  | Greenville   |      |                  |                        | 3,022        |      | 17,149                                  |  |                        |                                            |  | 9                      |   |       | 3,022  |                         | 17,158  |                     | 20,180  |                                     | 3,136  |  | 1990      |  | 5-40 yrs.
|MetLife @ Brookfield           |  | Greenville   |      |                  |                        | 1,039        |      |                                         |  |                        |                                            |  | 10,716                 |   |       | 1,039  |                         | 10,716  |                     | 11,755  |                                     | 942    |  | 2001      |  | 5-40 yrs.
|Patewood Business Center       |  | Greenville   |      |                  |                        | 1,312        |      | 7,447                                   |  |                        |                                            |  | 108                    |   |       | 1,312  |                         | 7,555   |                     | 8,867   |                                     | 1,347  |  | 1983      |  | 5-40 yrs.
|Patewood I                     |  | Greenville   |      |                  |                        | 942          |      | 5,117                                   |  |                        |                                            |  | 552                    |   |       | 942    |                         | 5,669   |                     | 6,611   |                                     | 991    |  | 1985      |  | 5-40 yrs.
|Patewood II                    |  | Greenville   |      |                  |                        | 942          |      | 5,176                                   |  |                        |                                            |  | 381                    |   |       | 942    |                         | 5,557   |                     | 6,499   |                                     | 1,089  |  | 1987      |  | 5-40 yrs.
|Patewood III                   |  | Greenville   |      | (2)              |                        | 835          |      | 4,740                                   |  |                        |                                            |  | 166                    |   |       | 835    |                         | 4,906   |                     | 5,741   |                                     | 874    |  | 1989      |  | 5-40 yrs.
|Patewood IV                    |  | Greenville   |      | (2)              |                        | 1,210        |      | 6,866                                   |  |                        |                                            |  | 184                    |   |       | 1,210  |                         | 7,050   |                     | 8,260   |                                     | 1,280  |  | 1989      |  | 5-40 yrs.
|Patewood V                     |  | Greenville   |      | (2)              |                        | 1,677        |      | 9,517                                   |  |                        |                                            |  | 96                     |   |       | 1,677  |                         | 9,613   |                     | 11,290  |                                     | 1,746  |  | 1990      |  | 5-40 yrs.
|Patewood VI                    |  | Greenville   |      |                  |                        | 2,360        |      |                                         |  |                        |                                            |  | 8,881                  |   |       | 2,360  |                         | 8,881   |                     | 11,241  |                                     | 1,863  |  | 1999      |  | 5-40 yrs.
|Verizon Wireless               |  | Greenville   |      | (10)             |                        | 1,790        |      |                                         |  | (1,790                 | )                                          |  |                       |   |       |        |                         |         |                     |         |                                     |        |  | 2002      |  | 5-40 yrs.
|                               |  |              |      |                  |                        |              |      |                                         |  |                        |                                            | 
|Jacksonville, FL               |  |              |      |                  |                        |              |      |                                         |  |                        |                                            |  |                        |   |       |        |                         |         |                     |         |                                     |        |  |           |  |          
|Belfort Park VI - Land         |  | Jacksonville |      |                  |                        | 480          |      |                                         |  | (135                   | )                                          |  |                        |   |       | 345    |                         |         |                     | 345     |                                     |        |  | N/A       |  | N/A      
|Belfort Park VII - Land        |  | Jacksonville |      |                  |                        | 1,858        |      |                                         |  | 10                     |                                            |  |                        |   |       | 1,868  |                         |         |                     | 1,868   |                                     |        |  | N/A       |  | N/A      
|                               |  |              |      |                  |                        |              |      |                                         |  |                        |                                            | 
|Kansas City, MO                |  |              |      |                  |                        |              |      |                                         |  |                        |                                            |  |                        |   |       |        |                         |         |                     |         |                                     |        |  |           |  |          
|Country Club Plaza             |  | Kansas City  |      | (6)              |                        | 14,087       |      | 140,356                                 |  |                       |                                            |  | 86,889                 |   |       | 14,087 |                         | 227,245 |                     | 241,332 |                                     | 25,767 |  | 1920-2002 |  | 5-40 yrs.
|63rd & Brookside               |  | Kansas City  |      |                  |                        | 71           |      | 286                                     |  |                        |                                            |  | 45                     |   |       | 71     |                         | 331     |                     | 402     |                                     | 56     |  | 1919      |  | 5-40 yrs.
|Alameda Towers                 |  | Kansas City  |      |                  |                        |              |      | 231                                     |  |                        |                                            |  | (231                   | ) |       |        |                         |         |                     |         |                                     |        |  | N/A       |  | N/A      
|Bannister Rd.                  |  | Kansas City  |      |                  |                        | 121          |      |                                         |  | (121                   | )                                          |  |                        |   |       |        |                         |         |                     |         |                                     |        |  | N/A       |  | N/A      
|Brookside Shopping Center      |  | Kansas City  |      |                  |                        | 2,511        |      | 9,340                                   |  |                        |                                            |  | 866                    |   |       | 2,511  |                         | 10,206  |                     | 12,717  |                                     | 1,344  |  | 1919      |  | 5-40 yrs.
|Challenger - Land              |  | Kansas City  |      |                  |                        | 19,094       |      |                                         |  | (19,094                | )                                          |  |                        |   |       |        |                         |         |                     |         |                                     |        |  | N/A       |  | N/A      
|Colonial Shops                 |  | Kansas City  |      |                  |                        | 138          |      | 644                                     |  |                        |                                            |  | 28                     |   |       | 138    |                         | 672     |                     | 810     |                                     | 104    |  | 1907      |  | 5-40 yrs.
|Corinth Executive Building     |  | Kansas City  |      |                  |                        | 514          |      | 2,290                                   |  |                        |                                            |  | 548                    |   |       | 514    |                         | 2,838   |                     | 3,352   |                                     | 474    |  | 1973      |  | 5-40 yrs.
|Corinth Office Building        |  | Kansas City  |      | 660              |                        | 529          |      | 2,149                                   |  |                        |                                            |  | 339                    |   |       | 529    |                         | 2,488   |                     | 3,017   |                                     | 383    |  | 1960      |  | 5-40 yrs.
|Corinth Shops South            |  | Kansas City  |      |                  |                        | 1,043        |      | 4,349                                   |  |                        |                                            |  | (7                     | ) |       | 1,043  |                         | 4,342   |                     | 5,385   |                                     | 623    |  | 1953      |  | 5-40 yrs.
|Corinth Square North Shops     |  | Kansas City  |      |                  |                        | 2,693        |      | 11,237                                  |  |                        |                                            |  | 448                    |   |       | 2,693  |                         | 11,685  |                     | 14,378  |                                     | 1,637  |  | 1962      |  | 5-40 yrs.
|Fairway North                  |  | Kansas City  |      |                  |                        | 753          |      | 3,212                                   |  |                        |                                            |  | 200                    |   |       | 753    |                         | 3,412   |                     | 4,165   |                                     | 550    |  | 1985      |  | 5-40 yrs.
|Fairway Shops                  |  | Kansas City  |      | 2,318            |                        | 673          |      | 3,152                                   |  |                        |                                            |  | (187                   | ) |       | 673    |                         | 2,965   |                     | 3,638   |                                     | 472    |  | 1940      |  | 5-40 yrs.
|Fairway West                   |  | Kansas City  |      |                  |                        | 851          |      | 3,447                                   |  |                        |                                            |  | 242                    |   |       | 851    |                         | 3,689   |                     | 4,540   |                                     | 518    |  | 1983      |  | 5-40 yrs.
|Residential - Land             |  | Kansas City  |      |                  |                        | 484          |      |                                         |  | 127                    |                                            |  |                        |   |       | 611    |                         |         |                     | 611     |                                     |        |  | N/A       |  | N/A      
|Land - Hotel Land - Valencia   |  | Kansas City  |      |                  |                        | 943          |      |                                         |  |                        |                                            |  |                        |   |       | 943    |                         |         |                     | 943     |                                     |        |  | N/A       |  | N/A      
|Land - JCN Parkway 4502-1      |  | Kansas City  |      |                  |                        | 50           |      |                                         |  |                        |                                            |  |                        |   |       | 50     |                         |         |                     | 50      |                                     |        |  | N/A       |  | N/A      
|Land - JCN Parkway 4510 & 4518 |  | Kansas City  |      |                  |                        | 100          |      |                                         |  |                        |                                            |  |                        |   |       | 100    |                         |         |                     | 100     |                                     |        |  | N/A       |  | N/A      
|Land - Lionsgate               |  | Kansas City  |      |                  |                        | 2,622        |      |                                         |  |                        |                                            |  |                        |   |       | 2,622  |                         |         |                     | 2,622   |                                     |        |  | N/A       |  | N/A      
|Land - Woodsonia Commercial    |  | Kansas City  |      |                  |                        | 2,611        |      |                                         |  |                        |                                            |  |                        |   |       | 2,611  |                         |         |                     | 2,611   |                                     |        |  | N/A       |  | N/A      
|Neptune Apartments             |  | Kansas City  |      | 4,121            |                        | 1,073        |      | 6,139                                   |  |                        |                                            |  | 298                    |   |       | 1,073  |                         | 6,437   |                     | 7,510   |                                     | 892    |  | 1988      |  | 5-40 yrs.
|Parklane Apartments            |  | Kansas City  |      |                  |                        | 273          |      | 1,574                                   |  |                        |                                            |  | 148                    |   |       | 273    |                         | 1,722   |                     | 1,995   |                                     | 200    |  | 1924      |  | 5-40 yrs.
|Red Bridge & Holmes            |  | Kansas City  |      |                  |                        | 390          |      |                                         |  | (390                   | )                                          |  |                        |   |       |        |                         |         |                     |         |                                     |        |  | N/A       |  | N/A      
|Wornall Road Apartments        |  | Kansas City  |      |                  |                        | 186          |      | 173                                     |  |                        |                                            |  | 21                     |   |       | 186    |                         | 194     |                     | 380     |                                     | 28     |  | 1918      |  | 5-40 yrs.
|Nichols Building               |  | Kansas City  |      | 700              |                        | 490          |      | 1,984                                   |  |                        |                                            |  | 178                    |   |       | 490    |                         | 2,162   |                     | 2,652   |                                     | 340    |  | 1978      |  | 5-40 yrs.
|One Ward Parkway               |  | Kansas City  |      |                  |                        | 666          |      | 3,874                                   |  |                        |                                            |  | (166                   | ) |       | 666    |                         | 3,708   |                     | 4,374   |                                     | 746    |  | 1980      |  | 5-40 yrs.
|Park Plaza                     |  | Kansas City  |      | (6)              |                        | 1,352        |      | 6,283                                   |  |                        |                                            |  | 837                    |   |       | 1,352  |                         | 7,120   |                     | 8,472   |                                     | 1,098  |  | 1983      |  | 5-40 yrs.
|Parkway Building               |  | Kansas City  |      |                  |                        | 395          |      | 2,007                                   |  |                        |                                            |  | (108                   | ) |       | 395    |                         | 1,899   |                     | 2,294   |                                     | 351    |  | 1906-1910 |  | 5-40 yrs.
|Prairie Village Office Center  |  | Kansas City  |      |                  |                        | 749          |      | 2,997                                   |  | (749                   | )                                          |  | (2,997                 | ) |       |        |                         |         |                     |         |                                     |        |  | 1960      |  | 5-40 yrs.
|Prairie Village Rest & Bank    |  | Kansas City  |      | (8)              |                        |              |      |                                         |  |                        |                                            |  | 1,372                  |   |       |        |                         | 1,372   |                     | 1,372   |                                     | 149    |  | 1948      |  | 5-40 yrs.
|Prairie Village Shops          |  | Kansas City  |      | (8)              |                        | 3,289        |      | 14,377                                  |  |                        |                                            |  | 1,940                  |   |       | 3,289  |                         | 16,317  |                     | 19,606  |                                     | 2,511  |  | 1948      |  | 5-40 yrs.
|Shannon Valley Shopping Center |  | Kansas City  |      | 5,680            |                        | 1,891        |      | 7,468                                   |  |                        |                                            |  | 1,210                  |   |       | 1,891  |                         | 8,678   |                     | 10,569  |                                     | 1,500  |  | 1988      |  | 5-40 yrs.
|Somerset                       |  | Kansas City  |      |                  |                        | 30           |      | 122                                     |  |                        |                                            |  |                        |   |       | 30     |                         | 122     |                     | 152     |                                     | 17     |  | 1998      |  | 5-40 yrs.
|Two Brush Creek                |  | Kansas City  |      |                  |                        | 961          |      | 4,312                                   |  |                        |                                            |  | 16                     |   |       | 961    |                         | 4,328   |                     | 5,289   |                                     | 707    |  | 1983      |  | 5-40 yrs.
|Valencia Place Office          |  | Kansas City  |      | (6)              |                        | 1,530        |      |                                         |  |                        |                                            |  | 36,705                 |   |       | 1,530  |                         | 36,705  |                     | 38,235  |                                     | 4,674  |  | 1999      |  | 5-40 yrs.
|WhiteHorse Commercial          |  | Kansas City  |      |                  |                        | 2,200        |      |                                         |  | (2,200                 | )                                          |  |                        |   |       |        |                         |         |                     |         |                                     |        |  | N/A       |  | N/A      





---

|                           |  |           |      |                  |                        |              |      |                                         |  |                        |                                             |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|-------------------------- |  | --------- | ---- | ---------------- | ---------------------- | ------------ | ---- | --------------------------------------- |  | ---------------------- | ------------------------------------------- |  | ---------------------- | - | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | ---- |  | ---------
|Description                |  | City      |      | 2003Encumberance |                        | Initial Cost |      | CostCapitalizedSubsequentto Acquisition |  |                        | GrossAmountat WhichCarriedat Closeof Period |  | Building &Improvements |   | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                           |  |           | Land |                  | Building &Improvements |              | Land |                                         |  | Building &Improvements |                                             |  | Land                   |   |       |       |                         |       
|Memphis, TN                |  |           |      |                  |                        |              |      |                                         |  |                        |                                             |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|3400 Players Club Parkway  |  | Memphis   |      | (2)              |                        | 1,005        |      |                                         |  |                        |                                             |  | 5,170                  |   |       | 1,005 |                         | 5,170  |                     | 6,175  |                                     | 1,287 |  | 1997 |  | 5-40 yrs.
|6000 Poplar Ave            |  | Memphis   |      |                  |                        | 2,340        |      | 11,385                                  |  |                        |                                             |  | 542                    |   |       | 2,340 |                         | 11,927 |                     | 14,267 |                                     | 957   |  | 1985 |  | 5-40 yrs.
|6060 Poplar Ave            |  | Memphis   |      |                  |                        | 1,980        |      | 8,677                                   |  |                        |                                             |  | 458                    |   |       | 1,980 |                         | 9,135  |                     | 11,115 |                                     | 760   |  | 1987 |  | 5-40 yrs.
|Atrium I & II              |  | Memphis   |      |                  |                        | 1,570        |      | 6,253                                   |  |                        |                                             |  | 712                    |   |       | 1,570 |                         | 6,965  |                     | 8,535  |                                     | 1,253 |  | 1984 |  | 5-40 yrs.
|Centrum                    |  | Memphis   |      |                  |                        | 1,013        |      | 5,580                                   |  |                        |                                             |  | 232                    |   |       | 1,013 |                         | 5,812  |                     | 6,825  |                                     | 899   |  | 1979 |  | 5-40 yrs.
|Hickory Hill Medical Plaza |  | Memphis   |      |                  |                        | 398          |      | 2,259                                   |  |                        |                                             |  | 136                    |   |       | 398   |                         | 2,395  |                     | 2,793  |                                     | 480   |  | 1988 |  | 5-40 yrs.
|International Place II     |  | Memphis   |      | (4)              |                        | 4,847        |      | 27,573                                  |  |                        |                                             |  | 1,284                  |   |       | 4,847 |                         | 28,857 |                     | 33,704 |                                     | 5,498 |  | 1988 |  | 5-40 yrs.
|Shadow Creek I             |  | Memphis   |      |                  |                        | 924          |      |                                         |  |                        |                                             |  | 7,535                  |   |       | 924   |                         | 7,535  |                     | 8,459  |                                     | 902   |  | 2000 |  | 5-40 yrs.
|Shadow Creek II            |  | Memphis   |      |                  |                        | 734          |      |                                         |  |                        |                                             |  | 6,559                  |   |       | 734   |                         | 6,559  |                     | 7,293  |                                     | 329   |  | 2001 |  | 5-40 yrs.
|Southwind Office Center A  |  | Memphis   |      |                  |                        | 996          |      | 5,651                                   |  |                        |                                             |  | 220                    |   |       | 996   |                         | 5,871  |                     | 6,867  |                                     | 1,089 |  | 1991 |  | 5-40 yrs.
|Southwind Office Center B  |  | Memphis   |      |                  |                        | 1,356        |      | 7,695                                   |  |                        |                                             |  | 203                    |   |       | 1,356 |                         | 7,898  |                     | 9,254  |                                     | 1,460 |  | 1990 |  | 5-40 yrs.
|Southwind Office Center C  |  | Memphis   |      | (2)              |                        | 1,070        |      |                                         |  |                        |                                             |  | 5,749                  |   |       | 1,070 |                         | 5,749  |                     | 6,819  |                                     | 1,038 |  | 1998 |  | 5-40 yrs.
|Southwind Office Center D  |  | Memphis   |      |                  |                        | 744          |      |                                         |  |                        |                                             |  | 6,117                  |   |       | 744   |                         | 6,117  |                     | 6,861  |                                     | 1,294 |  | 1999 |  | 5-40 yrs.
|The Colonnade              |  | Memphis   |      |                  |                        | 1,300        |      | 6,481                                   |  |                        |                                             |  | 1,246                  |   |       | 1,300 |                         | 7,727  |                     | 9,027  |                                     | 1,633 |  | 1998 |  | 5-40 yrs.
|                           |  |           |      |                  |                        |              |      |                                         |  |                        |                                             | 
|Nashville, TN              |  |           |      |                  |                        |              |      |                                         |  |                        |                                             |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|3322 West End              |  | Nashville |      |                  |                        | 3,025        |      | 27,490                                  |  |                        |                                             |  | 1,774                  |   |       | 3,025 |                         | 29,264 |                     | 32,289 |                                     | 3,289 |  | 1986 |  | 5-40 yrs.
|3401 West End              |  | Nashville |      |                  |                        | 4,880        |      | 19,909                                  |  |                        |                                             |  | 2,759                  |   |       | 4,880 |                         | 22,668 |                     | 27,548 |                                     | 4,684 |  | 1982 |  | 5-40 yrs.
|5310 Maryland Way          |  | Nashville |      |                  |                        | 1,555        |      | 6,258                                   |  |                        |                                             |  | 70                     |   |       | 1,555 |                         | 6,328  |                     | 7,883  |                                     | 1,220 |  | 1994 |  | 5-40 yrs.
|BNA Corporate Center       |  | Nashville |      |                  |                        |              |      | 19,668                                  |  |                        |                                             |  | 1,800                  |   |       |       |                         | 21,468 |                     | 21,468 |                                     | 4,414 |  | 1985 |  | 5-40 yrs.
|Century City Plaza I       |  | Nashville |      |                  |                        | 903          |      | 3,612                                   |  |                        |                                             |  | 501                    |   |       | 903   |                         | 4,113  |                     | 5,016  |                                     | 796   |  | 1987 |  | 5-40 yrs.
|Cool Springs I             |  | Nashville |      |                  |                        | 1,583        |      |                                         |  |                        |                                             |  | 14,207                 |   |       | 1,583 |                         | 14,207 |                     | 15,790 |                                     | 2,885 |  | 1999 |  | 5-40 yrs.
|Cool Springs II            |  | Nashville |      |                  |                        | 1,824        |      |                                         |  |                        |                                             |  | 22,365                 |   |       | 1,824 |                         | 22,365 |                     | 24,189 |                                     | 2,142 |  | 1999 |  | 5-40 yrs.
|Cool Springs Land          |  | Nashville |      |                  |                        | 7,635        |      |                                         |  | 1,326                  |                                             |  |                        |   |       | 8,961 |                         |        |                     | 8,961  |                                     |       |  | N/A  |  | N/A      
|Eakin & Smith              |  | Nashville |      |                  |                        | 2,692        |      | 12,477                                  |  |                        |                                             |  |                        |   |       | 2,692 |                         | 12,477 |                     | 15,169 |                                     | 2,607 |  | 1999 |  | 5-40 yrs.
|Eastpark I, II, & III      |  | Nashville |      |                  |                        | 2,371        |      | 9,553                                   |  |                        |                                             |  | 2,572                  |   |       | 2,371 |                         | 12,125 |                     | 14,496 |                                     | 2,571 |  | 1978 |  | 5-40 yrs.
|Harpeth on the Green II    |  | Nashville |      | (1)              |                        | 1,419        |      | 5,677                                   |  |                        |                                             |  | 834                    |   |       | 1,419 |                         | 6,511  |                     | 7,930  |                                     | 1,193 |  | 1984 |  | 5-40 yrs.
|Harpeth on the Green III   |  | Nashville |      | (1)              |                        | 1,660        |      | 6,649                                   |  |                        |                                             |  | 809                    |   |       | 1,660 |                         | 7,458  |                     | 9,118  |                                     | 1,287 |  | 1987 |  | 5-40 yrs.
|Harpeth on the Green IV    |  | Nashville |      | (1)              |                        | 1,713        |      | 6,842                                   |  |                        |                                             |  | 730                    |   |       | 1,713 |                         | 7,572  |                     | 9,285  |                                     | 1,482 |  | 1989 |  | 5-40 yrs.
|Harpeth on The Green V     |  | Nashville |      | (1)              |                        | 662          |      |                                         |  |                        |                                             |  | 5,429                  |   |       | 662   |                         | 5,429  |                     | 6,091  |                                     | 1,388 |  | 1998 |  | 5-40 yrs.
|Hickory Trace              |  | Nashville |      | (4)              |                        | 1,164        |      |                                         |  |                        |                                             |  | 5,877                  |   |       | 1,164 |                         | 5,877  |                     | 7,041  |                                     | 548   |  | N/A  |  | N/A      
|Highwoods Plaza I          |  | Nashville |      | (1)              |                        | 1,772        |      |                                         |  |                        |                                             |  | 8,688                  |   |       | 1,772 |                         | 8,688  |                     | 10,460 |                                     | 2,361 |  | 1996 |  | 5-40 yrs.
|Highwoods Plaza II         |  | Nashville |      | (1)              |                        | 1,448        |      |                                         |  |                        |                                             |  | 7,744                  |   |       | 1,448 |                         | 7,744  |                     | 9,192  |                                     | 2,116 |  | 1997 |  | 5-40 yrs.
|Lakeview Ridge I           |  | Nashville |      |                  |                        | 1,768        |      | 6,316                                   |  |                        |                                             |  | 232                    |   |       | 1,768 |                         | 6,548  |                     | 8,316  |                                     | 1,269 |  | 1986 |  | 5-40 yrs.
|Lakeview Ridge II          |  | Nashville |      | (1)              |                        | 605          |      |                                         |  |                        |                                             |  | 5,056                  |   |       | 605   |                         | 5,056  |                     | 5,661  |                                     | 1,134 |  | 1998 |  | 5-40 yrs.
|Lakeview Ridge III         |  | Nashville |      | (1)              |                        | 1,073        |      |                                         |  |                        |                                             |  | 13,105                 |   |       | 1,073 |                         | 13,105 |                     | 14,178 |                                     | 2,332 |  | 1999 |  | 5-40 yrs.
|Seven Springs I            |  | Nashville |      |                  |                        | 2,076        |      |                                         |  |                        |                                             |  | 14,063                 |   |       | 2,076 |                         | 14,063 |                     | 16,139 |                                     | 474   |  | 2002 |  | 5-40 yrs.
|Seven Springs - Land I     |  | Nashville |      |                  |                        | 3,122        |      |                                         |  |                        |                                             |  |                        |   |       | 3,122 |                         |        |                     | 3,122  |                                     |       |  | N/A  |  | N/A      
|Seven Springs - Land II    |  | Nashville |      |                  |                        | 3,715        |      |                                         |  |                        |                                             |  |                        |   |       | 3,715 |                         |        |                     | 3,715  |                                     |       |  | N/A  |  | N/A      
|SouthPointe                |  | Nashville |      |                  |                        | 1,655        |      |                                         |  |                        |                                             |  | 7,911                  |   |       | 1,655 |                         | 7,911  |                     | 9,566  |                                     | 1,454 |  | 1998 |  | 5-40 yrs.
|Southwind Land             |  | Nashville |      |                  |                        | 3,662        |      |                                         |  |                        |                                             |  |                        |   |       | 3,662 |                         |        |                     | 3,662  |                                     |       |  | N/A  |  | N/A      
|Sparrow Building           |  | Nashville |      |                  |                        | 1,262        |      | 5,047                                   |  |                        |                                             |  | 348                    |   |       | 1,262 |                         | 5,395  |                     | 6,657  |                                     | 1,007 |  | 1982 |  | 5-40 yrs.
|The Ramparts at Brentwood  |  | Nashville |      |                  |                        | 2,394        |      | 12,806                                  |  |                        |                                             |  | 355                    |   |       | 2,394 |                         | 13,161 |                     | 15,555 |                                     | 1,046 |  | 1986 |  | 5-40 yrs.
|Westwood South             |  | Nashville |      | (1)              |                        | 2,106        |      |                                         |  |                        |                                             |  | 11,260                 |   |       | 2,106 |                         | 11,260 |                     | 13,366 |                                     | 2,549 |  | 1999 |  | 5-40 yrs.
|Winners Circle             |  | Nashville |      | (1)              |                        | 1,497        |      | 7,258                                   |  |                        |                                             |  | 575                    |   |       | 1,497 |                         | 7,833  |                     | 9,330  |                                     | 1,245 |  | 1987 |  | 5-40 yrs.
|                           |  |           |      |                  |                        |              |      |                                         |  |                        |                                             | 
|Norfolk, VA                |  |           |      |                  |                        |              |      |                                         |  |                        |                                             |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|Greenbrier Business Center |  | Norfolk   |      |                  |                        | 936          |      | 5,305                                   |  | (936                   | )                                           |  | (5,305                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1984 |  | 5-40 yrs.
|                           |  |           |      |                  |                        |              |      |                                         |  |                        |                                             | 
|Orlando, FL                |  |           |      |                  |                        |              |      |                                         |  |                        |                                             |  |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|Capital Plaza III          |  | Orlando   |      |                  |                        | 2,994        |      |                                         |  |                        |                                             |  |                        |   |       | 2,994 |                         |        |                     | 2,994  |                                     |       |  | N/A  |  | N/A      
|In Charge Institute        |  | Orlando   |      |                  |                        | 501          |      |                                         |  |                        |                                             |  | 2,796                  |   |       | 501   |                         | 2,796  |                     | 3,297  |                                     | 448   |  | 2000 |  | 5-40 yrs.
|Interlachen Village        |  | Orlando   |      |                  |                        | 900          |      | 2,689                                   |  | (900                   | )                                           |  | (2,689                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1987 |  | 5-40 yrs.
|Lake Mary Land             |  | Orlando   |      |                  |                        | 9,805        |      |                                         |  | (3,734                 | )                                           |  |                        |   |       | 6,071 |                         |        |                     | 6,071  |                                     |       |  | N/A  |  | N/A      
|Landmark I                 |  | Orlando   |      |                  |                        | 6,785        |      | 30,652                                  |  |                        |                                             |  | 390                    |   |       | 6,785 |                         | 31,042 |                     | 37,827 |                                     | 4,953 |  | 1983 |  | 5-40 yrs.
|Landmark II                |  | Orlando   |      |                  |                        | 6,785        |      | 29,411                                  |  |                        |                                             |  | 713                    |   |       | 6,785 |                         | 30,124 |                     | 36,909 |                                     | 4,493 |  | 1983 |  | 5-40 yrs.
|Metrowest Center           |  | Orlando   |      |                  |                        | 1,344        |      | 7,629                                   |  |                        |                                             |  | 978                    |   |       | 1,344 |                         | 8,607  |                     | 9,951  |                                     | 1,614 |  | 1988 |  | 5-40 yrs.
|MetroWest Land             |  | Orlando   |      |                  |                        | 3,134        |      |                                         |  |                        |                                             |  |                        |   |       | 3,134 |                         |        |                     | 3,134  |                                     |       |  | N/A  |  | N/A      
|Pine Street I              |  | Orlando   |      |                  |                        | 2,763        |      | 34,359                                  |  |                        |                                             |  | 100                    |   |       | 2,763 |                         | 34,459 |                     | 37,222 |                                     | 5,695 |  | 1999 |  | 5-40 yrs.
|Pine Street II             |  | Orlando   |      |                  |                        | 3,030        |      | 48,043                                  |  |                        |                                             |  |                        |   |       | 3,030 |                         | 48,043 |                     | 51,073 |                                     | 7,060 |  | 1999 |  | 5-40 yrs.
|Signature Plaza            |  | Orlando   |      |                  |                        | 4,302        |      | 33,637                                  |  |                        |                                             |  | 767                    |   |       | 4,302 |                         | 34,404 |                     | 38,706 |                                     | 6,403 |  | 1982 |  | 5-40 yrs.
|Sunport Center             |  | Orlando   |      |                  |                        | 1,505        |      | 9,982                                   |  |                        |                                             |  | (98                    | ) |       | 1,505 |                         | 9,884  |                     | 11,389 |                                     | 1,549 |  | 1990 |  | 5-40 yrs.





---

|                                |  |                |  |                  |  |              |  |                                         |  |        |                                             |  |                        |   |  |       |  |                         |  |        |                                     |                          |  |                     |  |          
|------------------------------- |  | -------------- |  | ---------------- |  | ------------ |  | --------------------------------------- |  | ------ | ------------------------------------------- |  | ---------------------- | - |  | ----- |  | ----------------------- |  | ------ | ----------------------------------- | ------------------------ |  | ------------------- |  | ---------
|                                |  |                |  |                  |  | Initial Cost |  | CostCapitalizedSubsequentto Acquisition |  |        | GrossAmountat WhichCarriedat Closeof Period |  |                        |   |  |       |  |                         |  |        | Life onWhichDepreciationis Computed
|Description                     |  | City           |  | 2003Encumberance |  | Land         |  | Building &Improvements                  |  | Land   |                                             |  | Building &Improvements |   |  | Land  |  | Building & Improvements |  | Total  |                                     | Accumulated Depreciation |  | Date ofConstruction | 
|Piedmont Triad, NC              |  |                |  |                  |  |              |  |                                         |  |        |                                             |  |                        |   |  |       |  |                         |  |        |                                     |                          |  |                     |  |          
|101 Stratford                   |  | Piedmont Triad |  |                  |  | 1,205        |  | 6,916                                   |  |        |                                             |  | 955                    |   |  | 1,205 |  | 7,871                   |  | 9,076  |                                     | 1,168                    |  | 1986                |  | 5-40 yrs.
|150 Stratford                   |  | Piedmont Triad |  |                  |  | 2,777        |  | 11,468                                  |  |        |                                             |  | 628                    |   |  | 2,777 |  | 12,096                  |  | 14,873 |                                     | 2,727                    |  | 1991                |  | 5-40 yrs.
|160 Stratford - Land            |  | Piedmont Triad |  |                  |  | 966          |  |                                         |  |        |                                             |  |                        |   |  | 966   |  |                         |  | 966    |                                     |                          |  | N/A                 |  | N/A      
|2606 Phoenix Drive-100 Series   |  | Piedmont Triad |  |                  |  | 63           |  | 466                                     |  | (63    | )                                           |  | (466                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|2606 Phoenix Drive-200 Series   |  | Piedmont Triad |  |                  |  | 63           |  | 466                                     |  | (63    | )                                           |  | (466                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|2606 Phoenix Drive-300 Series   |  | Piedmont Triad |  |                  |  | 31           |  | 229                                     |  | (31    | )                                           |  | (229                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|2606 Phoenix Drive-400 Series   |  | Piedmont Triad |  |                  |  | 52           |  | 382                                     |  | (52    | )                                           |  | (382                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|2606 Phoenix Drive-500 Series   |  | Piedmont Triad |  |                  |  | 64           |  | 471                                     |  | (64    | )                                           |  | (471                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|2606 Phoenix Drive-600 Series   |  | Piedmont Triad |  |                  |  | 78           |  | 575                                     |  | (78    | )                                           |  | (575                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|2606 Phoenix Drive-700 Series   |  | Piedmont Triad |  |                  |  |              |  | 533                                     |  |        |                                             |  | (533                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1988                |  | 5-40 yrs.
|2606 Phoenix Drive-800 Series   |  | Piedmont Triad |  |                  |  |              |  | 2,308                                   |  |        |                                             |  | (2,308                 | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|500 Northridge                  |  | Piedmont Triad |  |                  |  | 1,789        |  | 4,174                                   |  | (1,789 | )                                           |  | (4,174                 | ) |  |       |  |                         |  |        |                                     |                          |  | 1988                |  | 5-40 yrs.
|500 Radar Road                  |  | Piedmont Triad |  |                  |  | 202          |  | 1,507                                   |  |        |                                             |  | 153                    |   |  | 202   |  | 1,660                   |  | 1,862  |                                     | 386                      |  | 1981                |  | 5-40 yrs.
|502 Radar Road                  |  | Piedmont Triad |  |                  |  | 39           |  | 285                                     |  |        |                                             |  | 52                     |   |  | 39    |  | 337                     |  | 376    |                                     | 81                       |  | 1986                |  | 5-40 yrs.
|504 Radar Road                  |  | Piedmont Triad |  |                  |  | 39           |  | 292                                     |  |        |                                             |  | 77                     |   |  | 39    |  | 369                     |  | 408    |                                     | 83                       |  | 1986                |  | 5-40 yrs.
|506 Radar Road                  |  | Piedmont Triad |  |                  |  | 39           |  | 285                                     |  |        |                                             |  | 15                     |   |  | 39    |  | 300                     |  | 339    |                                     | 63                       |  | 1986                |  | 5-40 yrs.
|520 Northridge                  |  | Piedmont Triad |  |                  |  | 1,700        |  | 4,166                                   |  | (1,700 | )                                           |  | (4,166                 | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|540 Northridge                  |  | Piedmont Triad |  |                  |  | 1,934        |  | 4,638                                   |  | (1,934 | )                                           |  | (4,638                 | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|550 Northridge                  |  | Piedmont Triad |  |                  |  | 444          |  | 1,075                                   |  | (444   | )                                           |  | (1,075                 | ) |  |       |  |                         |  |        |                                     |                          |  | 1989                |  | 5-40 yrs.
|531 Northridge Office           |  | Piedmont Triad |  |                  |  | 1,601        |  | 3,809                                   |  |        |                                             |  |                        |   |  | 1,601 |  | 3,809                   |  | 5,410  |                                     | 87                       |  | 1989                |  | 5-40 yrs.
|531 Northridge Warehouse        |  | Piedmont Triad |  |                  |  | 4,540        |  | 10,810                                  |  |        |                                             |  |                        |   |  | 4,540 |  | 10,810                  |  | 15,350 |                                     | 248                      |  | 1989                |  | 5-40 yrs.
|6348 Burnt Poplar               |  | Piedmont Triad |  |                  |  | 721          |  | 2,889                                   |  |        |                                             |  | 36                     |   |  | 721   |  | 2,925                   |  | 3,646  |                                     | 649                      |  | 1990                |  | 5-40 yrs.
|6350 Burnt Poplar               |  | Piedmont Triad |  |                  |  | 339          |  | 1,369                                   |  |        |                                             |  | 60                     |   |  | 339   |  | 1,429                   |  | 1,768  |                                     | 341                      |  | 1992                |  | 5-40 yrs.
|710 Almondridge                 |  | Piedmont Triad |  |                  |  | 2,555        |  | 10,232                                  |  | (2,555 | )                                           |  | (10,232                | ) |  |       |  |                         |  |        |                                     |                          |  | 1988                |  | 5-40 yrs.
|711 Almondridge                 |  | Piedmont Triad |  |                  |  | 217          |  | 536                                     |  | (217   | )                                           |  | (536                   | ) |  |       |  |                         |  |        |                                     |                          |  | 1988                |  | 5-40 yrs.
|7341 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 113          |  | 841                                     |  |        |                                             |  | 153                    |   |  | 113   |  | 994                     |  | 1,107  |                                     | 235                      |  | 1988                |  | 5-40 yrs.
|7343 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 72           |  | 555                                     |  |        |                                             |  | 94                     |   |  | 72    |  | 649                     |  | 721    |                                     | 175                      |  | 1988                |  | 5-40 yrs.
|7345 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 66           |  | 492                                     |  |        |                                             |  | 8                      |   |  | 66    |  | 500                     |  | 566    |                                     | 104                      |  | 1988                |  | 5-40 yrs.
|7347 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 97           |  | 719                                     |  |        |                                             |  | 23                     |   |  | 97    |  | 742                     |  | 839    |                                     | 152                      |  | 1988                |  | 5-40 yrs.
|7349 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 53           |  | 393                                     |  |        |                                             |  | 40                     |   |  | 53    |  | 433                     |  | 486    |                                     | 87                       |  | 1988                |  | 5-40 yrs.
|7351 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 106          |  | 788                                     |  |        |                                             |  | 104                    |   |  | 106   |  | 892                     |  | 998    |                                     | 170                      |  | 1988                |  | 5-40 yrs.
|7353 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 123          |  | 912                                     |  |        |                                             |  | 41                     |   |  | 123   |  | 953                     |  | 1,076  |                                     | 202                      |  | 1988                |  | 5-40 yrs.
|7355 West Friendly Avenue       |  | Piedmont Triad |  |                  |  | 72           |  | 538                                     |  |        |                                             |  | 42                     |   |  | 72    |  | 580                     |  | 652    |                                     | 136                      |  | 1988                |  | 5-40 yrs.
|7906 Industrial Village Road    |  | Piedmont Triad |  |                  |  | 62           |  | 460                                     |  |        |                                             |  | 18                     |   |  | 62    |  | 478                     |  | 540    |                                     | 103                      |  | 1985                |  | 5-40 yrs.
|7908 Industrial Village Road    |  | Piedmont Triad |  |                  |  | 62           |  | 475                                     |  |        |                                             |  | 80                     |   |  | 62    |  | 555                     |  | 617    |                                     | 115                      |  | 1985                |  | 5-40 yrs.
|7910 Industrial Village Road    |  | Piedmont Triad |  |                  |  | 62           |  | 460                                     |  |        |                                             |  | 2                      |   |  | 62    |  | 462                     |  | 524    |                                     | 98                       |  | 1985                |  | 5-40 yrs.
|Airpark East-Building 1         |  | Piedmont Triad |  | (7)              |  | 377          |  | 1,510                                   |  |        |                                             |  | 128                    |   |  | 377   |  | 1,638                   |  | 2,015  |                                     | 421                      |  | 1990                |  | 5-40 yrs.
|Airpark East-Building 2         |  | Piedmont Triad |  | (7)              |  | 461          |  | 1,842                                   |  |        |                                             |  | 175                    |   |  | 461   |  | 2,017                   |  | 2,478  |                                     | 447                      |  | 1986                |  | 5-40 yrs.
|Airpark East-Building 3         |  | Piedmont Triad |  | (7)              |  | 321          |  | 1,288                                   |  |        |                                             |  | 194                    |   |  | 321   |  | 1,482                   |  | 1,803  |                                     | 378                      |  | 1986                |  | 5-40 yrs.
|Airpark East-Building A         |  | Piedmont Triad |  | (7)              |  | 507          |  | 2,913                                   |  |        |                                             |  | 591                    |   |  | 507   |  | 3,504                   |  | 4,011  |                                     | 802                      |  | 1986                |  | 5-40 yrs.
|Airpark East-Building B         |  | Piedmont Triad |  | (7)              |  | 736          |  | 3,225                                   |  |        |                                             |  | 588                    |   |  | 736   |  | 3,813                   |  | 4,549  |                                     | 828                      |  | 1988                |  | 5-40 yrs.
|Airpark East-Building C         |  | Piedmont Triad |  | (7)              |  | 2,384        |  | 9,539                                   |  |        |                                             |  | 2,032                  |   |  | 2,384 |  | 11,571                  |  | 13,955 |                                     | 2,741                    |  | 1990                |  | 5-40 yrs.
|Airpark East-Building D         |  | Piedmont Triad |  | (7)              |  | 850          |  |                                         |  | 1,025  |                                             |  | 4,049                  |   |  | 1,875 |  | 4,049                   |  | 5,924  |                                     | 694                      |  | 1997                |  | 5-40 yrs.
|Airpark East-Copier Consultants |  | Piedmont Triad |  | (7)              |  | 223          |  | 1,064                                   |  |        |                                             |  | 313                    |   |  | 223   |  | 1,377                   |  | 1,600  |                                     | 382                      |  | 1990                |  | 5-40 yrs.
|Airpark East-HewlettPackard     |  | Piedmont Triad |  | (7)              |  | 465          |  |                                         |  | 558    |                                             |  | 920                    |   |  | 1,023 |  | 920                     |  | 1,943  |                                     | 221                      |  | 1996                |  | 5-40 yrs.
|Airpark East-Highland           |  | Piedmont Triad |  | (7)              |  | 145          |  | 1,078                                   |  |        |                                             |  | (2                     | ) |  | 145   |  | 1,076                   |  | 1,221  |                                     | 200                      |  | 1990                |  | 5-40 yrs.
|Airpark East-Inacom Building    |  | Piedmont Triad |  | (7)              |  | 265          |  |                                         |  | 396    |                                             |  | 922                    |   |  | 661   |  | 922                     |  | 1,583  |                                     | 360                      |  | 1996                |  | 5-40 yrs.
|Airpark East-Service Center 1   |  | Piedmont Triad |  | (7)              |  | 236          |  | 1,099                                   |  |        |                                             |  | 152                    |   |  | 236   |  | 1,251                   |  | 1,487  |                                     | 286                      |  | 1985                |  | 5-40 yrs.
|Airpark East-Service Center 2   |  | Piedmont Triad |  | (7)              |  | 192          |  | 943                                     |  |        |                                             |  | 303                    |   |  | 192   |  | 1,246                   |  | 1,438  |                                     | 359                      |  | 1985                |  | 5-40 yrs.
|Airpark East-Service Center 3   |  | Piedmont Triad |  | (7)              |  | 304          |  | 1,214                                   |  |        |                                             |  | 313                    |   |  | 304   |  | 1,527                   |  | 1,831  |                                     | 347                      |  | 1985                |  | 5-40 yrs.
|Airpark East-Service Center 4   |  | Piedmont Triad |  | (7)              |  | 224          |  | 925                                     |  |        |                                             |  | 184                    |   |  | 224   |  | 1,109                   |  | 1,333  |                                     | 329                      |  | 1985                |  | 5-40 yrs.
|Airpark East-Service Court      |  | Piedmont Triad |  | (7)              |  | 170          |  | 774                                     |  |        |                                             |  | 55                     |   |  | 170   |  | 829                     |  | 999    |                                     | 192                      |  | 1990                |  | 5-40 yrs.
|Airpark East-Simplex            |  | Piedmont Triad |  | (7)              |  | 271          |  |                                         |  | 350    |                                             |  | 627                    |   |  | 621   |  | 627                     |  | 1,248  |                                     | 118                      |  | 1997                |  | 5-40 yrs.
|Airpark East-Warehouse 1        |  | Piedmont Triad |  | (7)              |  | 354          |  | 1,607                                   |  |        |                                             |  | 86                     |   |  | 354   |  | 1,693                   |  | 2,047  |                                     | 454                      |  | 1985                |  | 5-40 yrs.
|Airpark East-Warehouse 2        |  | Piedmont Triad |  | (7)              |  | 372          |  | 1,517                                   |  |        |                                             |  | 78                     |   |  | 372   |  | 1,595                   |  | 1,967  |                                     | 377                      |  | 1985                |  | 5-40 yrs.
|Airpark East-Warehouse 3        |  | Piedmont Triad |  | (7)              |  | 340          |  | 1,480                                   |  |        |                                             |  | 428                    |   |  | 340   |  | 1,908                   |  | 2,248  |                                     | 378                      |  | 1986                |  | 5-40 yrs.
|Airpark East-Warehouse 4        |  | Piedmont Triad |  | (7)              |  | 657          |  | 2,666                                   |  |        |                                             |  | 58                     |   |  | 657   |  | 2,724                   |  | 3,381  |                                     | 636                      |  | 1988                |  | 5-40 yrs.
|Airpark North - DC1             |  | Piedmont Triad |  | (7)              |  | 857          |  | 2,908                                   |  |        |                                             |  | 297                    |   |  | 857   |  | 3,205                   |  | 4,062  |                                     | 739                      |  | 1986                |  | 5-40 yrs.
|Airpark North - DC2             |  | Piedmont Triad |  | (7)              |  | 1,298        |  | 4,375                                   |  |        |                                             |  | 306                    |   |  | 1,298 |  | 4,681                   |  | 5,979  |                                     | 1,068                    |  | 1987                |  | 5-40 yrs.
|Airpark North - DC3             |  | Piedmont Triad |  | (7)              |  | 448          |  | 1,511                                   |  |        |                                             |  | 86                     |   |  | 448   |  | 1,597                   |  | 2,045  |                                     | 368                      |  | 1988                |  | 5-40 yrs.
|Airpark North - DC4             |  | Piedmont Triad |  | (7)              |  | 447          |  | 1,508                                   |  |        |                                             |  | 87                     |   |  | 447   |  | 1,595                   |  | 2,042  |                                     | 368                      |  | 1988                |  | 5-40 yrs.
|Airpark South Warehouse 1       |  | Piedmont Triad |  |                  |  | 546          |  |                                         |  |        |                                             |  | 3,092                  |   |  | 546   |  | 3,092                   |  | 3,638  |                                     | 457                      |  | 1998                |  | 5-40 yrs.
|Airpark South Warehouse 2       |  | Piedmont Triad |  |                  |  | 749          |  |                                         |  |        |                                             |  | 2,517                  |   |  | 749   |  | 2,517                   |  | 3,266  |                                     | 286                      |  | 1999                |  | 5-40 yrs.





---

|                                              |  |                   |  |                   |  |              |  |                                         |  |       |                                             |  |                         |   |  |        |  |                         |  |        |                                     |                          |  |                      |  |          
|--------------------------------------------- |  | ----------------- |  | ----------------- |  | ------------ |  | --------------------------------------- |  | ----- | ------------------------------------------- |  | ----------------------- | - |  | ------ |  | ----------------------- |  | ------ | ----------------------------------- | ------------------------ |  | -------------------- |  | ---------
|                                              |  |                   |  |                   |  | Initial Cost |  | CostCapitalizedSubsequentto Acquisition |  |       | GrossAmountat WhichCarriedat Closeof Period |  |                         |   |  |        |  |                         |  |        | Life onWhichDepreciationis Computed
|Description                                   |  | City              |  | 2003 Encumberance |  | Land         |  | Building & Improvements                 |  | Land  |                                             |  | Building & Improvements |   |  | Land   |  | Building & Improvements |  | Total  |                                     | Accumulated Depreciation |  | Date of Construction | 
|Airpark South Warehouse 3                     |  | Piedmont Triad    |  |                   |  | 603          |  |                                         |  |       |                                             |  | 2,368                   |   |  | 603    |  | 2,368                   |  | 2,971  |                                     | 234                      |  | 1999                 |  | 5-40 yrs.
|Airpark South Warehouse 4                     |  | Piedmont Triad    |  |                   |  | 499          |  |                                         |  |       |                                             |  | 2,455                   |   |  | 499    |  | 2,455                   |  | 2,954  |                                     | 576                      |  | 1999                 |  | 5-40 yrs.
|Airpark South Warehouse 6                     |  | Piedmont Triad    |  |                   |  | 1,733        |  |                                         |  |       |                                             |  | 5,839                   |   |  | 1,733  |  | 5,839                   |  | 7,572  |                                     | 1,023                    |  | 1999                 |  | 5-40 yrs.
|Airpark West 1                                |  | Piedmont Triad    |  | (5)               |  | 954          |  | 3,820                                   |  |       |                                             |  | 569                     |   |  | 954    |  | 4,389                   |  | 5,343  |                                     | 1,091                    |  | 1984                 |  | 5-40 yrs.
|Airpark West 2                                |  | Piedmont Triad    |  | (5)               |  | 884          |  | 3,536                                   |  |       |                                             |  | 262                     |   |  | 884    |  | 3,798                   |  | 4,682  |                                     | 869                      |  | 1985                 |  | 5-40 yrs.
|Airpark West 4                                |  | Piedmont Triad    |  | (5)               |  | 226          |  | 903                                     |  |       |                                             |  | 147                     |   |  | 226    |  | 1,050                   |  | 1,276  |                                     | 255                      |  | 1985                 |  | 5-40 yrs.
|Airpark West 5                                |  | Piedmont Triad    |  | (5)               |  | 242          |  | 967                                     |  |       |                                             |  | 275                     |   |  | 242    |  | 1,242                   |  | 1,484  |                                     | 269                      |  | 1985                 |  | 5-40 yrs.
|Airpark West 6                                |  | Piedmont Triad    |  | (5)               |  | 326          |  | 1,304                                   |  |       |                                             |  | 115                     |   |  | 326    |  | 1,419                   |  | 1,745  |                                     | 350                      |  | 1985                 |  | 5-40 yrs.
|ALO                                           |  | Piedmont Triad    |  |                   |  | 177          |  |                                         |  |       |                                             |  | 994                     |   |  | 177    |  | 994                     |  | 1,171  |                                     | 89                       |  | 1998                 |  | 5-40 yrs.
|Brigham Road - Land                           |  | Piedmont Triad    |  |                   |  | 7,059        |  |                                         |  |       |                                             |  |                         |   |  | 7,059  |  |                         |  | 7,059  |                                     |                          |  | N/A                  |  | N/A      
|Chesapeake                                    |  | Piedmont Triad    |  | (5)               |  | 1,236        |  | 4,944                                   |  |       |                                             |  | 7                       |   |  | 1,236  |  | 4,951                   |  | 6,187  |                                     | 1,101                    |  | 1993                 |  | 5-40 yrs.
|Chimney Rock A/B                              |  | Piedmont Triad    |  |                   |  | 1,611        |  | 4,041                                   |  |       |                                             |  | 21                      |   |  | 1,611  |  | 4,062                   |  | 5,673  |                                     | 561                      |  | 1981                 |  | 5-40 yrs.
|Chimney Rock C                                |  | Piedmont Triad    |  |                   |  | 604          |  | 1,512                                   |  |       |                                             |  | (28                     | ) |  | 604    |  | 1,484                   |  | 2,088  |                                     | 167                      |  | 1983                 |  | 5-40 yrs.
|Chimney Rock D                                |  | Piedmont Triad    |  |                   |  | 236          |  | 591                                     |  |       |                                             |  | 50                      |   |  | 236    |  | 641                     |  | 877    |                                     | 126                      |  | 1983                 |  | 5-40 yrs.
|Chimney Rock E                                |  | Piedmont Triad    |  |                   |  | 1,694        |  | 4,261                                   |  |       |                                             |  | (72                     | ) |  | 1,694  |  | 4,189                   |  | 5,883  |                                     | 604                      |  | 1985                 |  | 5-40 yrs.
|Chimney Rock F                                |  | Piedmont Triad    |  |                   |  | 1,432        |  | 3,604                                   |  |       |                                             |  | (262                    | ) |  | 1,432  |  | 3,342                   |  | 4,774  |                                     | 500                      |  | 1987                 |  | 5-40 yrs.
|Chimney Rock G                                |  | Piedmont Triad    |  |                   |  | 1,044        |  | 2,619                                   |  |       |                                             |  | (172                    | ) |  | 1,044  |  | 2,447                   |  | 3,491  |                                     | 363                      |  | 1987                 |  | 5-40 yrs.
|Consolidated Center/ Building I               |  | Piedmont Triad    |  |                   |  | 625          |  | 2,183                                   |  |       |                                             |  | 7                       |   |  | 625    |  | 2,190                   |  | 2,815  |                                     | 335                      |  | 1983                 |  | 5-40 yrs.
|Consolidated Center/ Building II              |  | Piedmont Triad    |  |                   |  | 625          |  | 4,435                                   |  |       |                                             |  | 198                     |   |  | 625    |  | 4,633                   |  | 5,258  |                                     | 705                      |  | 1983                 |  | 5-40 yrs.
|Consolidated Center/ Building III             |  | Piedmont Triad    |  |                   |  | 680          |  | 3,572                                   |  |       |                                             |  | 53                      |   |  | 680    |  | 3,625                   |  | 4,305  |                                     | 548                      |  | 1989                 |  | 5-40 yrs.
|Consolidated Center/ Building IV              |  | Piedmont Triad    |  |                   |  | 376          |  | 1,655                                   |  |       |                                             |  | 114                     |   |  | 376    |  | 1,769                   |  | 2,145  |                                     | 279                      |  | 1989                 |  | 5-40 yrs.
|Deep River Corporate Center                   |  | Piedmont Triad    |  |                   |  | 1,033        |  | 5,892                                   |  |       |                                             |  | 352                     |   |  | 1,033  |  | 6,244                   |  | 7,277  |                                     | 1,247                    |  | 1989                 |  | 5-40 yrs.
|Enterprise Warehouse I                        |  | Piedmont Triad    |  |                   |  | 453          |  |                                         |  |       |                                             |  | 3,573                   |   |  | 453    |  | 3,573                   |  | 4,026  |                                     | 258                      |  | 2002                 |  | 5-40 yrs.
|Forsyth Corporate Center                      |  | Piedmont Triad    |  | (2)               |  | 326          |  | 1,853                                   |  |       |                                             |  | 659                     |   |  | 326    |  | 2,512                   |  | 2,838  |                                     | 650                      |  | 1985                 |  | 5-40 yrs.
|Highwoods Park Building I                     |  | Piedmont Triad    |  |                   |  | 1,993        |  |                                         |  |       |                                             |  | 8,612                   |   |  | 1,993  |  | 8,612                   |  | 10,605 |                                     | 299                      |  | 2001                 |  | 5-40 yrs.
|Inman Road Land                               |  | Piedmont Triad    |  |                   |  | 941          |  |                                         |  | (941  | )                                           |  |                         |   |  |        |  |                         |  |        |                                     |                          |  | N/A                  |  | N/A      
|Jefferson Pilot Land                          |  | Piedmont Triad    |  |                   |  | 11,759       |  |                                         |  | 5,595 |                                             |  |                         |   |  | 17,354 |  |                         |  | 17,354 |                                     |                          |  | N/A                  |  | N/A      
|Madison Park - Building 5610                  |  | Piedmont Triad    |  |                   |  | 211          |  | 493                                     |  | (211  | )                                           |  | (493                    | ) |  |        |  |                         |  |        |                                     |                          |  | 1988                 |  | 5-40 yrs.
|Madison Park - Building 5620                  |  | Piedmont Triad    |  |                   |  | 941          |  | 2,218                                   |  |       |                                             |  | (20                     | ) |  | 941    |  | 2,198                   |  | 3,139  |                                     | 307                      |  | 1983                 |  | 5-40 yrs.
|Madison Park - Building 5630                  |  | Piedmont Triad    |  |                   |  | 1,486        |  | 3,503                                   |  |       |                                             |  | (9                      | ) |  | 1,486  |  | 3,494                   |  | 4,980  |                                     | 485                      |  | 1983                 |  | 5-40 yrs.
|Madison Park - Building 5635                  |  | Piedmont Triad    |  |                   |  | 893          |  | 2,104                                   |  |       |                                             |  | 11                      |   |  | 893    |  | 2,115                   |  | 3,008  |                                     | 295                      |  | 1986                 |  | 5-40 yrs.
|Madison Park - Building 5640                  |  | Piedmont Triad    |  |                   |  | 1,827        |  | 6,522                                   |  |       |                                             |  | (41                     | ) |  | 1,827  |  | 6,481                   |  | 8,308  |                                     | 916                      |  | 1985                 |  | 5-40 yrs.
|Madison Park - Building 5650                  |  | Piedmont Triad    |  |                   |  | 1,081        |  | 2,548                                   |  |       |                                             |  | 25                      |   |  | 1,081  |  | 2,573                   |  | 3,654  |                                     | 356                      |  | 1984                 |  | 5-40 yrs.
|Madison Park - Building 5655                  |  | Piedmont Triad    |  |                   |  | 1,941        |  | 7,108                                   |  |       |                                             |  | 143                     |   |  | 1,941  |  | 7,251                   |  | 9,192  |                                     | 1,027                    |  | 1987                 |  | 5-40 yrs.
|Madison Park - Building 5660                  |  | Piedmont Triad    |  |                   |  | 1,910        |  | 4,501                                   |  |       |                                             |  | (34                     | ) |  | 1,910  |  | 4,467                   |  | 6,377  |                                     | 624                      |  | 1984                 |  | 5-40 yrs.
|Madison Parking Deck                          |  | Piedmont Triad    |  |                   |  | 5,755        |  | 8,822                                   |  |       |                                             |  | 487                     |   |  | 5,755  |  | 9,309                   |  | 15,064 |                                     | 1,167                    |  | 1987                 |  | 5-40 yrs.
|Regency One-Piedmont Center                   |  | Piedmont Triad    |  |                   |  | 515          |  |                                         |  |       |                                             |  | 2,925                   |   |  | 515    |  | 2,925                   |  | 3,440  |                                     | 866                      |  | 1996                 |  | 5-40 yrs.
|Regency Two-Piedmont Center                   |  | Piedmont Triad    |  |                   |  | 435          |  |                                         |  |       |                                             |  | 1,951                   |   |  | 435    |  | 1,951                   |  | 2,386  |                                     | 336                      |  | 1996                 |  | 5-40 yrs.
|Sears Cenfact                                 |  | Piedmont Triad    |  | (1)               |  | 831          |  | 3,446                                   |  |       |                                             |  | 347                     |   |  | 831    |  | 3,793                   |  | 4,624  |                                     | 885                      |  | 1989                 |  | 5-40 yrs.
|The Knollwood-370                             |  | Piedmont Triad    |  | (7)               |  | 1,819        |  | 7,467                                   |  |       |                                             |  | 523                     |   |  | 1,819  |  | 7,990                   |  | 9,809  |                                     | 1,971                    |  | 1994                 |  | 5-40 yrs.
|The Knollwood-380                             |  | Piedmont Triad    |  | (7)               |  | 2,977        |  | 11,982                                  |  |       |                                             |  | 1,023                   |   |  | 2,977  |  | 13,005                  |  | 15,982 |                                     | 2,950                    |  | 1990                 |  | 5-40 yrs.
|The Knollwood - 380 Retail                    |  | Piedmont Triad    |  | (7)               |  |              |  | 1                                       |  |       |                                             |  | 163                     |   |  |        |  | 164                     |  | 164    |                                     | 48                       |  | 1995                 |  | 5-40 yrs.
|University Commercial Center-Archer 4         |  | Piedmont Triad    |  |                   |  | 514          |  | 2,058                                   |  |       |                                             |  | 209                     |   |  | 514    |  | 2,267                   |  | 2,781  |                                     | 521                      |  | 1986                 |  | 5-40 yrs.
|University Commercial Center-Landmark 3       |  | Piedmont Triad    |  |                   |  | 429          |  | 1,778                                   |  |       |                                             |  | 413                     |   |  | 429    |  | 2,191                   |  | 2,620  |                                     | 471                      |  | 1985                 |  | 5-40 yrs.
|University Commercial Center-Service Center 1 |  | Piedmont Triad    |  |                   |  | 276          |  | 1,155                                   |  |       |                                             |  | 131                     |   |  | 276    |  | 1,286                   |  | 1,562  |                                     | 311                      |  | 1983                 |  | 5-40 yrs.
|University Commercial Center-Service Center 2 |  | Piedmont Triad    |  |                   |  | 215          |  | 859                                     |  |       |                                             |  | 35                      |   |  | 215    |  | 894                     |  | 1,109  |                                     | 208                      |  | 1983                 |  | 5-40 yrs.
|University Commercial Center-Service Center 3 |  | Piedmont Triad    |  |                   |  | 167          |  | 699                                     |  |       |                                             |  | 330                     |   |  | 167    |  | 1,029                   |  | 1,196  |                                     | 292                      |  | 1984                 |  | 5-40 yrs.
|University Commercial Center-Warehouse 1      |  | Piedmont Triad    |  |                   |  | 203          |  | 812                                     |  |       |                                             |  | 18                      |   |  | 203    |  | 830                     |  | 1,033  |                                     | 183                      |  | 1983                 |  | 5-40 yrs.
|University Commercial Center-Warehouse 2      |  | Piedmont Triad    |  |                   |  | 196          |  | 786                                     |  |       |                                             |  | 42                      |   |  | 196    |  | 828                     |  | 1,024  |                                     | 184                      |  | 1983                 |  | 5-40 yrs.
|US Airways                                    |  | Piedmont Triad    |  | (2)               |  | 2,625        |  | 15,069                                  |  |       |                                             |  | (36                     | ) |  | 2,625  |  | 15,033                  |  | 17,658 |                                     | 2,307                    |  | 1970-1987            |  | 5-40 yrs.
|Westpoint Business Park Land                  |  | Piedmont Triad    |  |                   |  | 861          |  |                                         |  | 103   |                                             |  |                         |   |  | 964    |  |                         |  | 964    |                                     |                          |  | N/A                  |  | 5-40 yrs.
|Westpoint Business Park-BMF                   |  | Piedmont Triad    |  |                   |  | 795          |  | 3,181                                   |  |       |                                             |  | 4                       |   |  | 795    |  | 3,185                   |  | 3,980  |                                     | 707                      |  | 1986                 |  | 5-40 yrs.
|Westpoint Business Park-Fairchild             |  | Piedmont Triad    |  |                   |  | 640          |  | 2,577                                   |  | (640  | )                                           |  | (2,577                  | ) |  |        |  |                         |  |        |                                     |                          |  | 1990                 |  | 5-40 yrs.
|Westpoint Business Park-Luwabahnson           |  | Piedmont Triad    |  |                   |  | 346          |  | 1,384                                   |  |       |                                             |  | 1                       |   |  | 346    |  | 1,385                   |  | 1,731  |                                     | 308                      |  | 1990                 |  | 5-40 yrs.
|Westpoint Business Park-Wp 3&4                |  | Piedmont Triad    |  |                   |  | 171          |  | 687                                     |  | (171  | )                                           |  | (687                    | ) |  |        |  |                         |  |        |                                     |                          |  | 1988                 |  | 5-40 yrs.
|Westpoint Business Park-Wp 5                  |  | Piedmont Triad    |  |                   |  | 377          |  | 1,609                                   |  | (377  | )                                           |  | (1,609                  | ) |  |        |  |                         |  |        |                                     |                          |  | 1988                 |  | 5-40 yrs.
|Westpoint Business Park-Wp 12                 |  | Piedmont Triad    |  |                   |  | 499          |  | 2,031                                   |  | (499  | )                                           |  | (2,031                  | ) |  |        |  |                         |  |        |                                     |                          |  | 1988                 |  | 5-40 yrs.
|Westpoint Business Park-Wp 11                 |  | Piedmont Triad    |  |                   |  | 393          |  | 1,570                                   |  | (393  | )                                           |  | (1,570                  | ) |  |        |  |                         |  |        |                                     |                          |  | 1988                 |  | 5-40 yrs.
|Westpoint Business Park-Wp 13                 |  | Piedmont Triad    |  |                   |  | 297          |  | 1,214                                   |  |       |                                             |  | 22                      |   |  | 297    |  | 1,236                   |  | 1,533  |                                     | 220                      |  | 1988                 |  | 5-40 yrs.
|                                              |  |                   |  |                   |  |              |  |                                         |  |       |                                             | 
|Research Triangle, NC                         |  |                   |  |                   |  |              |  |                                         |  |       |                                             |  |                         |   |  |        |  |                         |  |        |                                     |                          |  |                      |  |          
|3600 Glenwood Avenue                          |  | Research Triangle |  |                   |  |              |  | 10,994                                  |  |       |                                             |  |                         |   |  |        |  | 10,994                  |  | 10,994 |                                     | 1,867                    |  | 1986                 |  | 5-40 yrs.
|3737 Glenwood Avenue                          |  | Research Triangle |  |                   |  |              |  |                                         |  |       |                                             |  | 18,335                  |   |  |        |  | 18,335                  |  | 18,335 |                                     | 2,642                    |  | 1999                 |  | 5-40 yrs.
|4101 Research Commons                         |  | Research Triangle |  |                   |  | 1,348        |  | 8,346                                   |  |       |                                             |  |                        |   |  | 1,348  |  | 8,346                   |  | 9,694  |                                     | 1,113                    |  | 1999                 |  | 5-40 yrs.
|4201 Research Commons                         |  | Research Triangle |  |                   |  | 1,204        |  | 11,858                                  |  |       |                                             |  |                        |   |  | 1,204  |  | 11,858                  |  | 13,062 |                                     | 4,215                    |  | 1991                 |  | 5-40 yrs.





---

|                                             |  |                   |      |                   |                         |              |      |                                         |  |                         |                                              |  |                         |   |       |       |                          |        |                      |        |                                        |       |  |      |  |          
|-------------------------------------------- |  | ----------------- | ---- | ----------------- | ----------------------- | ------------ | ---- | --------------------------------------- |  | ----------------------- | -------------------------------------------- |  | ----------------------- | - | ----- | ----- | ------------------------ | ------ | -------------------- | ------ | -------------------------------------- | ----- |  | ---- |  | ---------
|Description                                  |  | City              |      | 2003 Encumberance |                         | Initial Cost |      | CostCapitalizedSubsequent to Acquistion |  |                         | GrossAmount atWhich Carried atClose ofPeriod |  | Building & Improvements |   | Total |       | Accumulated Depreciation |        | Date of Construction |        | Life on Which Depreciation is Computed
|                                             |  |                   | Land |                   | Building & Improvements |              | Land |                                         |  | Building & Improvements |                                              |  | Land                    |   |       |       |                          |       
|4301 Research Commons                        |  | Research Triangle |      |                   |                         | 900          |      | 8,237                                   |  |                         |                                              |  |                        |   |       | 900   |                          | 8,237  |                      | 9,137  |                                        | 1,776 |  | 1989 |  | 5-40 yrs.
|4401 Research Commons                        |  | Research Triangle |      |                   |                         | 1,249        |      | 9,387                                   |  |                         |                                              |  | 6,027                   |   |       | 1,249 |                          | 15,414 |                      | 16,663 |                                        | 6,566 |  | 1987 |  | 5-40 yrs.
|4501 Research Commons                        |  | Research Triangle |      |                   |                         | 785          |      | 5,856                                   |  |                         |                                              |  |                        |   |       | 785   |                          | 5,856  |                      | 6,641  |                                        | 1,868 |  | 1985 |  | 5-40 yrs.
|4300 Six Forks Road                          |  | Research Triangle |      |                   |                         |              |      | 15,595                                  |  |                         |                                              |  | 4,274                   |   |       |       |                          | 19,869 |                      | 19,869 |                                        | 2,866 |  | 1995 |  | 5-40 yrs.
|4800 North Park                              |  | Research Triangle |      |                   |                         | 2,678        |      | 17,630                                  |  |                         |                                              |  | 1,527                   |   |       | 2,678 |                          | 19,157 |                      | 21,835 |                                        | 4,966 |  | 1985 |  | 5-40 yrs.
|4900 North Park                              |  | Research Triangle |      | 1,135             |                         | 770          |      | 1,983                                   |  |                         |                                              |  | 535                     |   |       | 770   |                          | 2,518  |                      | 3,288  |                                        | 527   |  | 1984 |  | 5-40 yrs.
|5000 North Park                              |  | Research Triangle |      | (2)               |                         | 1,010        |      | 4,612                                   |  |                         |                                              |  | 2,031                   |   |       | 1,010 |                          | 6,643  |                      | 7,653  |                                        | 1,633 |  | 1980 |  | 5-40 yrs.
|3645 Trust Drive - One North Commerce Center |  | Research Triangle |      |                   |                         | 789          |      | 2,954                                   |  |                         |                                              |  | 865                     |   |       | 789   |                          | 3,819  |                      | 4,608  |                                        | 741   |  | 1984 |  | 5-40 yrs.
|5200 Greens Dairy-One North Commerce Center  |  | Research Triangle |      |                   |                         | 169          |      | 961                                     |  |                         |                                              |  | 236                     |   |       | 169   |                          | 1,197  |                      | 1,366  |                                        | 249   |  | 1984 |  | 5-40 yrs.
|5220 Greens Dairy-One North Commerce Center  |  | Research Triangle |      |                   |                         | 382          |      | 2,168                                   |  |                         |                                              |  | 340                     |   |       | 382   |                          | 2,508  |                      | 2,890  |                                        | 444   |  | 1984 |  | 5-40 yrs.
|Phase I - One North Commerce Center          |  | Research Triangle |      |                   |                         | 768          |      | 4,463                                   |  |                         |                                              |  | 1,413                   |   |       | 768   |                          | 5,876  |                      | 6,644  |                                        | 1,278 |  | 1981 |  | 5-40 yrs.
|W Building - One North Commerce Center       |  | Research Triangle |      |                   |                         | 1,163        |      | 6,815                                   |  |                         |                                              |  | 1,740                   |   |       | 1,163 |                          | 8,555  |                      | 9,718  |                                        | 2,143 |  | 1983 |  | 5-40 yrs.
|801 Corporate Center                         |  | Research Triangle |      |                   |                         | 828          |      |                                         |  |                         |                                              |  | 9,300                   |   |       | 828   |                          | 9,300  |                      | 10,128 |                                        | 252   |  | 2002 |  | 5-40 yrs.
|Aspen Building                               |  | Research Triangle |      |                   |                         | 560          |      | 2,088                                   |  | (560                    | )                                            |  | (2,088                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1980 |  | 5-40 yrs.
|Blue Ridge I                                 |  | Research Triangle |      | (1)               |                         | 722          |      | 4,606                                   |  |                         |                                              |  | 987                     |   |       | 722   |                          | 5,593  |                      | 6,315  |                                        | 1,650 |  | 1982 |  | 5-40 yrs.
|Blue Ridge II                                |  | Research Triangle |      | (1)               |                         | 462          |      | 1,410                                   |  |                         |                                              |  | 198                     |   |       | 462   |                          | 1,608  |                      | 2,070  |                                        | 680   |  | 1988 |  | 5-40 yrs.
|Cape Fear                                    |  | Research Triangle |      |                   |                         | 131          |      | 1,630                                   |  |                         |                                              |  | 734                     |   |       | 131   |                          | 2,364  |                      | 2,495  |                                        | 1,504 |  | 1979 |  | 5-40 yrs.
|Catawba                                      |  | Research Triangle |      |                   |                         | 125          |      | 1,635                                   |  |                         |                                              |  | 1,020                   |   |       | 125   |                          | 2,655  |                      | 2,780  |                                        | 1,342 |  | 1980 |  | 5-40 yrs.
|Cedar East                                   |  | Research Triangle |      |                   |                         | 563          |      | 2,491                                   |  | (563                    | )                                            |  | (2,491                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1981 |  | 5-40 yrs.
|Cedar West                                   |  | Research Triangle |      |                   |                         | 563          |      | 2,475                                   |  | (563                    | )                                            |  | (2,475                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1981 |  | 5-40 yrs.
|CentreGreen One - Weston                     |  | Research Triangle |      | (4)               |                         | 1,529        |      |                                         |  |                         |                                              |  | 9,432                   |   |       | 1,529 |                          | 9,432  |                      | 10,961 |                                        | 1,559 |  | 2000 |  | 5-40 yrs.
|CentreGreen Two - Weston                     |  | Research Triangle |      | (4)               |                         | 1,653        |      |                                         |  |                         |                                              |  | 9,545                   |   |       | 1,653 |                          | 9,545  |                      | 11,198 |                                        | 915   |  | 2001 |  | 5-40 yrs.
|CentreGreen Three Land - Weston              |  | Research Triangle |      |                   |                         | 1,876        |      |                                         |  |                         |                                              |  |                         |   |       | 1,876 |                          |        |                      | 1,876  |                                        |       |  | N/A  |  | N/A      
|CentreGreen Four                             |  | Research Triangle |      | (4)               |                         | 1,779        |      |                                         |  |                         |                                              |  | 12,165                  |   |       | 1,779 |                          | 12,165 |                      | 13,944 |                                        | 250   |  | 2002 |  | 5-40 yrs.
|CentreGreen Five Land - Weston               |  | Research Triangle |      |                   |                         | 3,062        |      |                                         |  |                         |                                              |  |                         |   |       | 3,062 |                          |        |                      | 3,062  |                                        |       |  | N/A  |  | N/A      
|Concourse                                    |  | Research Triangle |      | (3)               |                         | 986          |      | 15,125                                  |  |                         |                                              |  |                         |   |       | 986   |                          | 15,125 |                      | 16,111 |                                        | 4,426 |  | 1986 |  | 5-40 yrs.
|Cottonwood                                   |  | Research Triangle |      |                   |                         | 609          |      | 3,244                                   |  |                         |                                              |  | 157                     |   |       | 609   |                          | 3,401  |                      | 4,010  |                                        | 790   |  | 1983 |  | 5-40 yrs.
|Creekstone Crossings                         |  | Research Triangle |      |                   |                         | 728          |      | 3,841                                   |  |                         |                                              |  | 190                     |   |       | 728   |                          | 4,031  |                      | 4,759  |                                        | 905   |  | 1990 |  | 5-40 yrs.
|Cypress                                      |  | Research Triangle |      |                   |                         | 567          |      | 1,729                                   |  | (567                    | )                                            |  | (1,729                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1980 |  | 5-40 yrs.
|Day Tract Residential                        |  | Research Triangle |      |                   |                         | 7,668        |      |                                         |  | 4                       |                                              |  |                         |   |       | 7,672 |                          |        |                      | 7,672  |                                        |       |  | N/A  |  | N/A      
|Day Tract Land                               |  | Research Triangle |      |                   |                         |              |      |                                         |  |                         |                                              |  |                         |   |       |       |                          |        |                      |       |                                        |       |  | N/A  |  | N/A      
|Dogwood                                      |  | Research Triangle |      |                   |                         | 766          |      | 2,769                                   |  |                         |                                              |  | 616                     |   |       | 766   |                          | 3,385  |                      | 4,151  |                                        | 697   |  | 1983 |  | 5-40 yrs.
|EPA                                          |  | Research Triangle |      |                   |                         | 2,601        |      |                                         |  |                         |                                              |  | 1,652                   |   |       | 2,601 |                          | 1,652  |                      | 4,253  |                                        | 9     |  | 2003 |  | 5-40 yrs.
|GlenLake Land                                |  | Research Triangle |      |                   |                         | 5,335        |      |                                         |  |                         |                                              |  |                         |   |       | 5,335 |                          |        |                      | 5,335  |                                        |       |  | N/A  |  | N/A      
|GlenLake Bldg I                              |  | Research Triangle |      | (4)               |                         | 924          |      |                                         |  |                         |                                              |  | 21,137                  |   |       | 924   |                          | 21,137 |                      | 22,061 |                                        | 715   |  | 2002 |  | 5-40 yrs.
|Global Software                              |  | Research Triangle |      | (2)               |                         | 465          |      |                                         |  |                         |                                              |  | 7,135                   |   |       | 465   |                          | 7,135  |                      | 7,600  |                                        | 2,229 |  | 1996 |  | 5-40 yrs.
|Hawthorn                                     |  | Research Triangle |      |                   |                         | 904          |      | 3,769                                   |  |                         |                                              |  | 581                     |   |       | 904   |                          | 4,350  |                      | 5,254  |                                        | 2,442 |  | 1987 |  | 5-40 yrs.
|Healthsource                                 |  | Research Triangle |      |                   |                         | 1,304        |      |                                         |  |                         |                                              |  | 12,322                  |   |       | 1,304 |                          | 12,322 |                      | 13,626 |                                        | 2,867 |  | 1996 |  | 5-40 yrs.
|Highwoods Centre-Weston                      |  | Research Triangle |      | (1)               |                         | 531          |      |                                         |  |                         |                                              |  | 7,095                   |   |       | 531   |                          | 7,095  |                      | 7,626  |                                        | 1,264 |  | 1998 |  | 5-40 yrs.
|Highwoods Office Center North Land           |  | Research Triangle |      |                   |                         | 355          |      | 49                                      |  | 2                       |                                              |  |                         |   |       | 357   |                          | 49     |                      | 406    |                                        | 20    |  | N/A  |  | N/A      
|Highwoods Office Center South Land           |  | Research Triangle |      |                   |                         | 2,411        |      |                                         |  | 12                      |                                              |  |                         |   |       | 2,423 |                          |        |                      | 2,423  |                                        |       |  | N/A  |  | N/A      
|Highwoods Tower One                          |  | Research Triangle |      | (2)               |                         | 203          |      | 16,744                                  |  |                         |                                              |  | 963                     |   |       | 203   |                          | 17,707 |                      | 17,910 |                                        | 5,766 |  | 1991 |  | 5-40 yrs.
|Highwoods Tower Two                          |  | Research Triangle |      |                   |                         | 365          |      |                                         |  |                         |                                              |  | 24,306                  |   |       | 365   |                          | 24,306 |                      | 24,671 |                                        | 2,219 |  | 2001 |  | 5-40 yrs.
|Holiday Inn Reservations Center              |  | Research Triangle |      |                   |                         | 867          |      | 2,727                                   |  |                         |                                              |  | 144                     |   |       | 867   |                          | 2,871  |                      | 3,738  |                                        | 725   |  | 1984 |  | 5-40 yrs.
|Inveresk Land Parcel 2                       |  | Research Triangle |      |                   |                         | 657          |      |                                         |  |                         |                                              |  |                         |   |       | 657   |                          |        |                      | 657    |                                        |       |  | N/A  |  | N/A      
|Inveresk Land Parcel 3                       |  | Research Triangle |      |                   |                         | 548          |      |                                         |  |                         |                                              |  |                         |   |       | 548   |                          |        |                      | 548    |                                        |       |  | N/A  |  | N/A      
|Ironwood                                     |  | Research Triangle |      |                   |                         | 319          |      | 1,337                                   |  |                         |                                              |  | 264                     |   |       | 319   |                          | 1,601  |                      | 1,920  |                                        | 413   |  | 1978 |  | 5-40 yrs.
|Magnolia                                     |  | Research Triangle |      |                   |                         | 133          |      | 3,576                                   |  |                         |                                              |  | 667                     |   |       | 133   |                          | 4,243  |                      | 4,376  |                                        | 1,967 |  | 1988 |  | 5-40 yrs.
|Lake Plaza East                              |  | Research Triangle |      | (3)               |                         | 856          |      | 6,325                                   |  |                         |                                              |  |                        |   |       | 856   |                          | 6,325  |                      | 7,181  |                                        | 2,017 |  | 1984 |  | 5-40 yrs.
|Laurel                                       |  | Research Triangle |      |                   |                         | 884          |      | 2,517                                   |  |                         |                                              |  | 819                     |   |       | 884   |                          | 3,336  |                      | 4,220  |                                        | 909   |  | 1982 |  | 5-40 yrs.
|Leatherwood                                  |  | Research Triangle |      |                   |                         | 213          |      | 891                                     |  |                         |                                              |  | 608                     |   |       | 213   |                          | 1,499  |                      | 1,712  |                                        | 366   |  | 1979 |  | 5-40 yrs.
|Maplewood                                    |  | Research Triangle |      | (1)               |                         | 149          |      |                                         |  |                         |                                              |  | 3,629                   |   |       | 149   |                          | 3,629  |                      | 3,778  |                                        | 467   |  | N/A  |  | 5-40 yrs.
|Northpark - Wake Forest                      |  | Research Triangle |      |                   |                         | 498          |      |                                         |  |                         |                                              |  | 4,021                   |   |       | 498   |                          | 4,021  |                      | 4,519  |                                        | 1,085 |  | 1997 |  | 5-40 yrs.
|Northpark Land - Wake Forest                 |  | Research Triangle |      |                   |                         | 1,586        |      |                                         |  | 11                      |                                              |  |                         |   |       | 1,597 |                          |        |                      | 1,597  |                                        |       |  | N/A  |  | N/A      
|Overlook                                     |  | Research Triangle |      |                   |                         | 398          |      |                                         |  |                         |                                              |  | 9,423                   |   |       | 398   |                          | 9,423  |                      | 9,821  |                                        | 1,078 |  | 1999 |  | 5-40 yrs.
|Pamlico                                      |  | Research Triangle |      |                   |                         | 289          |      |                                         |  |                         |                                              |  | 11,181                  |   |       | 289   |                          | 11,181 |                      | 11,470 |                                        | 4,760 |  | 1980 |  | 5-40 yrs.
|ParkWest One - Weston                        |  | Research Triangle |      |                   |                         | 383          |      |                                         |  |                         |                                              |  | 4,023                   |   |       | 383   |                          | 4,023  |                      | 4,406  |                                        | 467   |  | 2001 |  | 5-40 yrs.
|ParkWest Two - Weston                        |  | Research Triangle |      |                   |                         | 503          |      |                                         |  |                         |                                              |  | 3,388                   |   |       | 503   |                          | 3,388  |                      | 3,891  |                                        | 453   |  | 2001 |  | 5-40 yrs.
|ParkWest Three - Land - Weston               |  | Research Triangle |      |                   |                         | 834          |      |                                         |  | 29                      |                                              |  |                         |   |       | 863   |                          |        |                      | 863    |                                        |       |  | N/A  |  | N/A      
|Progress Center Renovation                   |  | Research Triangle |      |                   |                         |              |      |                                         |  |                         |                                              |  | 359                     |   |       |       |                          | 359    |                      | 359    |                                        | 14    |  | 2003 |  | 5-40 yrs.
|Pulse Athletic Club at Highwoods             |  | Research Triangle |      |                   |                         | 142          |      |                                         |  |                         |                                              |  | 3,042                   |   |       | 142   |                          | 3,042  |                      | 3,184  |                                        | 1,019 |  | 1998 |  | 5-40 yrs.
|Raleigh Corp Center Lot D                    |  | Research Triangle |      |                   |                         | 1,211        |      |                                         |  |                         |                                              |  |                         |   |       | 1,211 |                          |        |                      | 1,211  |                                        |       |  | N/A  |  | N/A      
|Red Oak                                      |  | Research Triangle |      |                   |                         | 389          |      |                                         |  |                         |                                              |  | 6,630                   |   |       | 389   |                          | 6,630  |                      | 7,019  |                                        | 1,498 |  | 1999 |  | 5-40 yrs.
|Rexwoods Center I                            |  | Research Triangle |      | (5)               |                         | 878          |      | 3,730                                   |  |                         |                                              |  | 381                     |   |       | 878   |                          | 4,111  |                      | 4,989  |                                        | 1,472 |  | 1990 |  | 5-40 yrs.
|Rexwoods Center II                           |  | Research Triangle |      |                   |                         | 362          |      | 1,818                                   |  |                         |                                              |  | 5                       |   |       | 362   |                          | 1,823  |                      | 2,185  |                                        | 466   |  | 1993 |  | 5-40 yrs.





---

|                              |  |                   |      |                   |                         |              |      |                                         |  |                         |                                              |  |                         |   |       |       |                          |        |                      |        |                                        |       |  |      |  |          
|----------------------------- |  | ----------------- | ---- | ----------------- | ----------------------- | ------------ | ---- | --------------------------------------- |  | ----------------------- | -------------------------------------------- |  | ----------------------- | - | ----- | ----- | ------------------------ | ------ | -------------------- | ------ | -------------------------------------- | ----- |  | ---- |  | ---------
|Description                   |  | City              |      | 2003 Encumberance |                         | Initial Cost |      | CostCapitalizedSubsequent to Acquistion |  |                         | GrossAmountat Which Carried atClose ofPeriod |  | Building & Improvements |   | Total |       | Accumulated Depreciation |        | Date of Construction |        | Life on Which Depreciation is Computed
|                              |  |                   | Land |                   | Building & Improvements |              | Land |                                         |  | Building & Improvements |                                              |  | Land                    |   |       |       |                          |       
|Rexwoods Center III           |  | Research Triangle |      |                   |                         | 919          |      | 2,816                                   |  |                         |                                              |  | 533                     |   |       | 919   |                          | 3,349  |                      | 4,268  |                                        | 948   |  | 1992 |  | 5-40 yrs.
|Rexwoods Center IV            |  | Research Triangle |      | (5)               |                         | 586          |      |                                         |  |                         |                                              |  | 3,215                   |   |       | 586   |                          | 3,215  |                      | 3,801  |                                        | 736   |  | 1995 |  | 5-40 yrs.
|Rexwoods Center V             |  | Research Triangle |      | (2)               |                         | 1,301        |      |                                         |  |                         |                                              |  | 5,699                   |   |       | 1,301 |                          | 5,699  |                      | 7,000  |                                        | 1,179 |  | 1998 |  | 5-40 yrs.
|Riverbirch                    |  | Research Triangle |      | (2)               |                         | 469          |      | 4,038                                   |  |                         |                                              |  | 978                     |   |       | 469   |                          | 5,016  |                      | 5,485  |                                        | 1,684 |  | 1987 |  | 5-40 yrs.
|Situs I                       |  | Research Triangle |      |                   |                         | 692          |      | 4,646                                   |  |                         |                                              |  |                        |   |       | 692   |                          | 4,646  |                      | 5,338  |                                        | 1,705 |  | 1996 |  | 5-40 yrs.
|Situs II                      |  | Research Triangle |      |                   |                         | 718          |      | 6,254                                   |  |                         |                                              |  |                        |   |       | 718   |                          | 6,254  |                      | 6,972  |                                        | 1,835 |  | 1998 |  | 5-40 yrs.
|Situs III                     |  | Research Triangle |      | (3)               |                         | 440          |      | 4,078                                   |  |                         |                                              |  |                        |   |       | 440   |                          | 4,078  |                      | 4,518  |                                        | 177   |  | 2000 |  | 5-40 yrs.
|Six Forks Center I            |  | Research Triangle |      |                   |                         | 666          |      | 2,665                                   |  |                         |                                              |  | 663                     |   |       | 666   |                          | 3,328  |                      | 3,994  |                                        | 721   |  | 1982 |  | 5-40 yrs.
|Six Forks Center II           |  | Research Triangle |      |                   |                         | 1,086        |      | 4,533                                   |  |                         |                                              |  | 960                     |   |       | 1,086 |                          | 5,493  |                      | 6,579  |                                        | 1,222 |  | 1983 |  | 5-40 yrs.
|Six Forks Center III          |  | Research Triangle |      | (2)               |                         | 862          |      | 4,411                                   |  |                         |                                              |  | 492                     |   |       | 862   |                          | 4,903  |                      | 5,765  |                                        | 1,120 |  | 1987 |  | 5-40 yrs.
|Smoketree Tower               |  | Research Triangle |      |                   |                         | 2,353        |      | 11,743                                  |  |                         |                                              |  | 1,941                   |   |       | 2,353 |                          | 13,684 |                      | 16,037 |                                        | 3,514 |  | 1984 |  | 5-40 yrs.
|South Square I                |  | Research Triangle |      |                   |                         | 606          |      | 3,814                                   |  |                         |                                              |  | 1,293                   |   |       | 606   |                          | 5,107  |                      | 5,713  |                                        | 1,196 |  | 1988 |  | 5-40 yrs.
|South Square II               |  | Research Triangle |      |                   |                         | 525          |      | 4,699                                   |  |                         |                                              |  | 402                     |   |       | 525   |                          | 5,101  |                      | 5,626  |                                        | 1,238 |  | 1989 |  | 5-40 yrs.
|Sycamore                      |  | Research Triangle |      | (2)               |                         | 255          |      |                                         |  |                         |                                              |  | 5,175                   |   |       | 255   |                          | 5,175  |                      | 5,430  |                                        | 1,041 |  | 1997 |  | 5-40 yrs.
|WESPEC Tract 1                |  | Research Triangle |      |                   |                         | 1,402        |      |                                         |  | 32                      |                                              |  |                         |   |       | 1,434 |                          |        |                      | 1,434  |                                        |       |  | N/A  |  | N/A      
|WESPEC Tract 2E               |  | Research Triangle |      |                   |                         | 754          |      |                                         |  | 28                      |                                              |  |                         |   |       | 782   |                          |        |                      | 782    |                                        |       |  | N/A  |  | N/A      
|WESPEC - Tract 3              |  | Research Triangle |      |                   |                         | 2,537        |      |                                         |  | 135                     |                                              |  |                         |   |       | 2,672 |                          |        |                      | 2,672  |                                        |       |  | N/A  |  | N/A      
|Weston - Land                 |  | Research Triangle |      |                   |                         | 522          |      |                                         |  | 26                      |                                              |  |                         |   |       | 548   |                          |        |                      | 548    |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 2B     |  | Research Triangle |      |                   |                         | 1,112        |      |                                         |  | 32                      |                                              |  |                         |   |       | 1,144 |                          |        |                      | 1,144  |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 5A     |  | Research Triangle |      |                   |                         | 1,237        |      |                                         |  | 29                      |                                              |  |                         |   |       | 1,266 |                          |        |                      | 1,266  |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 5B     |  | Research Triangle |      |                   |                         | 2,221        |      |                                         |  | 31                      |                                              |  |                         |   |       | 2,252 |                          |        |                      | 2,252  |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 5C     |  | Research Triangle |      |                   |                         | 2,543        |      |                                         |  | 174                     |                                              |  |                         |   |       | 2,717 |                          |        |                      | 2,717  |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6A     |  | Research Triangle |      |                   |                         | 1,453        |      |                                         |  | 76                      |                                              |  |                         |   |       | 1,529 |                          |        |                      | 1,529  |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6A2    |  | Research Triangle |      |                   |                         | 2,088        |      |                                         |  | (2,088                  | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6B     |  | Research Triangle |      |                   |                         | 2,251        |      |                                         |  | 117                     |                                              |  |                         |   |       | 2,368 |                          |        |                      | 2,368  |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6C     |  | Research Triangle |      |                   |                         | 478          |      |                                         |  | 97                      |                                              |  |                         |   |       | 575   |                          |        |                      | 575    |                                        |       |  | N/A  |  | N/A      
|Weston Commons Tract - 8A     |  | Research Triangle |      |                   |                         | 2,342        |      |                                         |  | 2,782                   |                                              |  |                         |   |       | 5,124 |                          |        |                      | 5,124  |                                        |       |  | N/A  |  | N/A      
|Weston Oaks Court             |  | Research Triangle |      |                   |                         | 1,831        |      |                                         |  | 153                     |                                              |  |                         |   |       | 1,984 |                          |        |                      | 1,984  |                                        |       |  | N/A  |  | N/A      
|Willow Oak                    |  | Research Triangle |      | (2)               |                         | 458          |      |                                         |  |                         |                                              |  | 5,140                   |   |       | 458   |                          | 5,140  |                      | 5,598  |                                        | 1,084 |  | 1995 |  | 5-40 yrs.
|Other Property                |  | Research Triangle |      |                   |                         | 49           |      | 9,144                                   |  |                         |                                              |  |                         |   |       | 49    |                          | 9,144  |                      | 9,193  |                                        | 6,357 |  | N/A  |  | N/A      
|                              |  |                   |      |                   |                         |              |      |                                         |  |                         |                                              | 
|Richmond, VA                  |  |                   |      |                   |                         |              |      |                                         |  |                         |                                              |  |                         |   |       |       |                          |        |                      |        |                                        |       |  |      |  |          
|1309 E. Cary Street           |  | Richmond          |      |                   |                         | 171          |      | 691                                     |  |                         |                                              |  | 96                      |   |       | 171   |                          | 787    |                      | 958    |                                        | 169   |  | 1987 |  | 5-40 yrs.
|4900 Cox Road                 |  | Richmond          |      |                   |                         | 1,324        |      | 5,311                                   |  |                         |                                              |  | 727                     |   |       | 1,324 |                          | 6,038  |                      | 7,362  |                                        | 1,422 |  | 1991 |  | 5-40 yrs.
|Airport Center I              |  | Richmond          |      |                   |                         | 779          |      | 5,019                                   |  | (779                    | )                                            |  | (5,019                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1997 |  | 5-40 yrs.
|Airport Center II             |  | Richmond          |      |                   |                         | 317          |      | 2,625                                   |  | (317                    | )                                            |  | (2,625                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1998 |  | 5-40 yrs.
|Capital One Building I        |  | Richmond          |      | (10)              |                         | 1,278        |      |                                         |  | (1,278                  | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | 1999 |  | 5-40 yrs.
|Capital One Building II       |  | Richmond          |      | (10)              |                         | 477          |      |                                         |  | (477                    | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | 1999 |  | 5-40 yrs.
|Capital One Building III      |  | Richmond          |      | (10)              |                         | 1,278        |      |                                         |  | (1,278                  | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | 1999 |  | 5-40 yrs.
|Capital One Parking Deck      |  | Richmond          |      | (10)              |                         |              |      |                                         |  |                         |                                              |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | 1999 |  | 5-40 yrs.
|Colonade Building             |  | Richmond          |      | (4)               |                         | 1,364        |      | 6,105                                   |  |                         |                                              |  | 11                      |   |       | 1,364 |                          | 6,116  |                      | 7,480  |                                        | 153   |  | 2003 |  | 5-40 yrs.
|Dominion Place - Pitts Parcel |  | Richmond          |      |                   |                         | 1,101        |      |                                         |  |                         |                                              |  |                         |   |       | 1,101 |                          |        |                      | 1,101  |                                        |       |  | N/A  |  | N/A      
|East Shore I                  |  | Richmond          |      |                   |                         | 1,537        |      | 5,971                                   |  |                         |                                              |  |                         |   |       | 1,537 |                          | 5,971  |                      | 7,508  |                                        | 804   |  | 1999 |  | 5-40 yrs.
|East Shore II                 |  | Richmond          |      |                   |                         | 907          |      | 6,853                                   |  |                         |                                              |  |                         |   |       | 907   |                          | 6,853  |                      | 7,760  |                                        | 1,722 |  | 1999 |  | 5-40 yrs.
|East Shore III                |  | Richmond          |      |                   |                         | 1,784        |      | 6,095                                   |  |                         |                                              |  |                         |   |       | 1,784 |                          | 6,095  |                      | 7,879  |                                        | 897   |  | 1999 |  | 5-40 yrs.
|East Shore IV                 |  | Richmond          |      |                   |                         | 1,445        |      |                                         |  | (1,438                  | )                                            |  |                         |   |       | 7     |                          |        |                      | 7      |                                        |       |  | N/A  |  | N/A      
|Grove Park I                  |  | Richmond          |      |                   |                         | 713          |      |                                         |  |                         |                                              |  | 5,132                   |   |       | 713   |                          | 5,132  |                      | 5,845  |                                        | 886   |  | 1997 |  | 5-40 yrs.
|Grove Park Buidling E         |  | Richmond          |      |                   |                         | 111          |      |                                         |  |                         |                                              |  |                         |   |       | 111   |                          |        |                      | 111    |                                        |       |  | N/A  |  | N/A      
|Grove Park Buidling H         |  | Richmond          |      |                   |                         | 111          |      |                                         |  |                         |                                              |  |                         |   |       | 111   |                          |        |                      | 111    |                                        |       |  | N/A  |  | N/A      
|Grove Park Buidling I         |  | Richmond          |      |                   |                         | 126          |      |                                         |  |                         |                                              |  |                         |   |       | 126   |                          |        |                      | 126    |                                        |       |  | N/A  |  | N/A      
|Grove Park Buidling J         |  | Richmond          |      |                   |                         | 126          |      |                                         |  |                         |                                              |  |                         |   |       | 126   |                          |        |                      | 126    |                                        |       |  | N/A  |  | N/A      
|Grove Park Square             |  | Richmond          |      |                   |                         | 194          |      |                                         |  | (194                    | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|Hamilton Beach                |  | Richmond          |      |                   |                         | 1,086        |      | 4,345                                   |  |                         |                                              |  | 523                     |   |       | 1,086 |                          | 4,868  |                      | 5,954  |                                        | 1,057 |  | 1986 |  | 5-40 yrs.
|HDC Land Site - Parcel 6      |  | Richmond          |      |                   |                         | 1,275        |      |                                         |  | (1,275                  | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|HDC Land Site C - Parcel 5    |  | Richmond          |      |                   |                         | 942          |      |                                         |  | (942                    | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|HDC Land Site D - Parcel 4    |  | Richmond          |      |                   |                         | 1,721        |      |                                         |  | (1,721                  | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|HDC Land Site E - Parcel 3    |  | Richmond          |      |                   |                         | 1,804        |      |                                         |  | (1,804                  | )                                            |  |                         |   |       |       |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|Highwoods Distribution Center |  | Richmond          |      |                   |                         | 581          |      | 6,333                                   |  | (581                    | )                                            |  | (6,333                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1999 |  | 5-40 yrs.
|Highwoods Commons             |  | Richmond          |      |                   |                         | 521          |      |                                         |  |                         |                                              |  | 3,568                   |   |       | 521   |                          | 3,568  |                      | 4,089  |                                        | 300   |  | 1999 |  | 5-40 yrs.
|Highwoods Five                |  | Richmond          |      |                   |                         | 806          |      |                                         |  |                         |                                              |  | 5,071                   |   |       | 806   |                          | 5,071  |                      | 5,877  |                                        | 644   |  | 1998 |  | 5-40 yrs.
|Highwoods One                 |  | Richmond          |      | (2)               |                         | 1,846        |      |                                         |  |                         |                                              |  | 9,384                   |   |       | 1,846 |                          | 9,384  |                      | 11,230 |                                        | 1,917 |  | 1996 |  | 5-40 yrs.
|Highwoods Plaza               |  | Richmond          |      |                   |                         | 909          |      |                                         |  |                         |                                              |  | 5,798                   |   |       | 909   |                          | 5,798  |                      | 6,707  |                                        | 448   |  | 2000 |  | 5-40 yrs.
|Highwoods Two                 |  | Richmond          |      | (4)               |                         | 786          |      |                                         |  |                         |                                              |  | 6,208                   |   |       | 786   |                          | 6,208  |                      | 6,994  |                                        | 1,123 |  | 1997 |  | 5-40 yrs.
|Innsbrook Centre              |  | Richmond          |      |                   |                         | 914          |      | 6,768                                   |  | (914                    | )                                            |  | (6,768                  | ) |       |       |                          |        |                      |        |                                        |       |  | 1989 |  | 5-40 yrs.
|Innslake Center               |  | Richmond          |      | (1)               |                         | 845          |      |                                         |  |                         |                                              |  | 6,560                   |   |       | 845   |                          | 6,560  |                      | 7,405  |                                        | 559   |  | 2001 |  | 5-40 yrs.





---

|                                 |  |               |  |                  |  |              |  |                                         |  |        |                                             |  |                        |   |  |       |  |                        |  |        |                                     |                         |  |                     |  |          
|-------------------------------- |  | ------------- |  | ---------------- |  | ------------ |  | --------------------------------------- |  | ------ | ------------------------------------------- |  | ---------------------- | - |  | ----- |  | ---------------------- |  | ------ | ----------------------------------- | ----------------------- |  | ------------------- |  | ---------
|                                 |  |               |  |                  |  | Initial Cost |  | CostCapitalizedSubsequent to Acquistion |  |        | GrossAmountat WhichCarriedat Closeof Period |  |                        |   |  |       |  |                        |  |        | Life onWhichDepreciationis Computed
|Description                      |  | City          |  | 2003Encumberance |  | Land         |  | Building &Improvements                  |  | Land   |                                             |  | Building &Improvements |   |  | Land  |  | Building &Improvements |  | Total  |                                     | AccumulatedDepreciation |  | Date ofConstruction | 
|Liberty Mutual                   |  | Richmond      |  | 2,837            |  | 1,205        |  | 4,825                                   |  |        |                                             |  | 661                    |   |  | 1,205 |  | 5,486                  |  | 6,691  |                                     | 1,068                   |  | 1990                |  | 5-40 yrs.
|Markel American                  |  | Richmond      |  | (10)             |  | 1,372        |  |                                         |  | (1,372 | )                                           |  |                       |   |  |       |  |                        |  |        |                                     |                         |  | 1998                |  | 5-40 yrs.
|Mercer Plaza                     |  | Richmond      |  |                  |  | 1,556        |  | 12,350                                  |  | (1,556 | )                                           |  | (12,350                | ) |  |       |  |                        |  |        |                                     |                         |  | 1984                |  | 5-40 yrs.
|North Park                       |  | Richmond      |  |                  |  | 2,163        |  | 8,659                                   |  |        |                                             |  | 748                    |   |  | 2,163 |  | 9,407                  |  | 11,570 |                                     | 1,800                   |  | 1989                |  | 5-40 yrs.
|North Shore Commons A            |  | Richmond      |  | (4)              |  | 1,344        |  |                                         |  |        |                                             |  | 12,803                 |   |  | 1,344 |  | 12,803                 |  | 14,147 |                                     | 1,311                   |  | 2002                |  | 5-40 yrs.
|North Shore Commons B - Land     |  | Richmond      |  |                  |  | 2,067        |  |                                         |  |        |                                             |  |                        |   |  | 2,067 |  |                        |  | 2,067  |                                     |                         |  | N/A                 |  | N/A      
|North Shore Commons C - Land     |  | Richmond      |  |                  |  | 1,902        |  |                                         |  |        |                                             |  |                        |   |  | 1,902 |  |                        |  | 1,902  |                                     |                         |  | N/A                 |  | N/A      
|North Shore Commons D - Land     |  | Richmond      |  |                  |  | 1,261        |  |                                         |  |        |                                             |  |                        |   |  | 1,261 |  |                        |  | 1,261  |                                     |                         |  | N/A                 |  | N/A      
|One Shockoe Plaza                |  | Richmond      |  |                  |  |              |  |                                         |  |        |                                             |  | 15,428                 |   |  |       |  | 15,428                 |  | 15,428 |                                     | 3,124                   |  | 1996                |  | 5-40 yrs.
|Pavilion                         |  | Richmond      |  |                  |  |              |  |                                         |  | 181    |                                             |  |                        |   |  | 181   |  |                        |  | 181    |                                     |                         |  | N/A                 |  | N/A      
|Sadler & Cox Land                |  | Richmond      |  |                  |  | 1,827        |  |                                         |  |        |                                             |  |                        |   |  | 1,827 |  |                        |  | 1,827  |                                     |                         |  | N/A                 |  | N/A      
|Stony Point F Land               |  | Richmond      |  |                  |  | 2,078        |  |                                         |  | 25     |                                             |  |                        |   |  | 2,103 |  |                        |  | 2,103  |                                     |                         |  | N/A                 |  | N/A      
|Stony Point I                    |  | Richmond      |  |                  |  | 1,384        |  | 11,630                                  |  |        |                                             |  | 1,180                  |   |  | 1,384 |  | 12,810                 |  | 14,194 |                                     | 2,277                   |  | 1990                |  | 5-40 yrs.
|Stony Point II                   |  | Richmond      |  |                  |  | 1,633        |  |                                         |  |        |                                             |  | 12,628                 |   |  | 1,633 |  | 12,628                 |  | 14,261 |                                     | 2,278                   |  | 1999                |  | 5-40 yrs.
|Stony Point III                  |  | Richmond      |  |                  |  | 1,194        |  |                                         |  |        |                                             |  | 10,201                 |   |  | 1,194 |  | 10,201                 |  | 11,395 |                                     | 1,004                   |  | 2002                |  | 5-40 yrs.
|Technology Park 1                |  | Richmond      |  |                  |  | 541          |  | 2,166                                   |  |        |                                             |  | 338                    |   |  | 541   |  | 2,504                  |  | 3,045  |                                     | 574                     |  | 1991                |  | 5-40 yrs.
|Technology Park 2                |  | Richmond      |  |                  |  | 264          |  | 1,058                                   |  |        |                                             |  | 35                     |   |  | 264   |  | 1,093                  |  | 1,357  |                                     | 219                     |  | 1991                |  | 5-40 yrs.
|Vantage Place A                  |  | Richmond      |  | (4)              |  | 203          |  | 811                                     |  |        |                                             |  | 78                     |   |  | 203   |  | 889                    |  | 1,092  |                                     | 176                     |  | 1987                |  | 5-40 yrs.
|Vantage Place B                  |  | Richmond      |  | (4)              |  | 233          |  | 931                                     |  |        |                                             |  | 150                    |   |  | 233   |  | 1,081                  |  | 1,314  |                                     | 215                     |  | 1988                |  | 5-40 yrs.
|Vantage Place C                  |  | Richmond      |  | (4)              |  | 235          |  | 940                                     |  |        |                                             |  | 75                     |   |  | 235   |  | 1,015                  |  | 1,250  |                                     | 207                     |  | 1987                |  | 5-40 yrs.
|Vantage Place D                  |  | Richmond      |  | (4)              |  | 218          |  | 873                                     |  |        |                                             |  | 58                     |   |  | 218   |  | 931                    |  | 1,149  |                                     | 195                     |  | 1988                |  | 5-40 yrs.
|Vantage Pointe                   |  | Richmond      |  | (4)              |  | 1,089        |  | 4,500                                   |  |        |                                             |  | 450                    |   |  | 1,089 |  | 4,950                  |  | 6,039  |                                     | 1,054                   |  | 1990                |  | 5-40 yrs.
|Virginia Mutual                  |  | Richmond      |  |                  |  | 1,301        |  | 6,036                                   |  |        |                                             |  | (151                   | ) |  | 1,301 |  | 5,885                  |  | 7,186  |                                     | 505                     |  | 1996                |  | 5-40 yrs.
|Waterfront Plaza                 |  | Richmond      |  |                  |  | 585          |  | 2,347                                   |  |        |                                             |  | 775                    |   |  | 585   |  | 3,122                  |  | 3,707  |                                     | 892                     |  | 1988                |  | 5-40 yrs.
|West Shore I                     |  | Richmond      |  | (1)              |  | 358          |  | 1,431                                   |  |        |                                             |  | 41                     |   |  | 358   |  | 1,472                  |  | 1,830  |                                     | 285                     |  | 1995                |  | 5-40 yrs.
|West Shore II                    |  | Richmond      |  | (1)              |  | 545          |  | 2,181                                   |  |        |                                             |  | 156                    |   |  | 545   |  | 2,337                  |  | 2,882  |                                     | 448                     |  | 1995                |  | 5-40 yrs.
|West Shore III                   |  | Richmond      |  | (1)              |  | 961          |  |                                         |  |        |                                             |  | 4,394                  |   |  | 961   |  | 4,394                  |  | 5,355  |                                     | 803                     |  | 1997                |  | 5-40 yrs.
|                                 |  |               |  |                  |  |              |  |                                         |  |        |                                             | 
|South Florida                    |  |               |  |                  |  |              |  |                                         |  |        |                                             |  |                        |   |  |       |  |                        |  |        |                                     |                         |  |                     |  |          
|The 1800 Eller Drive Building    |  | South Florida |  |                  |  |              |  | 9,823                                   |  |        |                                             |  | 491                    |   |  |       |  | 10,314                 |  | 10,314 |                                     | 1,689                   |  | 1983                |  | 5-40 yrs.
|                                 |  |               |  |                  |  |              |  |                                         |  |        |                                             | 
|Tampa, FL                        |  |               |  |                  |  |              |  |                                         |  |        |                                             |  |                        |   |  |       |  |                        |  |        |                                     |                         |  |                     |  |          
|380 Park Place                   |  | Tampa         |  |                  |  | 1,508        |  |                                         |  |        |                                             |  | 8,223                  |   |  | 1,508 |  | 8,223                  |  | 9,731  |                                     | 997                     |  | N/A                 |  | N/A      
|Anchor Glass                     |  | Tampa         |  | (3)              |  | 1,281        |  | 11,318                                  |  |        |                                             |  |                       |   |  | 1,281 |  | 11,318                 |  | 12,599 |                                     | 1,692                   |  | 1988                |  | 5-40 yrs.
|Atrium                           |  | Tampa         |  |                  |  | 1,351        |  | 9,302                                   |  |        |                                             |  | 2,729                  |   |  | 1,351 |  | 12,031                 |  | 13,382 |                                     | 2,187                   |  | 1989                |  | 5-40 yrs.
|Bay View Office Centre           |  | Tampa         |  |                  |  | 1,304        |  | 5,964                                   |  | (1,304 | )                                           |  | (5,964                 | ) |  |       |  |                        |  |        |                                     |                         |  | 1982                |  | 5-40 yrs.
|Bay Vista Gardens                |  | Tampa         |  |                  |  | 447          |  | 4,825                                   |  |        |                                             |  | (7                     | ) |  | 447   |  | 4,818                  |  | 5,265  |                                     | 714                     |  | 1982                |  | 5-40 yrs.
|Bay Vista Gardens II             |  | Tampa         |  |                  |  | 1,328        |  | 7,101                                   |  | 134    |                                             |  | (6                     | ) |  | 1,462 |  | 7,095                  |  | 8,557  |                                     | 1,065                   |  | 1997                |  | 5-40 yrs.
|Bay Vista Office Building        |  | Tampa         |  |                  |  | 935          |  | 4,512                                   |  |        |                                             |  | 514                    |   |  | 935   |  | 5,026                  |  | 5,961  |                                     | 762                     |  | 1982                |  | 5-40 yrs.
|Bay Vista Retail                 |  | Tampa         |  |                  |  | 283          |  | 1,178                                   |  |        |                                             |  | 128                    |   |  | 283   |  | 1,306                  |  | 1,589  |                                     | 227                     |  | 1987                |  | 5-40 yrs.
|Bayshore                         |  | Tampa         |  | (3)              |  | 2,248        |  | 11,688                                  |  |        |                                             |  |                       |   |  | 2,248 |  | 11,688                 |  | 13,936 |                                     | 1,783                   |  | 1990                |  | 5-40 yrs.
|Brookwood Day Care Center        |  | Tampa         |  |                  |  | 61           |  | 347                                     |  | (61    | )                                           |  | (347                   | ) |  |       |  |                        |  |        |                                     |                         |  | 1986                |  | 5-40 yrs.
|Countryside Place                |  | Tampa         |  |                  |  | 843          |  | 3,731                                   |  | (843   | )                                           |  | (3,719                 | ) |  |       |  | 12                     |  | 12     |                                     | 1                       |  | 1988                |  | 5-40 yrs.
|Cypress Center I                 |  | Tampa         |  |                  |  | 3,172        |  | 12,764                                  |  |        |                                             |  | (105                   | ) |  | 3,172 |  | 12,659                 |  | 15,831 |                                     | 4,152                   |  | 1982                |  | 5-40 yrs.
|Cypress Center III               |  | Tampa         |  |                  |  | 1,190        |  | 7,601                                   |  |        |                                             |  | 630                    |   |  | 1,190 |  | 8,231                  |  | 9,421  |                                     | 903                     |  | 1983                |  | 5-40 yrs.
|Cypress Center IV - Land         |  | Tampa         |  |                  |  | 3,080        |  | 300                                     |  |        |                                             |  |                        |   |  | 3,080 |  | 300                    |  | 3,380  |                                     | 47                      |  | N/A                 |  | N/A      
|Cypress Commons                  |  | Tampa         |  | (4)              |  | 1,211        |  | 11,477                                  |  |        |                                             |  | 998                    |   |  | 1,211 |  | 12,475                 |  | 13,686 |                                     | 3,331                   |  | 1985                |  | 5-40 yrs.
|Cypress West                     |  | Tampa         |  | 1,943            |  | 615          |  | 5,134                                   |  |        |                                             |  | 836                    |   |  | 615   |  | 5,970                  |  | 6,585  |                                     | 1,124                   |  | 1985                |  | 5-40 yrs.
|Feathersound Corporate Center II |  | Tampa         |  | 2,108            |  | 800          |  | 7,442                                   |  |        |                                             |  | 492                    |   |  | 800   |  | 7,934                  |  | 8,734  |                                     | 1,231                   |  | 1986                |  | 5-40 yrs.
|Firemans Fund Building           |  | Tampa         |  | (4)              |  | 500          |  | 4,193                                   |  |        |                                             |  | 47                     |   |  | 500   |  | 4,240                  |  | 4,740  |                                     | 693                     |  | 1982                |  | 5-40 yrs.
|Harborview Plaza                 |  | Tampa         |  |                  |  | 3,537        |  | 29,944                                  |  |        |                                             |  |                       |   |  | 3,537 |  | 29,944                 |  | 33,481 |                                     | 1,951                   |  | 2001                |  | 5-40 yrs.
|Highwoods Plaza                  |  | Tampa         |  | (10)             |  | 545          |  |                                         |  | (545   | )                                           |  |                       |   |  |       |  |                        |  |        |                                     |                         |  | 1999                |  | 5-40 yrs.
|Highwoods Preserve Energy Plant  |  | Tampa         |  |                  |  |              |  |                                         |  |        |                                             |  | 500                    |   |  |       |  | 500                    |  | 500    |                                     | 71                      |  | N/A                 |  | 5-40 yrs.
|Highwoods Preserve I             |  | Tampa         |  |                  |  | 1,618        |  |                                         |  |        |                                             |  | 25,778                 |   |  | 1,618 |  | 25,778                 |  | 27,396 |                                     | 3,387                   |  | 1999                |  | 5-40 yrs.
|Highwoods Preserve II            |  | Tampa         |  |                  |  | 276          |  |                                         |  |        |                                             |  | 1,650                  |   |  | 276   |  | 1,650                  |  | 1,926  |                                     | 470                     |  | 2001                |  | 5-40 yrs.
|Highwoods Preserve III           |  | Tampa         |  |                  |  | 1,383        |  |                                         |  |        |                                             |  | 22,882                 |   |  | 1,383 |  | 22,882                 |  | 24,265 |                                     | 2,586                   |  | 1999                |  | 5-40 yrs.
|Highwoods Preserve IV            |  | Tampa         |  |                  |  | 1,639        |  |                                         |  |        |                                             |  | 25,134                 |   |  | 1,639 |  | 25,134                 |  | 26,773 |                                     | 2,542                   |  | 1999                |  | 5-40 yrs.
|Highwoods Preserve V             |  | Tampa         |  |                  |  | 1,440        |  |                                         |  |        |                                             |  | 21,057                 |   |  | 1,440 |  | 21,057                 |  | 22,497 |                                     | 1,322                   |  | 2001                |  | 5-40 yrs.
|Highwoods Preserve VI - Land     |  | Tampa         |  |                  |  | 639          |  |                                         |  |        |                                             |  |                        |   |  | 639   |  |                        |  | 639    |                                     |                         |  | N/A                 |  | N/A      
|Highwoods Preserve Land          |  | Tampa         |  |                  |  | 1,802        |  |                                         |  | 231    |                                             |  |                        |   |  | 2,033 |  |                        |  | 2,033  |                                     |                         |  | N/A                 |  | N/A      
|Horizon                          |  | Tampa         |  | (9)              |  |              |  | 6,239                                   |  |        |                                             |  | 1,212                  |   |  |       |  | 7,451                  |  | 7,451  |                                     | 1,028                   |  | 1980                |  | 5-40 yrs.
|LakePointe I                     |  | Tampa         |  | (9)              |  | 2,000        |  | 15,848                                  |  |        |                                             |  | 12,025                 |   |  | 2,000 |  | 27,873                 |  | 29,873 |                                     | 4,127                   |  | 1999                |  | 5-40 yrs.
|LakePointe II                    |  | Tampa         |  | (9)              |  | 2,100        |  |                                         |  |        |                                             |  | 32,595                 |   |  | 2,100 |  | 32,595                 |  | 34,695 |                                     | 4,974                   |  | 1986                |  | 5-40 yrs.
|Lakeside                         |  | Tampa         |  | (9)              |  |              |  | 7,348                                   |  |        |                                             |  | 110                    |   |  |       |  | 7,458                  |  | 7,458  |                                     | 1,145                   |  | 1978                |  | 5-40 yrs.
|Northside Square Office          |  | Tampa         |  |                  |  | 601          |  | 3,637                                   |  |        |                                             |  | 283                    |   |  | 601   |  | 3,920                  |  | 4,521  |                                     | 603                     |  | 1986                |  | 5-40 yrs.





---

|                               |  |       |  |                  |  |              |  |                                        |  |         |                                             |  |                        |   |  |         |  |                        |  |           |                                     |                         |  |                     |  |          
|------------------------------ |  | ----- |  | ---------------- |  | ------------ |  | -------------------------------------- |  | ------- | ------------------------------------------- |  | ---------------------- | - |  | ------- |  | ---------------------- |  | --------- | ----------------------------------- | ----------------------- |  | ------------------- |  | ---------
|                               |  |       |  |                  |  | Initial Cost |  | CostCapitalizedSubsequentto Acquistion |  |         | GrossAmountat WhichCarriedat Closeof Period |  |                        |   |  |         |  |                        |  |           | Life onWhichDepreciationis Computed
|Description                    |  | City  |  | 2003Encumberance |  | Land         |  | Building &Improvements                 |  | Land    |                                             |  | Building &Improvements |   |  | Land    |  | Building &Improvements |  | Total     |                                     | AccumulatedDepreciation |  | Date ofConstruction | 
|Northside Square Office/Retail |  | Tampa |  |                  |  | 800          |  | 2,836                                  |  |         |                                             |  | 95                     |   |  | 800     |  | 2,931                  |  | 3,731     |                                     | 439                     |  | 1986                |  | 5-40 yrs.
|One Harbour Place              |  | Tampa |  | (5)              |  | 2,016        |  | 25,252                                 |  |         |                                             |  | 798                    |   |  | 2,016   |  | 26,050                 |  | 28,066    |                                     | 2,148                   |  | 1985                |  | 5-40 yrs.
|Parkside                       |  | Tampa |  | (9)              |  |              |  | 9,381                                  |  |         |                                             |  | 829                    |   |  |         |  | 10,210                 |  | 10,210    |                                     | 1,499                   |  | 1979                |  | 5-40 yrs.
|Pavilion                       |  | Tampa |  | (9)              |  |              |  | 16,348                                 |  |         |                                             |  | 1,934                  |   |  |         |  | 18,282                 |  | 18,282    |                                     | 2,608                   |  | 1982                |  | 5-40 yrs.
|Pavilion Parking Garage        |  | Tampa |  | (9)              |  |              |  |                                        |  |         |                                             |  | 5,618                  |   |  |         |  | 5,618                  |  | 5,618     |                                     | 589                     |  | 1999                |  | 5-40 yrs.
|Registry I                     |  | Tampa |  |                  |  | 744          |  | 4,222                                  |  |         |                                             |  | 615                    |   |  | 744     |  | 4,837                  |  | 5,581     |                                     | 984                     |  | 1985                |  | 5-40 yrs.
|Registry II                    |  | Tampa |  |                  |  | 908          |  | 5,155                                  |  |         |                                             |  | 488                    |   |  | 908     |  | 5,643                  |  | 6,551     |                                     | 1,088                   |  | 1987                |  | 5-40 yrs.
|Registry Square                |  | Tampa |  |                  |  | 344          |  | 1,954                                  |  |         |                                             |  | 173                    |   |  | 344     |  | 2,127                  |  | 2,471     |                                     | 424                     |  | 1988                |  | 5-40 yrs.
|Sabal Business Center I        |  | Tampa |  |                  |  | 375          |  | 2,131                                  |  |         |                                             |  | 246                    |   |  | 375     |  | 2,377                  |  | 2,752     |                                     | 493                     |  | 1982                |  | 5-40 yrs.
|Sabal Business Center II       |  | Tampa |  |                  |  | 342          |  | 1,938                                  |  |         |                                             |  | 63                     |   |  | 342     |  | 2,001                  |  | 2,343     |                                     | 363                     |  | 1984                |  | 5-40 yrs.
|Sabal Business Center III      |  | Tampa |  |                  |  | 290          |  | 1,645                                  |  |         |                                             |  | 22                     |   |  | 290     |  | 1,667                  |  | 1,957     |                                     | 307                     |  | 1984                |  | 5-40 yrs.
|Sabal Business Center IV       |  | Tampa |  |                  |  | 819          |  | 4,645                                  |  |         |                                             |  | 238                    |   |  | 819     |  | 4,883                  |  | 5,702     |                                     | 959                     |  | 1984                |  | 5-40 yrs.
|Sabal Business Center V        |  | Tampa |  |                  |  | 1,026        |  | 5,822                                  |  |         |                                             |  | 190                    |   |  | 1,026   |  | 6,012                  |  | 7,038     |                                     | 1,098                   |  | 1988                |  | 5-40 yrs.
|Sabal Business Center VI       |  | Tampa |  |                  |  | 1,609        |  | 9,128                                  |  |         |                                             |  | 277                    |   |  | 1,609   |  | 9,405                  |  | 11,014    |                                     | 1,696                   |  | 1988                |  | 5-40 yrs.
|Sabal Business Center VII      |  | Tampa |  |                  |  | 1,519        |  | 8,617                                  |  |         |                                             |  | 420                    |   |  | 1,519   |  | 9,037                  |  | 10,556    |                                     | 1,593                   |  | 1990                |  | 5-40 yrs.
|Sabal Industrial Park Land     |  | Tampa |  |                  |  | 323          |  |                                        |  | 4       |                                             |  |                        |   |  | 327     |  |                        |  | 327       |                                     |                         |  | N/A                 |  | N/A      
|Sabal Lake Building            |  | Tampa |  |                  |  | 572          |  | 3,246                                  |  |         |                                             |  | 663                    |   |  | 572     |  | 3,909                  |  | 4,481     |                                     | 696                     |  | 1986                |  | 5-40 yrs.
|Sabal Park Plaza               |  | Tampa |  |                  |  | 611          |  | 3,465                                  |  |         |                                             |  | 39                     |   |  | 611     |  | 3,504                  |  | 4,115     |                                     | 636                     |  | 1987                |  | 5-40 yrs.
|Sabal Pavilion I               |  | Tampa |  |                  |  | 964          |  |                                        |  |         |                                             |  | 11,939                 |   |  | 964     |  | 11,939                 |  | 12,903    |                                     | 1,846                   |  | 1998                |  | 5-40 yrs.
|Sabal Pavilion II              |  | Tampa |  |                  |  | 561          |  |                                        |  |         |                                             |  |                        |   |  | 561     |  |                        |  | 561       |                                     |                         |  | N/A                 |  | N/A      
|Sabal Tech Center              |  | Tampa |  |                  |  | 548          |  | 3,111                                  |  |         |                                             |  | 93                     |   |  | 548     |  | 3,204                  |  | 3,752     |                                     | 593                     |  | 1989                |  | 5-40 yrs.
|Spectrum                       |  | Tampa |  | (9)              |  | 1,450        |  | 14,461                                 |  |         |                                             |  | 1,783                  |   |  | 1,450   |  | 16,244                 |  | 17,694    |                                     | 2,256                   |  | 1984                |  | 5-40 yrs.
|Summit Office Building         |  | Tampa |  |                  |  | 579          |  | 2,749                                  |  | (579    | )                                           |  | (2,749                 | ) |  |         |  |                        |  |           |                                     |                         |  | 1988                |  | 5-40 yrs.
|Tower Place                    |  | Tampa |  | (3)              |  | 3,194        |  | 19,760                                 |  |         |                                             |  |                       |   |  | 3,194   |  | 19,760                 |  | 22,954    |                                     | 4,066                   |  | 1988                |  | 5-40 yrs.
|USF&G                          |  | Tampa |  |                  |  | 1,366        |  | 7,754                                  |  |         |                                             |  | 2,250                  |   |  | 1,366   |  | 10,004                 |  | 11,370    |                                     | 2,541                   |  | 1988                |  | 5-40 yrs.
|Watermark 10,14,15             |  | Tampa |  |                  |  | 4,793        |  |                                        |  |         |                                             |  |                        |   |  | 4,793   |  |                        |  | 4,793     |                                     |                         |  | N/A                 |  | N/A      
|Watermark 13                   |  | Tampa |  |                  |  | 2,233        |  |                                        |  |         |                                             |  |                        |   |  | 2,233   |  |                        |  | 2,233     |                                     |                         |  | N/A                 |  | N/A      
|Westshore Square               |  | Tampa |  | 2,519            |  | 1,130        |  | 5,206                                  |  |         |                                             |  | 274                    |   |  | 1,130   |  | 5,480                  |  | 6,610     |                                     | 888                     |  | 1976                |  | 5-40 yrs.
|                               |  |       |  |                  |  | 698,515      |  | 2,203,627                              |  | (55,157 | )                                           |  | 957,621                |   |  | 643,358 |  | 3,161,248              |  | 3,804,606 |                                     | 541,588                 |  |                     |  |          
|                               |  |       |  |                  |  |              |  |                                        |  |         |                                             |  |                        |   |  |         |  |                        |  |           |                                     |                         |  |                     |  |          



|(1) | These assets are pledged as collateral for a $143,713,000 first mortgage loan.
|--- | ------------------------------------------------------------------------------



|(2) | These assets are pledged as collateral for an $176,726,000 first mortgage loan.
|--- | -------------------------------------------------------------------------------



|(3) | These assets are pledged as collateral for a $64,676,000 first mortgage loan.
|--- | -----------------------------------------------------------------------------



|(4) | These assets are pledged as collateral for a $127,500,000 first mortgage loan.
|--- | ------------------------------------------------------------------------------



|(5) | These assets are pledged as collateral for a $27,257,000 first mortgage loan.
|--- | -----------------------------------------------------------------------------



|(6) | These assets are pledged as collateral for a $140,498,000 first mortgage loan.
|--- | ------------------------------------------------------------------------------



|(7) | These assets are pledged as collateral for a $42,391,000 first mortgage loan.
|--- | -----------------------------------------------------------------------------



|(8) | These assets are pledged as collateral for a $10,081,000 first mortgage loan.
|--- | -----------------------------------------------------------------------------



|(9) | These assets are pledged as collateral for a $66,896,000 first mortgage loan.
|--- | -----------------------------------------------------------------------------



|(10) | Costs capitalized are offset by dispositions.
|---- | ---------------------------------------------





---



HIGHWOODS REALTY LIMITED
PARTNERSHIP



NOTE TO SCHEDULE III

(In Thousands)



As of December 31, 2003, 2002, and 2001



A summary of activity for Real estate and accumulated depreciation is as follows



|                                          |  |              |   |  |           |   |  |           |  
|----------------------------------------- |  | ------------ | - |  | --------- | - |  | --------- | -
|                                          |  | December 31, |  
|                                          |  | 2003         |   |  | 2002      |   |  | 2001      |  
|Real Estate:                              |  |              |   |  |           |   |  |           |  
|Balance at beginning of year              |  | 3,923,455    |   |  | 3,911,510 |   |  | 3,722,583 |  
|Additions                                 |  |              |   |  |           |   |  |           |  
|Acquisitions, Development and Improvments |  | 110,928      |   |  | 213,610   |   |  | 349,045   |  
|Cost of real estate sold and retired      |  | (229,777     | ) |  | (201,665  | ) |  | (160,118  | )
|                                          |  |              |   |  |           |   |  |           |  
|Balance at close of year (a)              |  | 3,804,606    |   |  | 3,923,455 |   |  | 3,911,510 |  
|                                          |  |              |   |  |           |   |  |           |  
|Accumulated Depreciaition                 |  |              |   |  |           |   |  |           |  
|Balance at beginning of year              |  | 459,944      |   |  | 365,888   |   |  | 261,206   |  
|Depreciation expense                      |  | 121,706      |   |  | 125,598   |   |  | 119,057   |  
|Real estate sold                          |  | (40,062      | ) |  | (31,542   | ) |  | (14,375   | )
|                                          |  |              |   |  |           |   |  |           |  
|Balance at close of year (b)              |  | 541,588      |   |  | 459,944   |   |  | 365,888   |  
|                                          |  |              |   |  |           |   |  |           |  



|(a) | Reconciliation of total cost to balance sheet caption at December 31, 2003, 2002, and 2001 (in Thousands)
|--- | ---------------------------------------------------------------------------------------------------------



|                                                                    |  |           |   |  |           |   |  |           |  
|------------------------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|                                                                    |  | 2003      |   |  | 2002      |   |  | 2001      |  
|Total per schedule III                                              |  | 3,804,606 |   |  | 3,923,455 |   |  | 3,911,510 |  
|Construction in progress exclusive of land included in schedule III |  | 7,088     |   |  | 6,714     |   |  | 99,701    |  
|Furniture, fixtures and equipment                                   |  | 21,813    |   |  | 20,960    |   |  | 19,398    |  
|Property held for sale                                              |  | (76,130   | ) |  | (162,919  | ) |  | (156,490  | )
|Reclassification adjustment for discontinued operstions             |  |           |   |  | 455       |   |  | 6,656     |  
|                                                                    |  |           |   |  |           |   |  |           |  
|Total real estate assets at cost                                    |  | 3,757,377 |   |  | 3,788,665 |   |  | 3,880,775 |  
|                                                                    |  |           |   |  |           |   |  |           |  



|(b) | Reconciliation of total Accumulated Depreciation to balance sheet caption at December 31, 2003, 2002, and 2001 (in Thousands)
|--- | -----------------------------------------------------------------------------------------------------------------------------



|                                                             |  |         |   |  |         |   |  |         |  
|------------------------------------------------------------ |  | ------- | - |  | ------- | - |  | ------- | -
|                                                             |  | 2003    |   |  | 2002    |   |  | 2001    |  
|Total per Schedule III                                       |  | 541,588 |   |  | 459,944 |   |  | 365,888 |  
|Accumulated Depreciation - furniture, fixtures and equipment |  | 13,915  |   |  | 9,208   |   |  | 6,805   |  
|Property held for sale                                       |  | (10,406 | ) |  | (15,495 | ) |  | (8,892  | )
|                                                             |  |         |   |  |         |   |  |         |  
|Total accumulated depreciation                               |  | 545,097 |   |  | 453,657 |   |  | 363,801 |  
|                                                             |  |         |   |  |         |   |  |         |