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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities ExchangeAct 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



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HIGHWOODS REALTY LIMITED PARTNERSHIP

(Exact name of registrant as specified
in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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



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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 December 31, 2003 was $119,366,233.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the Proxy Statement of Highwoods Properties, Inc. in connection with its Annual Meeting of Shareholders to be 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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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



TABLE OF CONTENTS



|         |  |                                                                                                |  |   
|-------- |  | ---------------------------------------------------------------------------------------------- |  | --
|Item No. |  | PageNo.                                                                                       
|PART I   |  |                                                                                               
|         |  |                                                                                               
|1.       |  | Business                                                                                       |  | 3 
|2.       |  | Properties                                                                                     |  | 8 
|3.       |  | Legal Proceedings                                                                              |  | 13
|4.       |  | Submission of Matters to a Vote of Security Holders                                            |  | 13
|X.       |  | Executive Officers of the Registrant                                                           |  | 14
|         | 
|PART II  |  |                                                                                               
|         |  |                                                                                               
|5.       |  | Market for Registrants Common Stock and Related Stockholder Matters                           |  | 15
|6.       |  | Selected Financial Data                                                                        |  | 16
|7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 17
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 38
|8.       |  | Financial Statements and Supplementary Data                                                    |  | 39
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 39
|9A.      |  | Controls and Procedures                                                                        |  | 39
|         | 
|PART III |  |                                                                                               
|         |  |                                                                                               
|10.      |  | Directors and Executive Officers of the Registrant                                             |  | 41
|11.      |  | Executive Compensation                                                                         |  | 41
|12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 41
|13.      |  | Certain Relationships and Related Transactions                                                 |  | 41
|14.      |  | Principal Accountant Fees and Services                                                         |  | 41
|         | 
|PART IV  |  |                                                                                               
|         |  |                                                                                               
|15.      |  | Exhibits and Reports on Form 8-K                                                               |  | 42



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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 Operating Partnerships common partnership
interests as Common Units, and (5) the Operating Partnerships preferred partnership interest as Preferred Units.



ITEM 1. BUSINESS



General



The Operating Partnership is managed by its 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:



| |  | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | owned 1,305 acres of undeveloped land, which is suitable to develop approximately 14.0 million rentable square feet of office, industrial and retail space; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | were developing an additional seven properties, which will encompass approximately 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. The Company is the sole general
partner of the Operating Partnership. At December 31, 2003, the Company owned 100.0% of the Preferred Units and 88.9% of the Common Units in the Operating Partnership. Limited partners (including certain officers and directors of the Company) own
the remaining Common Units. Holders of Common Units may redeem them for the cash value of one share of the Companys Common Stock or, at the Companys option, one share of Common Stock. The Preferred Units in the Operating Partnership were
issued to the Company in connection with the Companys three Preferred Stock offerings that occurred in 1997 and 1998.



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.



We file quarterly and annual reports with the SEC. 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).



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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                |  | 295,046           |  |                              | 3,217  |                                             | 0.77  |   |                                     | 4.0 
|BB&T                      |  | 241,075           |  |                              | 3,186  |                                             | 0.76  |   |                                     | 7.2 
|ITC Deltacom(2)           |  | 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 
|                          |  |                   |  |                              |        |                                             |       |   |                                     |     

---

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

|(2) | ITC Deltacom (formerly Business Telecom) is located 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 the second quarter of 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



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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 our capital recycling program during the three years ended December 31, 2003:



|                                                            |  |        |   |  |        |   |  |        |  
|----------------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | -
|                                                            |  | 2003   |   |  | 2002   |   |  | 2001   |  
|Office, Industrial and Retail Properties:                   |  |        |   |  |        |   |  |        |  
|(rentable square feet in thousands)                         |  |        |   |  |        |   |  |        |  
|Dispositions                                                |  | (3,298 | ) |  | (2,270 | ) |  | (268   | )
|Contributions to Joint Ventures                             |  | (291   | ) |  |       |   |  | (118   | )
|Developments Placed In-Service                              |  | 191    |   |  | 2,214  |   |  | 1,351  |  
|Redevelopment                                               |  | (221   | ) |  | (52    | ) |  |       |  
|Acquisitions (including 1,319 from a joint venture in 2003) |  | 1,429  |   |  |       |   |  | 72     |  
|                                                            |  |        |   |  |        |   |  |        |  
|Net Change of In-Service 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 which may involve the sale or contribution of our wholly-owned properties, development projects and development
land to joint ventures formed with unrelated investors.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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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 Form 10K before purchasing 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 portfolio currently accounts for more than 3.4% of our
annualized rental revenue, 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 entered into, 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Future acquisitions and development activities 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 loans 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 may not be available or may 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.



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, including jeopardizing the Company as a REIT.



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 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 expire on June 30, 2004. We anticipate renewing or replacing these coverages 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. Approximately $13.1 million of principal payments on our existing long-term debt is due in 2004. 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 any debt outstanding thereunder. 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



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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.



ITEM 2. PROPERTIES



General



As of December 31, 2003, we owned 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 in-service properties at December 31, 2003:



|                      |  |                     |     |            |           |      |            |                                             |   |        |     |   |       |     |   |  |       |  
|--------------------- |  | ------------------- | --- | ---------- | --------- | ---- | ---------- | ------------------------------------------- | - | ------ | --- | - | ----- | --- | - |  | ----- | -
|                      |  | RentableSquare Feet |     |            | Occupancy |      |            | Percentage of Annualized Rental Revenue (1) |  
|Market                |  |                     |     | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



8



---

##### Table of Contents

The following table sets forth information about our wholly-owned in-service and development properties
as of December 31, 2003 and 2002:



|                          |  |                     |  |                          |                   |  |                     |  |                          |     
|------------------------- |  | ------------------- |  | ------------------------ | ----------------- |  | ------------------- |  | ------------------------ | ----
|                          |  | December 31, 2003   |  |                          | December 31, 2002 | 
|                          |  | RentableSquare Feet |  | PercentLeased/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  |  |                     |  |                          |                   |  |                     |  |                          |     
|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.
|--- | -----------------------------------------------



Development Land



We estimate that we can develop approximately 14.0 million square feet of office, industrial and retail space on our wholly-owned development land. 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 risk 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.



9



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##### Table of Contents

As of December 31, 2003, we 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. The following table sets forth information about these properties at December 31, 2003:



|                  |  |                     |     |        |           |      |            |                                                              |   |        |     |   |              |     |   |       |     |   |  |       |  
|----------------- |  | ------------------- | --- | ------ | --------- | ---- | ---------- | ------------------------------------------------------------ | - | ------ | --- | - | ------------ | --- | - | ----- | --- | - |  | ----- | -
|                  |  | RentableSquare Feet |     |        | Occupancy |      |            | Percentage of Annualized Revenue  Highwoods Share Only (1) |  
|Market            |  |                     |     | 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%.
|--- | -------------------------------------------------------------



10



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##### Table of Contents

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) | 2004 and beyond expirations that have been renewed are reflected based on the renewals expiration date.
|--- | --------------------------------------------------------------------------------------------------------

|(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 revenue.
|--- | -------------------------------------------------------------------------------------------------------------

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



11



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##### Table of Contents

Retail Properties:



|                   |  |                                             |  |                                                               |   |  |                                                  |        |                                                          |   |                                                                    |  |       |  
|------------------ |  | ------------------------------------------- |  | ------------------------------------------------------------- | - |  | ------------------------------------------------ | ------ | -------------------------------------------------------- | - | ------------------------------------------------------------------ |  | ----- | -
|Lease Expiring (1) |  | RentableSquare FeetSubject toExpiringLeases |  | Percentage ofLeasedSquare FootageRepresented byExpiringLeases |   |  | AnnualizedRental RevenueUnder ExpiringLeases (2) |        | AverageAnnual Rental Rate Per Square Foot 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 byExpiringLeases |   |  | 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) | 2004 and beyond expirations that have been renewed are reflected based on the renewals expiration date.
|--- | --------------------------------------------------------------------------------------------------------

|(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 revenue.
|--- | -------------------------------------------------------------------------------------------------------------

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



12



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##### Table of Contents

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 incurred $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 settled by early
2003.



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



None.



13



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##### Table of Contents

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Ronald P. Gibson    |  | 59  |  | Director and Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                    |  |     |  | Mr. Gibson is one of our founders and served as our predecessors managing partner since its formation in 1978. Mr. Gibson served as President until December 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                    |  |    
|Edward J. Fritsch   |  | 45  |  | Director, President and Chief Operating Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                    |  |     |  | Mr. Fritsch joined us in 1982 and was a partner of our predecessor. Mr. Fritsch became President in December 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                    |  |    
|Gene H. Anderson    |  | 58  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                        
|                    |  |    
|Michael F. Beale    |  | 50  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                    |  |    
|Michael E. Harris   |  | 54  |  | Senior Vice President.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                    |  |     |  | Mr. Harris is 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. 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.                                                                                                     
|                    |  |    
|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 December 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. Mr. Liuzzo is a certified public accountant.                                                                                                                                                                                                                                                                                            
|                    |  |    
|Mack D. Pridgen III |  | 54  |  | Vice President, General Counsel and Secretary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                    |  |     |  | Prior to joining us in 1997, Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P. and prior to that a partner with Arthur Andersen & Co. Mr. Pridgen is an attorney and a
certified public accountant.                                                                                                                                                                                                                                                                                                                                                                                                  
|                    |  |    
|Terry L Stevens     |  | 55  |  | 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. Mr. Stevens is a certified public accountant.



14



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##### Table of Contents

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 March 19, 2004, there were 160 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.



15



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##### Table of Contents

ITEM 6. SELECTED FINANCIAL DATA



The following table sets forth selected financial and operating information for the Operating Partnership as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 ($ in thousands, except per unit amounts):



|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | -------- | - | ---------- | -------- |  | - | ---------- | - |  | -------- | ---------- | - |  | - | ---------- | -
|                                                                                                                           |  | Year Ended December 31, |           
|                                                                                                                           |  | 2003 (1)                |            |   | 2002 (1) |   |            | 2001 (1) |  |   | 2000 (1)   |   |  | 1999 (1) |           
|Rental revenue                                                                                                             |  | $                       | 421,816    |   |          | $ | 432,967    |          |  | $ | 449,786    |   |  | $        | 490,230    |   |  | $ | 528,517    |  
|Operating expenses:                                                                                                        |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Rental property                                                                                                            |  |                         | 146,870    |   |          |   | 136,985    |          |  |   | 138,938    |   |  |          | 143,077    |   |  |   | 163,828    |  
|Depreciation and amortization                                                                                              |  |                         | 129,195    |   |          |   | 121,746    |          |  |   | 109,093    |   |  |          | 108,900    |   |  |   | 105,562    |  
|General and administrative (includes $3,700 non - recurring compensation and management fee expense in 2002)               |  |                         | 24,187     |   |          |   | 23,644     |          |  |   | 21,086     |   |  |          | 23,069     |   |  |   | 22,338     |  
|Litigation expense                                                                                                         |  |                         |           |   |          |   | 2,700      |          |  |   |           |   |  |          |           |   |  |   |           |  
|Cost of unsuccessful transactions                                                                                          |  |                         |           |   |          |   |           |          |  |   |           |   |  |          |           |   |  |   | 1,500      |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Total operating expense                                                                                                    |  |                         | 300,252    |   |          |   | 285,075    |          |  |   | 269,117    |   |  |          | 275,046    |   |  |   | 293,228    |  
|Interest expense                                                                                                           |  |                         | 113,910    |   |          |   | 110,275    |          |  |   | 105,187    |   |  |          | 113,527    |   |  |   | 118,726    |  
|Interest and other income                                                                                                  |  |                         | 16,071     |   |          |   | 20,751     |          |  |   | 30,167     |   |  |          | 19,908     |   |  |   | 16,631     |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Income before gain on disposition of land and disposition and impairment of depreciable assets and discontinued
operations |  |                         | 23,725     |   |          |   | 58,368     |          |  |   | 105,649    |   |  |          | 121,565    |   |  |   | 133,194    |  
|Gain on disposition of land and disposition and impairment of depreciable assets, net                                      |  |                         | 3,776      |   |          |   | 11,399     |          |  |   | 16,197     |   |  |          | 4,657      |   |  |   | 7,997      |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Income from continuing operations                                                                                          |  |                         | 27,501     |   |          |   | 69,767     |          |  |   | 121,846    |   |  |          | 126,222    |   |  |   | 141,191    |  
|Discontinued operations                                                                                                    |  |                         | 35,302     |   |          |   | 38,197     |          |  |   | 28,407     |   |  |          | 27,483     |   |  |   | 18,394     |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net income                                                                                                                 |  |                         | 62,803     |   |          |   | 107,964    |          |  |   | 150,253    |   |  |          | 153,705    |   |  |   | 159,585    |  
|Distributions on preferred units                                                                                           |  |                         | (30,852    | ) |          |   | (30,852    | )        |  |   | (31,500    | ) |  |          | (32,580    | ) |  |   | (32,580    | )
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net income available for common unitholders                                                                                |  | $                       | 31,951     |   |          | $ | 77,112     |          |  | $ | 118,753    |   |  | $        | 121,125    |   |  | $ | 127,005    |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net income/(loss) per common unit  basic:                                                                                 |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Income/(loss) from continuing operations                                                                                   |  | $                       | (0.05      | ) |          | $ | 0.65       |          |  | $ | 1.47       |   |  | $        | 1.40       |   |  | $ | 1.55       |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net income                                                                                                                 |  | $                       | 0.54       |   |          | $ | 1.29       |          |  | $ | 1.93       |   |  | $        | 1.81       |   |  | $ | 1.81       |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net income/(loss) per common unit  diluted:                                                                               |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Income/(loss) from continuing operations                                                                                   |  | $                       | (0.05      | ) |          | $ | 0.65       |          |  | $ | 1.46       |   |  | $        | 1.39       |   |  | $ | 1.55       |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net income                                                                                                                 |  | $                       | 0.54       |   |          | $ | 1.28       |          |  | $ | 1.92       |   |  | $        | 1.80       |   |  | $ | 1.81       |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Distributions declared per common unit                                                                                     |  | $                       | 1.86       |   |          | $ | 2.34       |          |  | $ | 2.31       |   |  | $        | 2.25       |   |  | $ | 2.19       |  
|                                                                                                                           |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Balance Sheet Data:                                                                                                        |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Net real estate assets                                                                                                     |  | $                       | 2,979,289  |   |          | $ | 2,961,302  |          |  | $ | 3,190,341  |   |  | $        | 3,039,016  |   |  | $ | 3,584,571  |  
|Total assets                                                                                                               |  | $                       | 3,311,191  |   |          | $ | 3,345,054  |          |  | $ | 3,588,555  |   |  | $        | 3,661,037  |   |  | $ | 3,972,079  |  
|Total mortgages and notes payable                                                                                          |  | $                       | 1,549,758  |   |          | $ | 1,489,220  |          |  | $ | 1,672,230  |   |  | $        | 1,568,019  |   |  | $ | 1,719,117  |  
|Redeemable operating partnership units                                                                                     |  | $                       | 524,043    |   |          | $ | 520,633    |          |  | $ | 556,975    |   |  | $        | 579,683    |   |  | $ | 597,780    |  
|                                                                                                                           |  |                         |            |   |         
|Other Data:                                                                                                                |  |                         |            |   |          |   |            |          |  |   |            |   |  |          |            |   |  |   |            |  
|Cash flows provided by operating activities                                                                                |  | $                       | 154,275    |   |          | $ | 202,630    |          |  | $ | 248,366    |   |  | $        | 253,247    |   |  | $ | 227,102    |  
|Cash flows provided by/(used in) investing activities                                                                      |  | $                       | 33,249     |   |          | $ | 186,353    |          |  | $ | (110,801   | ) |  | $        | 251,599    |   |  | $ | 153,986    |  
|Cash flows used in financing activities                                                                                    |  | $                       | (179,912   | ) |          | $ | (379,047   | )        |  | $ | (239,257   | ) |  | $        | (436,275   | ) |  | $ | (377,869   | )
|Funds from operations (2)                                                                                                  |  | $                       | 150,071    |   |          | $ | 185,065    |          |  | $ | 233,249    |   |  | $        | 244,095    |   |  | $ | 234,948    |  
|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 Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) which requires assets classified
as held for sale or sold as a result of disposal activities initiated subsequent to January 1, 2002 to be reported as discontinued operations. Thus, in all periods presented above, we have reclassified the operations and/or gain/(loss) from disposal
of those properties to discontinued operations and those long-lived assets sold or held for sale as result of disposal activities initiated prior to January 1, 2002 remain classified within continuing operations.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We believe that funds from operations (FFO) is one of several indicators of the performance of an equity REIT. FFO can facilitate comparisons of operating performance
between periods and between other REITs because it excludes factors, such as depreciation, amortization and gains and losses from sales of real estate assets, which are based on historical cost and may be of limited relevance in evaluating current
performance. FFO as disclosed by other REITs may not be comparable to our calculation of FFO. FFO is a non-GAAP financial measure and does not represent net income or cash flows from operating, investing or financing activities as defined by GAAP.
It should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. For a reconciliation of FFO to net income, see Managements Discussion and Analysis of
Financial Condition and Results of OperationsFunds from Operations and Cash Available for Distribution.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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 Annual Report on Form 10-K.



DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS



Some of the information in this 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 Annual Report.



Given these uncertainties, we caution you not to 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 general partner, the Company, a self-administered 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. We also own 1,305 acres of development land which is suitable to develop approximately 14.03 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.



17



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##### Table of Contents

Results of Operations



During 2003, approximately 82.3% of our rental revenue was derived from our office properties (See Note 1 to our Consolidated Financial Statements for
further discussion on the accounting for our rental revenue). 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 rate per square foot on a GAAP basis on new leases was only 0.7% lower than the average rate per square foot on the expired leases. A further indicator of the
predictability of future revenues is the expected lease expirations of our portfolio. Our average suburban office lease term, excluding renewal periods is 4.5 years. In 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 14.7% of our annualized revenue. As of February 19, 2004, we have renewed or signed new leases aggregating 1.5 million square feet of space with 2004 start
dates, or 32.0% of the square footage expiring during 2004. 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.



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, and generally remain relatively consistent
from period to period and have ranged from 5.6% to 6.0% of our total expenses over the past few years. Rental property expenses are expenses associated with our ownership and operating 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.



Under Generally Accepted Accounting Principles (GAAP), certain expenses related to the development, construction
and leasing of properties, such as construction costs, interest costs, real estate taxes, salaries and other costs relating to such activities, are capitalized rather than expensed as incurred. As a result, during times of increased development,
construction and successful leasing activity, certain of our general and administrative expenses may actually be lower because some fixed overhead costs are properly capitalized, and then amortized over the lives of various projects rather than
expensed during the period incurred.



We also record income
from our investments in unconsolidated affiliates, which are our joint ventures. These joint ventures are not consolidated on our balance sheet. We record in equity in earnings of unconsolidated affiliates our proportionate share of the
joint ventures net income or loss as part of other income. During 2003, income earned from our joint ventures accounted for approximately 7.1% of our total net income.



Additionally, SFAS 144 requires us to record net income received from properties sold or held for sale separately as
income from discontinued operations. As a result, we separately record revenues and expenses from these properties. During 2003, income, including gains and losses from the sale of properties, from discontinued operations accounted for
approximately 56.2% of our total net income.



18



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##### Table of Contents

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 space for the customer. 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 than reletting to a new customer. 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
the Companys stockholder dividends. To fund property acquisitions, development activity or building renovations, we incur debt from time to time. As of December 31, 2003, we had approximately $823.8 million of secured debt outstanding and
$726.0 million of unsecured debt outstanding. Our debt consists of mortgage debt, unsecured debt securities and borrowings under our revolving loan. As of March 3, 2004, we have $133.4 million of additional borrowing availability under our revolving
loan. As of the date of this filing, our short-term cash needs include the funding of $28.8 million in development activity and $13.1 million in principal payments due on our long-term debt in the next year.



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.



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, 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.



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 of our ability to generally incur debt at a lower cost. We currently have an effective shelf registration statement with the SEC pursuant to which the Company could sell up to $900.0 million of common stock and the
Operating Partnership could sell up to $600.0 million of unsecured debt securities.



Managements Analysis



In measuring,
analyzing and comparing our operating performance, we use a number of different criteria, including GAAP financial measures, such as net income, and non-GAAP financial measures, such as funds from operations (FFO). FFO does not represent
net income or cash flows from operating, investing or financing activities as defined by GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. See
Funds From Operations and Cash Available for Distributions. However, we believe that FFO is one of several indicators of the performance of an equity REIT. FFO can facilitate comparisons of operating performance between periods and
between other REITs because it excludes factors, such as depreciation, amortization and gains and losses from sales of real estate assets, which are based on historical cost and may be of limited relevance in evaluating current performance. FFO as
disclosed by other REITs may not be comparable to our calculation of FFO.



In measuring, analyzing and comparing our financial condition, management uses a number of other criteria, such as total debt as a percentage of total market capitalization, the weighted average interest rate of our
secured and unsecured debt, our borrowing capacity and cash available for distributions (CAD). CAD provides us with an additional basis to evaluate our ability to incur and service debt, fund acquisitions, leasing and other capital
expenditures and pay the Companys dividends to unitholders. CAD, which is a non-GAAP financial measure, does not represent net income or cash flows from operating, investing or financing activities as defined by GAAP. See Funds From
Operations and Cash Available for Distribution.



19



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##### Table of Contents

RESULTS OF OPERATIONS



On January 1, 2002, we adopted Financial Accounting Standards Board Statement
No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets, (SFAS 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 properties were either sold during 2003 and 2002 or were held for sale at December 31, 2003 and met certain conditions as stipulated by SFAS 144. 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.



Comparison of 2003 to 2002



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



|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|------------------------------------------------------------------------------------------------------ |  | ----------------------- | ----- | - | -------------------- | - | ----- | ---------- |  | - | ----- | - |  | ------ | --
|                                                                                                       |  | Year Ended December 31, |       |   | 2003 to2002 $ Change |   |       | % ofChange | 
|                                                                                                       |  | 2003                    |       |   | 2002                 |   |       |           
|Rental revenue                                                                                         |  | $                       | 421.8 |   |                      | $ | 433.0 |            |  | $ | (11.2 | ) |  | (2.6   | )%
|Operating expenses:                                                                                    |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Rental property                                                                                        |  |                         | 146.8 |   |                      |   | 137.0 |            |  |   | 9.8   |   |  | 7.2    |   
|Depreciation and amortization                                                                          |  |                         | 129.2 |   |                      |   | 121.7 |            |  |   | 7.5   |   |  | 6.2    |   
|General and administrative (includes $3.7 nonrecurringcompensation and management fee expense in 2002) |  |                         | 24.2  |   |                      |   | 23.7  |            |  |   | 0.5   |   |  | 2.1    |   
|Litigation expense                                                                                     |  |                         |      |   |                      |   | 2.7   |            |  |   | (2.7  | ) |  | (100.0 | ) 
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Total operating expenses                                                                               |  |                         | 300.2 |   |                      |   | 285.1 |            |  |   | 15.1  |   |  | 5.3    |   
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Interest expense:                                                                                      |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Contractual                                                                                            |  |                         | 110.8 |   |                      |   | 108.9 |            |  |   | 1.9   |   |  | 1.7    |   
|Amortization of deferred financing costs                                                               |  |                         | 3.1   |   |                      |   | 1.4   |            |  |   | 1.7   |   |  | 121.4  |   
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|                                                                                                       |  |                         | 113.9 |   |                      |   | 110.3 |            |  |   | 3.6   |   |  | 3.3    |   
|Other income:                                                                                          |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Interest and other income                                                                              |  |                         | 11.6  |   |                      |   | 13.1  |            |  |   | (1.5  | ) |  | (11.5  | ) 
|Equity in earnings of unconsolidated affiliates                                                        |  |                         | 4.5   |   |                      |   | 7.7   |            |  |   | (3.2  | ) |  | (41.6  | ) 
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|                                                                                                       |  |                         | 16.1  |   |                      |   | 20.8  |            |  |   | (4.7  | ) |  | (22.6  | ) 
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Income before gain on disposition of land and depreciable assets and discontinued operations           |  |                         | 23.8  |   |                      |   | 58.4  |            |  |   | (34.6 | ) |  | (59.2  | ) 
|Gain on disposition of land                                                                            |  |                         | 3.7   |   |                      |   | 6.9   |            |  |   | (3.2  | ) |  | (46.4  | ) 
|Gain on disposition of depreciable assets                                                              |  |                         |      |   |                      |   | 4.5   |            |  |   | (4.5  | ) |  | (100.0 | ) 
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|                                                                                                       |  |                         | 3.7   |   |                      |   | 11.4  |            |  |   | (7.7  | ) |  | (67.5  | ) 
|Income from continuing operations                                                                      |  |                         | 27.5  |   |                      |   | 69.8  |            |  |   | (42.3 | ) |  | (60.6  | ) 
|Discontinued operations:                                                                               |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Income from discontinued operations                                                                    |  |                         | 16.3  |   |                      |   | 25.1  |            |  |   | (8.8  | ) |  | (35.1  | ) 
|Gain on sale of discontinued operations                                                                |  |                         | 19.0  |   |                      |   | 13.1  |            |  |   | 5.9   |   |  | 45.0   |   
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|                                                                                                       |  |                         | 35.3  |   |                      |   | 38.2  |            |  |   | (2.9  | ) |  | (7.6   | ) 
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Net income                                                                                             |  |                         | 62.8  |   |                      |   | 108.0 |            |  |   | (45.2 | ) |  | (41.9  | ) 
|Distributions on preferred units                                                                       |  |                         | (30.9 | ) |                      |   | (30.9 | )          |  |   |      |   |  |       |   
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   
|Net income available for Class A common unitholders                                                    |  | $                       | 31.9  |   |                      | $ | 77.1  |            |  | $ | (45.2 | ) |  | (58.6  | )%
|                                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |        |   



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Rental Revenue



The decrease in rental revenue from continuing operations was primarily a result of a decrease in average occupancy rates from 85.9% for the year ended
December 31, 2002 to 81.5% for the year ended December 31, 2003. The decrease in average occupancy rates was primarily a result of the bankruptcies of WorldCom and US Airways, which decreased average occupancy rates by 2.8% and rental revenue from
continuing operations by $15.4 million. Same property rental revenue decreased by $12.0 million. (See below for additional discussion on same property rental revenue). Partly offsetting these decreases, during 2002, approximately 2.0 million square
feet of development properties were placed in-service and, as a result, increased rental revenues from continuing operations by approximately $8.6 million. In addition, the acquisition of certain MG-HIW, LLC assets in July 2003 have increased rental
revenues by $8.7 million. (See Note 3 to the Consolidated Financial Statements for further discussion). Recovery income from certain operating expenses have decreased in the year ended December 31, 2003 due to lower occupancy.



Same property rental revenue generated from the 31.4 million square feet of
our 426 wholly-owned in-service properties that were owned throughout the period from January 1, 2002 to December 31, 2003, decreased $27.4 million, or 6.4%, for the year ended December 31, 2003 compared to the year ended December 31, 2002. This
decrease is primarily a result of lower same property average occupancy, which decreased from 88.0% in 2002 to 84.2% in 2003. The decrease in same property average occupancy was primarily a result of the bankruptcies of WorldCom and US Airways,
which decreased same property average occupancy rates by 2.9% and same property rental revenue from continuing operations by $15.4 million.



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. 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 only 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 a few of our markets and an improving economic climate in the Southeast. However, we expect a lag between positive employment growth and positive absorption of office space due to the significant amount of vacancies,
under-utilized space and space available for sublease in our markets.



We anticipate that occupancy in our in-service portfolio will decrease slightly in the first half of 2004 and increase slightly in the second half of 2004. This outlook is based on the level of leasing activity we have experienced over the
past 12 months, which we expect to continue through 2004, our expected renewal rates and other factors. In 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 14.7% of our annualized revenue. As of February 19, 2004, we have renewed or signed new leases aggregating 1.5 million square feet of space with 2004 start dates, or 32.0% of the square footage expiring during 2004.
Because of an oversupply of office space in many of our southeastern markets, we continue to expect straight-line rents under new leases to be lower than the straight-line rents under the expiring leases. As noted above, during 2003, the average
rate per square foot on a GAAP basis on new leases was only 0.7% lower than the average rate per square foot on the expired leases.



Operating Expenses



The increase in rental operating expenses from continuing operations (real estate taxes, utilities, insurance, repairs and maintenance and other
property-related expenses) was a result of an increase in certain fixed operating expenses that do not vary with net changes in our occupancy percentages, such as real estate taxes, insurance and utility rate changes, and an increase in operating
expenses which resulted from the acquisition of certain MG-HIW assets in July 2003. In addition, we had 2.0 million square feet of development properties placed in service during 2002 which resulted in an increase in rental operating expenses from
continuing operations.



Rental operating expenses as a
percentage of rental revenue increased from 31.6% for the year ended December 31, 2002 to 34.8% for the year ended December 31, 2003. The increase was a result of the increases in rental operating expenses as described above and a decrease in rental
revenue, primarily due to lower average occupancy, as described above.



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Same property rental operating expenses, which are the expenses related to the wholly-owned in-service
properties that were owned throughout the period from January 1, 2002 to December 31, 2003, increased $1.0 million, or 1.0%, for the year ended December 31, 2003, compared to the year ended December 31, 2002. The increase was a result of increases
in certain fixed operating expenses that do not vary with net changes in our occupancy percentages, such as real estate taxes, insurance and utility rate changes.



Same property rental operating expenses as a percentage of related revenue increased from 31.9% for the year ended December
31, 2002 to 34.3% for the year ended December 31, 2003. The increase in these expenses as a percentage of related revenue was a result of the increase in same property rental operating expenses as described above and a decrease in same property
rental revenue, primarily due to the bankruptcies of WorldCom and US Airways, as previously discussed. In addition, operating expenses of $0.6 million that would have been paid by WorldCom if the leases were not rejected were paid by us and included
in same property operating expenses during the year ended December 31, 2003.



We expect property 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 related to buildings, leasing commissions and tenant improvement expenditures for properties placed in-service during 2002 and the write-off of deferred leasing costs and tenant improvements for customers who
vacated their space prior to lease expiration. In addition, the increase resulted from the acquisition of certain MG-HIW assets in July 2003 and depreciation and amortization on 2.0 million rentable square feet of development properties placed in
service during 2002.



General and administrative expenses from
continuing operations, net of amounts capitalized, as a percentage of the aggregate of rental revenues, and interest and other income for both continuing and discontinued operations and equity in earnings of unconsolidated affiliates, was 5.2% for
the year ended December 31, 2003 and 4.7% for the year ended December 31, 2002. The increase was primarily attributable to a decrease of capitalization of general and administrative costs due to the decrease in development and leasing activity in
2003 and an increase in long-term incentive compensation expense as a result of the issuance of restricted and phantom stock during 2002 and 2003. In 2003, general and administrative expenses also included higher expenses related to employee
compensation. In addition, rental revenue and interest and other income decreased for the year ended December 31, 2003 as compared to the year ended December 31, 2002. Partly offsetting these increases was a $3.7 million non-recurring compensation
and management fee expense in 2002.



We incurred $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 settled by early 2003.



In 2004, general and administrative expenses are expected to increase due to
inflationary increases in compensation, benefits and other expenses related to the implementation of the Sarbanes-Oxley Act.



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. Partly offsetting this increase was a decrease in the average outstanding debt balance of $39.6 million from 2002 to 2003
and a decrease in average interest rates from 7.1% in 2002 to 6.9% in 2003. Interest expense for the years ended December 31, 2003 and 2002 included $3.1 million and $1.4 million, respectively, of amortization of deferred financing costs. The
increase of $1.7 million was primarily a result of financing costs incurred in connection with the refinancing of the MandatOry Par Put Remarketed Securities (MOPPRS). See Liquidity and Capital Resources for further
discussion on the refinancing.



Interest expense is expected to
decline in 2004 primarily due to the December 1, 2003 refinancing of certain long term debt (see  Liquidity and Capital Resources for further discussion of this refinancing), offset by any increases in average debt balances
resulting from acquisitions or other activities.



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Interest and Other Income



The decrease in interest and other income is primarily related to the collection of a legal settlement recorded in the year
ended December 31, 2002 related to previously completed mergers and acquisitions along with a decrease in interest income due to lower interest rates earned on cash reserves. Leasing fee income and development fee income decreased in the year ended
December 31, 2003 due to lower demand for real estate slightly offset by an increase in management fee income due to the Operating Partnership retaining the management of some of our properties that were sold to third parties or contributed to joint
ventures during the years ended December 31, 2002 and 2003.



The decrease in equity in earnings from continuing operations of unconsolidated affiliates was primarily a result of a charge of $2.4 million, which represents our proportionate share of the impairment loss of $12.1 million recorded by the
MG-HIW, LLC joint venture in the year ended December 31, 2003, related to our acquisition of the assets of the MG-HIW, LLC joint venture and lower occupancy in 2003 for certain joint ventures. Partly offsetting these decreases was an increase of
$0.5 million in equity in earnings in 2003 related to a charge of $0.3 million taken in 2002 due to an early extinguishment of debt loss taken by a certain joint venture 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.



Gain on Disposition of Land and Depreciable Assets



In 2003, the majority of the gain was comprised of a $3.2 million gain related to the disposition of 108.5 acres of land and a gain of approximately $1.0 million related to the condemnation of 4.0 acres of land.
Partly offsetting these gains was an impairment loss of $0.5 million related to three land parcels held for sale at December 31, 2003. In 2002, the majority of the gain was comprised of a $15.6 million 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 as described in Note 12 of the Consolidated Financial Statements, and a $6.9 million gain related to the disposition of 112.7 acres of
land. The gains were partly offset by an impairment loss of approximately $9.1 million recorded in 2002 related to a property that has been demolished and will be redeveloped into a class A suburban office property.



Discontinued Operations



In accordance with SFAS 144, we classified net income of $16.3 million and
$25.1 million as discontinued operations for the year ended December 31, 2003 and 2002, respectively. These amounts pertained to 5.5 million square feet of property and 7.8 acres of revenue-producing land sold during 2002 and 2003 and 438,073 square
feet of property and 88 apartment units held for sale at December 31, 2003. We also classified as discontinued operations gain on the sale of these properties of $19.3 million and $17.2 million in 2003 and 2002, respectively. Partly offsetting these
gains were impairment charges of $0.3 million and $4.1 million in 2003 and 2002, respectively. In addition, in accordance with SFAS 66, Accounting for Sales of Real Estate, we deferred the recognition of an additional gain of $6.9
million relating to the disposition to a third party buyer of 225,220 square feet during the fourth quarter of 2002 for which we guaranteed the buyer up to $20.5 million of rental shortfalls or re-tenanting costs. Additionally, in 2003 we have
deferred the recognition of additional gain of $6.8 million relating to the dispositions to third party buyers of approximately 2.3 million rentable square feet for which we have guaranteed the buyers certain rental shortfalls and re-tenanting
costs. (See Note 15 of the Consolidated Financial Statements for further discussion).



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 $62.8 million, which was a 41.9% decrease from net income of $108.0 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
disposition of certain 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. 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, and higher general and administrative costs, offset by lower
interest expense.



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Comparison of 2002 to 2001



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



|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | -------------------- | - | ----- | ---------- |  | - | ----- | - |  | ----- | --
|                                                                                                        |  | Year Ended December 31, |       |   | 2002 to 2001$ Change |   |       | % ofChange | 
|                                                                                                        |  | 2002                    |       |   | 2001                 |   |       |           
|Rental revenue                                                                                          |  | $                       | 433.0 |   |                      | $ | 449.8 |            |  | $ | (16.8 | ) |  | (3.7  | )%
|Operating expenses:                                                                                     |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Rental property                                                                                         |  |                         | 137.0 |   |                      |   | 138.9 |            |  |   | (1.9  | ) |  | (1.4  | ) 
|Depreciation and amortization                                                                           |  |                         | 121.7 |   |                      |   | 109.1 |            |  |   | 12.6  |   |  | 11.5  |   
|General and administrative (includes $3.7 nonrecurring compensation and management fee expense in 2002) |  |                         | 23.7  |   |                      |   | 21.1  |            |  |   | 2.6   |   |  | 12.3  |   
|Litigation expense                                                                                      |  |                         | 2.7   |   |                      |   |      |            |  |   | 2.7   |   |  | 100.0 |   
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Total operating expenses                                                                                |  |                         | 285.1 |   |                      |   | 269.1 |            |  |   | 16.0  |   |  | 5.9   |   
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Interest expense:                                                                                       |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Contractual                                                                                             |  |                         | 108.9 |   |                      |   | 103.2 |            |  |   | 5.7   |   |  | 5.5   |   
|Amortization of deferred financing costs                                                                |  |                         | 1.4   |   |                      |   | 2.0   |            |  |   | (0.6  | ) |  | (30.0 | ) 
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|                                                                                                        |  |                         | 110.3 |   |                      |   | 105.2 |            |  |   | 5.1   |   |  | 4.8   |   
|Other income:                                                                                           |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Interest and other income                                                                               |  |                         | 13.1  |   |                      |   | 21.9  |            |  |   | (8.8  | ) |  | (40.2 | ) 
|Equity in earnings of unconsolidated affiliates                                                         |  |                         | 7.7   |   |                      |   | 8.3   |            |  |   | (0.6  | ) |  | (7.2  | ) 
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|                                                                                                        |  |                         | 20.8  |   |                      |   | 30.2  |            |  |   | (9.4  | ) |  | (31.1 | ) 
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Income before gain on disposition of land and depreciable assets and discontinued operations            |  |                         | 58.4  |   |                      |   | 105.7 |            |  |   | (47.3 | ) |  | (44.7 | ) 
|Gain on disposition of land                                                                             |  |                         | 6.9   |   |                      |   | 4.7   |            |  |   | 2.2   |   |  | 46.8  |   
|Gain on disposition of depreciable assets                                                               |  |                         | 4.5   |   |                      |   | 11.5  |            |  |   | (7.0  | ) |  | (60.9 | ) 
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|                                                                                                        |  |                         | 11.4  |   |                      |   | 16.2  |            |  |   | (4.8  | ) |  | (29.6 | ) 
|Income from continuing operations                                                                       |  |                         | 69.8  |   |                      |   | 121.9 |            |  |   | (52.1 | ) |  | (42.7 | ) 
|Discontinued operations:                                                                                |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Income from discontinued operations                                                                     |  |                         | 25.1  |   |                      |   | 28.4  |            |  |   | (3.3  | ) |  | (11.6 | ) 
|Gain on sale of discontinued operations                                                                 |  |                         | 13.1  |   |                      |   |      |            |  |   | 13.1  |   |  | 100.0 |   
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|                                                                                                        |  |                         | 38.2  |   |                      |   | 28.4  |            |  |   | 9.8   |   |  | 34.5  |   
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Net income                                                                                              |  |                         | 108.0 |   |                      |   | 150.3 |            |  |   | (42.3 | ) |  | (28.1 | ) 
|Distributions on preferred units                                                                        |  |                         | (30.9 | ) |                      |   | (31.5 | )          |  |   | 0.6   |   |  | 1.9   |   
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   
|Net income available for Class A common unitholders                                                     |  | $                       | 77.1  |   |                      | $ | 118.8 |            |  | $ | (41.7 | ) |  | (35.1 | )%
|                                                                                                        |  |                         |       |   |                      |   |       |            |  |   |       |   |  |       |   



Rental Revenue



The decrease in rental revenue from continuing
operations was primarily due to a decrease in average occupancy rates from 91.6% for the year ended December 31, 2001 to 85.9% for the year ended December 31, 2002. The average occupancy decreased mainly 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 which have leased-up slower than expected and as a result, have also adversely affected the occupancy of our overall portfolio. Rental revenue also decreased due to the impact of dispositions during 2002 and 2001 that were not
classified as discontinued operations as more fully described in Note 12 of our Consolidated Financial Statements.



In addition, as a result of the bankruptcy of WorldCom and its affiliates, we wrote off approximately $3.1 million of accrued straight-line rent
receivable in the year ended December 31, 2002.



Same property
rental revenue, generated from the 33.6 million square feet of 460 wholly-owned in-service properties that were owned throughout the period from January 1, 2001 to December 31, 2002, decreased $20.2 million for the year ended December 31, 2002
compared to the year ended December 31, 2001. This decrease is primarily a result of lower same store average occupancy, which decreased from 93.0% in 2001 to 88.0% in 2002, and a decrease in straight-line rental income primarily as a result of the
bankruptcy of WorldCom and its affiliates.



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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 which was 5.5% lower than the average rate per square foot on the expired leases.



Operating Expenses



Rental operating expenses from continuing operations (real estate taxes, utilities, insurance, repairs and maintenance and other property-related
expenses) as a percentage of rental revenue increased from 30.9% for the year ended December 31, 2001 to 31.6% for the year ended December 31, 2002. The increase in these expenses as a percentage of revenue was a result of increases in repairs and
maintenance and certain fixed operating expenses such as real estate taxes that do not vary with net changes in our occupancy average.



Same property rental operating expenses of the in-service properties wholly-owned that were owned throughout the period from January 1, 2001 to December
31, 2002, decreased $0.2 million or 0.2%, for the year ended December 31, 2002, compared to the year ended December 31, 2001. Same property rental operating expenses as a percentage of related revenue increased 1.4% from 30.4% for the year ended
December 31, 2001 to 31.8% for the year ended December 31, 2002. The increase as a percentage of revenue was a result of increases in repairs and maintenance and certain fixed operating expenses such as real estate taxes that do not vary with net
changes in our occupancy average.



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 in accordance with SFAS 144.



General and
administrative expenses from continuing operations, net of amounts capitalized, as a percentage of the aggregate of rental revenues, interest and other income for both continuing and discontinued operations and equity in earnings of unconsolidated
affiliates was 4.7% in 2002 and 3.9% in 2001. Included in general and administrative expenses in 2002 was a nonrecurring compensation charge and management fee of $3.7 million related to the exercise of options. 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). We no longer settle option exercises in a manner which would require
recognition of compensation expense under FASB Interpretation No. 44. In the event we decide to repurchase shares after an option exercise, we will require the option holder to pay the cash for the strike price and then separately repurchase a
corresponding number of shares in the market under our stock repurchase program.



We incurred $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 settled in early
2003.



Interest Expense



Capitalized interest decreased from $16.9 million for the year ended
December 31, 2001 to $7.0 million for the year ended December 31, 2002, resulting in an increase in interest expense from continuing operations in 2002. Partly offsetting this increase was a decrease in average interest rates from 7.2% in 2001 to
7.0% in 2002. The average outstanding debt balance remained relatively consistent for 2002 and 2001. Interest expense for the years ended December 31, 2002 and 2001 included $1.4 million and $2.0 million, respectively, of amortization of deferred
financing costs and costs related to our interest rate hedge contracts.



Interest and Other Income



The decrease
in interest and other income from continuing operations primarily resulted from a decrease in leasing and development fee income in the year ended December 31, 2002 and a decrease in interest income in the year ended December 31, 2002 due to the
collection of notes receivable during 2001 and 2002.



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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.



Gain on
Disposition of Land and Depreciable Assets



In 2002,
the majority of the gain was comprised of a 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 as described in Note 12 of the Consolidated
Financial Statements and a gain related to the disposition of 112.7 acres of land. The gain is partly offset by an impairment loss of approximately $9.1 million recorded in 2002 related to a property that has been demolished and will be redeveloped
into a class A suburban office property. In 2001, the majority of the gain was comprised of a gain related to the disposition of 1,672 apartment units and a gain related to the disposition of 180.3 acres of land.



Discontinued Operations



In accordance with SFAS 144, we classified net income of $25.1 million and
$28.4 million as discontinued operations for the years ended December 31, 2002 and 2001, respectively, which pertained to 5.5 million square feet of property and 7.8 acres of revenue-producing land sold during 2002 and 2003 and 438,073 square feet
of property and 88 apartment units held for sale at December 31, 2003. We also classified as discontinued operations in 2002 the gain on the sale of these properties of $17.2 million partly offset by impairment charges of $4.1 million. In addition,
in accordance with SFAS 66, Accounting for Sales of Real Estate, we deferred the recognition of additional gain of $6.9 million relating to the disposition to a third party buyer of 225,220 square feet during the fourth quarter of 2002
for which we guaranteed the buyer up to $20.5 million of rental shortfalls or re-tenanting costs. (See Note 15 of the Consolidated Financial Statements for further discussion).



Preferred Unit Distributions



We recorded $30.9 million and $31.5 million in preferred unit distributions for each of the years ended December 31, 2002 and 2001, respectively. The
decrease resulted from the Operating Partnerships repurchase of $18.5 million of its preferred units during 2001.



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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 cash flows from 2002 to 2003 ($ in thousands):



|                                      |  |                         |          |   |      |   |          |        |  |   |          |  
|------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ------ |  | - | -------- | -
|                                      |  | Year Ended December 31, |          |   |      |  
|                                      |  | 2003                    |          |   | 2002 |   |          | Change | 
|Cash Provided By Operating Activities |  | $                       | 154,275  |   |      | $ | 202,630  |        |  | $ | (48,355  | )
|Cash Provided By Investing Activities |  |                         | 33,249   |   |      |   | 186,353  |        |  |   | (153,104 | )
|Cash Used in Financing Activities     |  |                         | (179,912 | ) |      |   | (379,047 | )      |  |   | 199,135  |  
|                                      |  |                         |          |   |      |   |          |        |  |   |          |  
|Total Cash Flows                      |  | $                       | 7,612    |   |      | $ | 9,936    |        |  | $ | (2,324   | )
|                                      |  |                         |          |   |      |   |          |        |  |   |          |  



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, disposition and joint venture activity. During periods
of significant net acquisition 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 $48.4 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 $153.1 million in cash provided by investing activities was primarily a result of a decrease in proceeds from dispositions of real estate assets of approximately $77.0 million and an increase in
additions to real estate assets of approximately $71.2 million.



The decrease of $199.1 million in cash used in financing activities was primarily a result of a decrease of $184.4 million in net repayments on the unsecured revolving loan, mortgages and notes payable, a decrease of $29.4 million in
distributions paid on Common Units and the settlement of an interest rate swap agreement for $3.9 million. Partly offsetting these decreases was an increase of $14.2 million in the repurchase of common units 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 438,073 square feet of office properties, 88 apartment units and 168.1 acres of land
under letter of intent or 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 during
2004. However, we can provide no assurance that these transactions will be consummated.



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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 and capitalized leasing and improvement costs. Any positive cash flows from investing activities in 2004
are expected to be used to pay unitholder distributions, required debt amortization, and recurring capital expenditures.



Capitalization



Our total indebtedness at December 31, 2003 was approximately $1.5 billion and was comprised of $823.8 million of secured indebtedness with a weighted
average interest rate of 6.9% and $726.0 million of unsecured indebtedness with a weighted average interest rate of 6.2%. As of December 31, 2003, our outstanding mortgage and loans payable and the secured revolving loan were secured by real estate
assets with an aggregate carrying value of approximately $1.4 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.



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##### Table of Contents

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                                            |  | $     | 100,000   |                                             | $ |        |  | $    |        |      | $ |        |  | $          |       |  | $ |        |  | $ | 100,000
|Notes                                                       |  |       | 460,000   |                                             |   |        |  |      |        |      |   | 110,000 |  |            |       |  |   | 100,000 |  |   | 250,000
|Secured:                                                    |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Mortgage Loans Payable (2)                                  |  |       | 755,049   |                                             |   | 12,871  |  |      | 81,447  |      |   | 19,362  |  |            | 79,385 |  |   | 13,965  |  |   | 548,019
|                                                            |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total Fixed Rate Debt                                       |  |       | 1,315,049 |                                             |   | 12,871  |  |      | 81,447  |      |   | 129,362 |  |            | 79,385 |  |   | 113,965 |  |   | 898,019
|                                                            |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Variable Rate Debt:                                         |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Unsecured:                                                  |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Term Loans                                                  |  |       | 120,000   |                                             |   |        |  |      | 120,000 |      |   |        |  |            |       |  |   |        |  |   |       
|Revolving Loan                                              |  |       | 46,000    |                                             |   |        |  |      |        |      |   | 46,000  |  |            |       |  |   |        |  |   |       
|Secured:                                                    |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Mortgage Loans Payable (2)                                  |  |       | 68,709    |                                             |   | 235     |  |      | 279     |      |   | 64,968  |  |            | 3,227  |  |   |        |  |   |       
|                                                            |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total Variable Rate Debt                                    |  |       | 234,709   |                                             |   | 235     |  |      | 120,279 |      |   | 110,968 |  |            | 3,227  |  |   |        |  |   |       
|                                                            |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total Long Term Debt                                        |  |       | 1,549,758 |                                             |   | 13,106  |  |      | 201,726 |      |   | 240,330 |  |            | 82,612 |  |   | 113,965 |  |   | 898,019
|                                                            |  |       |           |                                             |   |         | 
|Operating Lease Obligations:                                |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Land Lease (3)                                              |  |       | 48,909    |                                             |   | 1,269   |  |      | 1,273   |      |   | 1,213   |  |            | 1,194  |  |   | 1,194   |  |   | 42,766 
|Purchase Obligations:                                       |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|MG-HIW, LLC (4)                                             |  |       | 62,500    |                                             |   | 62,500  |  |      |        |      |   |        |  |            |       |  |   |        |  |   |       
|MG-HIW, LLC Letter of Credit (4)                            |  |       | 7,500     |                                             |   | 7,500   |  |      |        |      |   |        |  |            |       |  |   |        |  |   |       
|MG-HIW Metrowest I and II, LLC (4)                          |  |       | 3,200     |                                             |   | 3,200   |  |      |        |      |   |        |  |            |       |  |   |        |  |   |       
|Completion Contracts (3)                                    |  |       | 17,500    |                                             |   | 17,500  |  |      |        |      |   |        |  |            |       |  |   |        |  |   |       
|Other Long Term Liabilities Reflected on the Balance Sheet: |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|MG-HIW, LLC Lease Guarantee (5)                             |  |       | 3,826     |                                             |   | 3,826   |  |      |        |      |   |        |  |            |       |  |   |        |  |   |       
|Plaza Colonade Debt Repayment Guarantee (4)                 |  |       | 2,468     |                                             |   |        |  |      |        |      |   | 2,468   |  |            |       |  |   |        |  |   |       
|Plaza Colonnade Completion Guarantee (4)                    |  |       | 376       |                                             |   |        |  |      | 376     |      |   |        |  |            |       |  |   |        |  |   |       
|SF-HIW Harborview Lease Guarantee (5)                       |  |       | 539       |                                             |   | 134     |  |      | 137     |      |   | 140     |  |            | 128    |  |   |        |  |   |       
|Capital One Lease Guarantee (5)                             |  |       | 6,917     |                                             |   |        |  |      |        |      |   | 6,917   |  |            |       |  |   |        |  |   |       
|Capital One Lease Guarantee (5)                             |  |       | 4,421     |                                             |   | 1,566   |  |      | 1,428   |      |   | 1,427   |  |            |       |  |   |        |  |   |       
|Industrial Portfolio Lease Guarantee (5)                    |  |       | 2,373     |                                             |   | 850     |  |      | 991     |      |   | 532     |  |            |       |  |   |        |  |   |       
|Highwoods DLF 98/29, LP Lease Guarantee (5)                 |  |       | 6,578     |                                             |   | 495     |  |      | 505     |      |   | 516     |  |            | 526    |  |   | 536     |  |   | 4,000  
|                                                            |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        
|Total                                                       |  | $     | 1,716,865 |                                             | $ | 111,946 |  | $    | 206,436 |      | $ | 253,543 |  | $          | 84,460 |  | $ | 115,695 |  | $ | 944,785
|                                                            |  |       |           |                                             |   |         |  |      |         |      |   |         |  |            |        |  |   |         |  |   |        

---

|(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) | The mortgage loans payable were secured by real estate assets with an aggregate carrying value of approximately $1.4 billion at December 31, 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | See Note 15 to the Consolidated Financial Statements for further discussion.
|--- | ----------------------------------------------------------------------------

|(4) | See Liquidity and Capital Resources  Off Balance Sheet Arrangements.
|--- | -----------------------------------------------------------------------

|(5) | These liabilities represent gains that were deferred in accordance with SFAS 66 when we contributed these properties to a joint venture or sold these properties to a third party. We
defer gains on sales of real estate up to our maximum exposure to contingent loss. For further discussion, see Note 15 to the Consolidated Financial Statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Refinancings in 2003



On February 3, 2003, the Operating Partnership repurchased 100.0% of the principal amount of the MandatOry Par Put Remarketed Securities
(MOPPRS) due February 1, 2013 from the sole holder thereof in exchange for a secured note in the principal amount of $142.8 million. The secured note bears interest at a fixed rate of 6.03% and has a maturity date of February 28, 2013.
This transaction was accounted for as an exchange of indebtedness under EITF 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments. In accordance with EITF 96-19, the intermediaries acted as principals and
the present value of the cash flows under the terms of the new debt instrument using the MOPPRS effective interest rate was less than 10.0% different from the present value of the remaining cash flows under the terms of the MOPPRS. Accordingly, the
transaction was considered an exchange, not an extinguishment and no loss was recognized. The option premium paid to the lender was $17.7 million and was recorded as a deferred financing cost and will be amortized to interest expense over the
remaining term of the new debt. Fees paid by us to third parties (such as legal fees) were expensed as incurred.



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 ten 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 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 $250.0 million Revolving Loan.



Anticipated 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 consist 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 Put Option Notes bear 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 will be 6.39% plus the applicable spread determined as of 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. If the counter party elects not to exercise this option, the Operating Partnership would be required to
repurchase the Put Option Notes from the Trust on June 15, 2004 at 100.0% of the principal amount plus accrued and unpaid interest.



We currently anticipate that no later than June 15, 2004 we will call or repurchase $100.0 million of the X-POS and the third party purchase option. We
will exchange the X-POS for a similar amount of new bonds. We anticipate that these transactions will be accounted for as an exchange of indebtedness under EITF 96-19 and accordingly no gain or loss would be recorded. Additionally, we anticipate the
transaction will have no material effect on future interest expense assuming current market rates and conditions remain constant. However, any such transaction will depend upon our ability to favorably access the credit market and, accordingly, no
assurances can be provided that we will be successful in refinancing the Put Option Note on favorable terms, if at all.



Operating and Financial Covenants and Performance Ratios



The terms of the revolving loan and the indenture that govern 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 loans for at least the next several quarters, depending upon our future
operating performance and property and financing transactions, we cannot assure you that we will continue to be in compliance.



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The following table sets forth more detailed information about the Companys ratio and covenant
compliance under our revolving loan 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 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 |             |   | 2002 |  
|Total Liabilities Less Than or Equal to 57.5% of Total Assets                                  |  |      | 53.0        | % |      |   | 49.9        | %
|Unencumbered Assets Greater Than or Equal to 2 times Unsecured Debt                            |  |      | 2.23        |   |      |   | 2.25        |  
|Secured Debt Less Than or Equal to 35% of Total Assets                                         |  |      | 28.5        | % |      |   | 19.1        | %
|Adjusted EBDITA Greater Than 2.10 times Interest Expense                                       |  |      | 2.20        |   |      |   | 2.55        |  
|Adjusted EBDITA Greater Than 1.55 times Fixed Charges                                          |  |      | 1.62        |   |      |   | 1.88        |  
|Adjusted NOI Unencumbered assets Greater Than 2.25 times Interest on Unsecured Debt            |  |      | 2.49        |   |      |   | 3.05        |  
|Tangible Net Worth Greater Than $1.574 Billion                                                 |  | $    | 1.7 billion |   |      | $ | 1.7 billion |  
|Restricted Payments, including distributions to shareholders, Less Than or Equal to 95% of CAD |  |      | 71.6        | % |      |   | 92.7        | %



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 the Companys Annual Report as Exhibit 4.2.



|                                                                                |  |       |   |  |       |  
|------------------------------------------------------------------------------- |  | ----- | - |  | ----- | -
|                                                                                |  | 2003  |   |  | 2002  |  
|Overall Debt Less Than or Equal to 60% of Adjusted Total Assets                 |  | 40.6  | % |  | 39.3  | %
|Secured Debt Less Than or Equal to 40% of Adjusted Total Assets                 |  | 21.6  | % |  | 13.2  | %
|Income Available for debt service Greater Than 1.50 times Annual Service Charge |  | 2.7   |   |  | 3.1   |  
|Total Unencumbered Assets Greater Than 200% of Unsecured Debt                   |  | 338.8 | % |  | 294.2 | %



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 improvements to the existing properties total $17.5 million as indicated in the Known Contractual Obligation Summary. 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 (within the next 12 months) liquidity requirements also include the funding of
approximately $28.8 million of our existing development activity (as of the date of this filing) and 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 $133.4 million of availability as of March 3, 2004);
| | - | ---------------------------------------------------------------------------------------------------------



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



| |  | 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; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | the issuance of secured debt (at February 18, 2004, we had $2.2 billion of unencumbered real estate assets at cost).
| | - | --------------------------------------------------------------------------------------------------------------------



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 two revolving loans and long-term unsecured debt. We remain committed to maintaining 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.



As of December 31, 2003, our joint ventures had $783.3 million of total assets and $517.2 million of total liabilities. During 2003, these joint ventures earned $12.1 million of total net income, net of a $12.1
million impairment charge related to our purchase of the MG-HIW, LLC assets. We have a 35.0% weighted average equity interest in these joint ventures. For a more detailed discussion of our joint venture activity, see Note 2 in the Consolidated
Financial Statements.



As required by GAAP, we have accounted
for our joint venture activity using the equity method of accounting, as we do not control these joint ventures. As a result, the assets and liabilities of our joint ventures are not included on our balance sheet and the results of operations of the
joint ventures are not included on our income statement, other than as equity in earnings of unconsolidated affiliates. In other words, 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.



32



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As of December 31, 2003, our joint ventures had $517.2 million of outstanding debt. The following table
sets forth the principal payments due on that outstanding long-term debt as recorded on the respective joint ventures books at December 31, 2003 ($ in thousands):



|                                  |  |               |      |  |       |         |      |                                             |      |            |      |   |        |  |   |         |  |   |        |  |   |        |  |   |        
|--------------------------------- |  | ------------- | ---- |  | ----- | ------- | ---- | ------------------------------------------- | ---- | ---------- | ---- | - | ------ |  | - | ------- |  | - | ------ |  | - | ------ |  | - | -------
|                                  |  | Percent Owned |      |  | Total |         |      | Amounts due during year ending December 31, |      | Thereafter
|                                  |  |               | 2004 |  | 2005  |         | 2006 |                                             | 2007 |            | 2008 |  
|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, LLC                       |  | 20.00         | %    |  |       | 136,207 |      |                                             |      |           |      |   |       |  |   | 136,207 |  |   |       |  |   |       |  |   |       
|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 |  |   |       |  |   |       
|SF-HIW Harborview, LP             |  | 20.00         | %    |  |       | 22,800  |      |                                             |      |           |      |   |       |  |   |        |  |   | 91     |  |   | 378    |  |   | 22,331 
|                                  |  |               |      |  |       |         |      |                                             |      |            |      |   |        |  |   |         |  |   |        |  |   |        |  |   |        
|Total                             |  |               |      |  | $     | 517,237 | (2)  |                                             | $    | 7,257      |      | $ | 14,224 |  | $ | 146,937 |  | $ | 40,416 |  | $ | 18,109 |  | $ | 290,294
|                                  |  |               |      |  |       |         |      |                                             |      |            |      |   |        |  |   |         |  |   |        |  |   |        |  |   |        

---

|(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 venture guarantees, the maximum potential amount of future payments 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 currently averages 1.3% and mature
in 2015. Guarantees of $9.5 million will expire upon two industrial buildings becoming 93.8% and 95.0% leased. Currently, these buildings are 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 is 91.0%. If the joint ventures are unable to repay
the outstanding balance under the loans, we will be required, under the terms of the agreements, to repay the outstanding balance. Recourse provisions exist to enable us to recover some or all of our losses 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.



In connection with the RRHWoods, LLC joint venture, we renewed our guarantee of $6.2 million to a bank in July 2003. 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 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. The construction loan matures in February 2006, with two one-year options to extend the maturity date that are conditional on completion and lease-up of the project. The term of the construction completion agreement requires
the core and shell of the building to be completed by December 15, 2005. Currently, the building is scheduled to be completed in December 2004. Both guarantees arose from the formation of the joint venture to construct an office building. If the
joint venture is unable to repay the outstanding balance under the construction loan agreement or complete the construction of the office building, we would be 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. The maximum potential amount of future payments by us under these agreements is $34.9 million. No recourse provisions exist that would enable us to recover
from the other partner amounts paid under the guarantee. However, given that the loan is collateralized by the building, we and our partner could obtain and liquidate the building to recover the amounts paid should we be required to perform under
the guarantee.



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##### Table of Contents

In addition to the Plaza Colonnade, LLC construction loan and completion agreement described above, the
partners have collectively provided $12.0 million in letters of credit, $6.0 million by us and $6.0 million by our partner. We and our partner would be held liable under the letter of credit agreements should the joint venture not complete
construction of the building. The letters of credit expire in December 31, 2004. No recourse provisions exist that would enable us to recover from the other partner amounts drawn under the letter of credit.



In December 2000, we guaranteed our 80.0% partner in MG-HIW, LLC joint
venture, a minimum internal rate of return on $50.0 million of their equity investment in the remaining assets of the joint venture (the Orlando assets). On July 29, 2003, we entered into an option agreement to acquire Miller
Globals 80.0% interest in the Orlando assets for between $62.5 and $65.2 million depending on the closing date and the distributions from the joint venture prior to closing. Based on the terms of the agreement, the purchase option price range
satisfies the internal rate of return guarantee. In connection with the option agreement, we entered into a letter of credit in the amount of $7.5 million in favor of Miller Global, which can be drawn by Miller Global in the event we do not exercise
our option to purchase their 80.0% interest in the remaining assets of MG-HIW, LLC by March 24, 2004.



On March 2, 2004, we exercised our option and acquired our partners 80.0% equity interest in the remaining assets of MG-HIW, LLC, which consists of
five properties encompassing 1.3 million square feet located in the central business district of Orlando (Orlando properties). 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, which has been assumed by the Company. At the closing of the transaction, the Company paid its partner, Miller Global, $62.5 million and the $7.5 million letter of credit was cancelled.
The transaction implies a valuation (100.0% ownership) of $214.3 million, which includes the properties and other net assets of the joint venture.



In January 2004, we signed a Letter of Intent with Kapital-Consult, manager for Dreilander-Fonds, a European investment firm, under which Kapital-Consult
will acquire a 60.0% equity interest in the Orlando properties for approximately $45.5 million, excluding certain development rights to be retained by us. Although the transaction is subject to documentation and other closing conditions, it is
expected to close no later than the end of the second quarter of 2004.



As part of the MG-HIW, LLC acquisition on July 29, 2003, we entered into an option agreement with our partner, Miller Global, to acquire their 50.0% interest in the assets 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 is outstanding at December 31, 2003, will be either paid in full or assumed by us in connection with the acquisition of the remaining assets.
We have guaranteed 50.0% of the construction loan, such that if the joint venture is unable to repay the outstanding balance, we would be required, under the terms of the agreement, to repay 50.0% of the outstanding balance. The maximum potential
amount of future payments by us under the agreement is $3.7 million, however, we are able to seek recourse from our partner for 50.0% of that amount.



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.



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 us or our joint venture partner if certain conditions are met as set forth in the respective joint venture agreement. Our partner in SF-HIW Harborview, LP has the right to put its 80.0% equity interest in the partnership to us in
cash at anytime during the one-year period commencing on September 11, 2014. As a result, we have deferred a gain of $1.0 million until the expiration of the put option. The value of the equity interest will be determined based upon the then fair
market value of SF-HIW Harborview, LP assets and liabilities.



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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 bears 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 objective is 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.



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



|                   |  |                 |        |               |          |                |                       |            |       |   |                   |   |   
|------------------ |  | --------------- | ------ | ------------- | -------- | -------------- | --------------------- | ---------- | ----- | - | ----------------- | - | --
|Type of Hedge      |  | Notional Amount |        | Maturity Date |          | Reference Rate |                       | Fixed Rate |       |   | Fair Market Value
|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 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.



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 Mr. Anderson. On January 17, 2003, we acquired an additional 23.46 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 taken
down 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 Bluegrass, we were entitled to the proceeds from the condemnation of $1.8 million, less the contracted purchase price between us and Bluegrass 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 Bluegrass 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 Mr. Anderson abstaining from the vote).



During 2000, in connection with the formation of the MG-HIW
Peachtree Corners III, LLC, a construction loan was made by an affiliate of ours 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.



We advanced $0.8 million to an officer and director related to certain expenses paid by us on behalf of the officer and director. During 2002, this
advance, along with accrued interest, was repaid by the officer and director.



As of December 31, 2003, the Operating Partnership had a $1.7 million receivable due from MG-HIW, LLC. The amount has been subsequently paid in full.



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##### Table of Contents

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 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.



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



Expenditures directly related to the development and construction of real estate assets are included in net real estate assets at cost in the consolidated
balance sheets. Expenditures directly related to the leasing of properties are included in other assets at cost in the consolidated balance sheets. With regard to the general and administrative costs, including compensation, we annually calculate
the capitalization percentages which are based on employee hours allocated to successful efforts in development, construction and leasing, and adjust the financial statements to reflect any change in those allocations. If those allocations prove to
be incorrect, the resulting adjustments could impact earnings.



Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, real estate taxes, interest costs, compensation and other costs incurred during the period of
development. The interest costs are capitalized at the buildings vacancy percentage until either the building reaches 90.0% occupancy or one year after the issuance of a certificate of occupancy, whichever occurs first. The compensation costs
are capitalized based on the capitalization percentage described above related to development activities. Construction expenditures include all general and administrative costs, including compensation and are capitalized based on the capitalization
percentage related to specific construction projects. The leasing expenditures include all general and administrative costs, including compensation and are capitalized based on the capitalization percentage related to successfully securing leases on
the properties. Estimated costs related to unsuccessful development and leasing as well as estimated costs related to non-specific construction projects are expensed as incurred.



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. If these estimated lives are too
short or too long, future adjustments to depreciation expense may be required. 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.



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##### Table of Contents

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 Statement of Financial Accounting Standards
(SFAS) No. 141. We allocate the purchase price to the acquired assets and assumed liabilities based on their 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. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic
conditions. 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 which 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 based rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to based 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 cost 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 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 tenant relationships 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 tenant relationships 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 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 and used. In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets, we record assets held for sale at the lower of the carrying amount or estimated fair value. Fair value is equal to the estimated or contracted sales price with a potential
buyer less cost 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 and used, if events or changes in circumstances, such as significant decline in
occupancy and change in use, indicate that the carrying value may be impaired, we perform an impairment analysis. 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 estimates 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 and used asset exceeds the sum of its undiscounted future operating cash flows, an impairment loss would be recorded for the difference between the discounted cash flows and the net book
value. 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 undiscounted future operating cash flows estimated by us in our impairment analyses may not be
achieved and we may be required to recognize future impairment losses on our properties.



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##### Table of Contents

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 its pro-rata share of operating and administrative expenses
and real estate taxes.



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 hundreds of
variations in the computations dealing with such matters as: which costs are includable or not includable for reimbursement, what is the square footage of the overall property space to determine the pro-rata percentages, and the applicability of
cost limitation provisions, among other things. 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 issue a bill or credit for the full amount, after considering amounts paid by the tenants during the year. 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 any of the years ended December 31, 2002
and 2001. Final adjustments for the year ended December 31, 2003 have not yet been determined.



FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTIONS



We believe that funds from operations (FFO) is one of several
indicators of the performance of an equity REIT. FFO can facilitate comparisons of operating performance between periods and between other REITs because it excludes factors, such as depreciation, amortization and gains and losses from sales of real
estate assets, which are based on historical cost and may be of limited relevance in evaluating current performance. FFO as disclosed by other REITs may not be comparable to our calculation of FFO as described below. Cash available for distribution
(CAD) is another useful financial performance measure of an equity REIT. CAD provides an additional basis to evaluate the ability of a REIT to incur and service debt, fund acquisitions and other capital expenditures and pay
distributions. CAD does not measure whether cash flow is sufficient to fund all cash needs. FFO and CAD are non-GAAP financial measures and do not represent net income or cash flows from operating, investing or financing activities as defined by
GAAP. They should not be considered as alternatives to net income as an indicator of our operating performance or to cash flows as a measure of liquidity.



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), 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, (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 gain/(loss) on sale related to discontinued operations.
| | - | -----------------------------------------------------------------------------------------------------------------------



CAD is defined as FFO reduced by non-revenue enhancing capital expenditures
for building improvements and tenant improvements and lease commissions related to second generation space. In addition, CAD includes both recurring and nonrecurring operating results. As a result, nonrecurring items that are not defined as
extraordinary under GAAP are reflected in the calculation of CAD. In addition, nonrecurring items included in the calculation of CAD for periods ended after March 28, 2003 meet the requirements of Item 10(e) of Regulation S-K, as amended
January 22, 2003.



FFO, FFO per unit and cash available for
distribution 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                                               |  | $      | 62,803   |   |                 |   |       |        |  | $ | 107,964         |   |  |        |       |   |                 | $ | 150,253  |   |  |   |       |  
|Distributions on preferred units                         |  |        | (30,852  | ) |                 |   |       |        |  |   | (30,852         | ) |  |        |       |   |                 |   | (31,500  | ) |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Net income applicable to common units                    |  |        | 31,951   |   |                 | $ | 0.54  |        |  |   | 77,112          |   |  | $      | 1.28  |   |                 |   | 118,753  |   |  | $ | 1.92  |  
|Add/(Deduct):                                            |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Depreciation and amortization of real estate assets(1)   |  |        | 125,749  |   |                 |   | 2.11  |        |  |   | 118,364         |   |  |        | 1.97  |   |                 |   | 105,395  |   |  |   | 1.71  |  
|Gain on disposition of depreciable real estate assets(2) |  |        | (37      | ) |                 |   |      |        |  |   | (14,424         | ) |  |        | (0.24 | ) |                 |   | (11,495  | ) |  |   | (0.19 | )
|Transition adjustment upon adoption of SFAS 133          |  |        |         |   |                 |   |      |        |  |   |                |   |  |        |      |   |                 |   | 556      |   |  |   | 0.01  |  
|Unconsolidated affiliates:                               |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Depreciation and amortization of real estate assets(1)   |  |        | 8,812    |   |                 |   | 0.15  |        |  |   | 9,190           |   |  |        | 0.15  |   |                 |   | 8,144    |   |  |   | 0.13  |  
|Discontinued operations(4):                              |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Depreciation and amortization of real estate assets(1)   |  |        | 2,918    |   |                 |   | 0.04  |        |  |   | 12,002          |   |  |        | 0.20  |   |                 |   | 11,896   |   |  |   | 0.20  |  
|Gain on sale(2)                                          |  |        | (19,322  | ) |                 |   | (0.32 | )      |  |   | (17,179         | ) |  |        | (0.29 | ) |                 |   |         |   |  |   |      |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Funds from operations applicable to common units(3)      |  | $      | 150,071  |   |                 | $ | 2.52  |        |  | $ | 185,065         |   |  | $      | 3.07  |   |                 | $ | 233,249  |   |  | $ | 3.78  |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Cash available for distribution:                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Funds from operations                                    |  | $      | 150,071  |   |                 |   |       |        |  | $ | 185,065         |   |  |        |       |   |                 | $ | 233,249  |   |  |   |       |  
|Add/(Deduct):                                            |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Rental income from straight-line rents                   |  |        | (5,189   | ) |                 |   |       |        |  |   | (3,672          | ) |  |        |       |   |                 |   | (11,257  | ) |  |   |       |  
|Amortization of intangible lease assets                  |  |        | 517      |   |                 |   |       |        |  |   |                |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Depreciation of non-real estate assets (1)               |  |        | 3,446    |   |                 |   |       |        |  |   | 3,382           |   |  |        |       |   |                 |   | 3,698    |   |  |   |       |  
|Impairment charges                                       |  |        | 2,738    |   |                 |   |       |        |  |   | 13,976          |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Amortization of deferred financing costs                 |  |        | 3,078    |   |                 |   |       |        |  |   | 1,394           |   |  |        |       |   |                 |   | 2,005    |   |  |   |       |  
|Non-recurring compensation expense                       |  |        |         |   |                 |   |       |        |  |   | 3,700           |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Litigation expense                                       |  |        |         |   |                 |   |       |        |  |   | 2,700           |   |  |        |       |   |                 |   |         |   |  |   |       |  
|Non-incremental revenue generating capital expenditures: |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Building improvements paid                               |  |        | (12,409  | ) |                 |   |       |        |  |   | (7,947          | ) |  |        |       |   |                 |   | (8,345   | ) |  |   |       |  
|Second generation tenant improvements paid               |  |        | (27,810  | ) |                 |   |       |        |  |   | (20,531         | ) |  |        |       |   |                 |   | (19,704  | ) |  |   |       |  
|Second generation lease commissions paid                 |  |        | (17,258  | ) |                 |   |       |        |  |   | (12,321         | ) |  |        |       |   |                 |   | (15,697  | ) |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|                                                         |  |        | (57,477  | ) |                 |   |       |        |  |   | (40,799         | ) |  |        |       |   |                 |   | (43,746  | ) |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Cash available for distribution                          |  | $      | 97,184   |   |                 |   |       |        |  | $ | 165,746         |   |  |        |       |   |                 | $ | 183,949  |   |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Distribution payout data:                                |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Distributions paid per common unit                       |  | $      | 1.86     |   |                 |   |       |        |  | $ | 2.34            |   |  |        |       |   |                 | $ | 2.31     |   |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Funds from operations                                    |  |        | 73.8     | % |                 |   |       |        |  |   | 76.2            | % |  |        |       |   |                 |   | 61.1     | % |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Cash available for distribution                          |  |        | 114.1    | % |                 |   |       |        |  |   | 85.0            | % |  |        |       |   |                 |   | 77.6     | % |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Weighted average units outstandingdiluted               |  |        | 59,624   |   |                 |   |       |        |  |   | 60,222          |   |  |        |       |   |                 |   | 61,773   |   |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Net cash provided by/(used in):                          |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Operating activities                                     |  | $      | 154,275  |   |                 |   |       |        |  | $ | 202,630         |   |  |        |       |   |                 | $ | 248,366  |   |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Investing activities                                     |  | $      | 33,249   |   |                 |   |       |        |  | $ | 186,353         |   |  |        |       |   |                 | $ | (110,801 | ) |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Financing activities                                     |  | $      | (179,912 | ) |                 |   |       |        |  | $ | (379,047        | ) |  |        |       |   |                 | $ | (239,257 | ) |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  
|Net increase/(decrease) in cash and cash equivalents     |  | $      | 7,612    |   |                 |   |       |        |  | $ | 9,936           |   |  |        |       |   |                 | $ | (101,692 | ) |  |   |       |  
|                                                         |  |        |          |   |                 |   |       |        |  |   |                 |   |  |        |       |   |                 |   |          |   |  |   |       |  

---

|(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. The change reduced FFO by $3.4 million or $0.06 per
unit, $3.4 million or $0.06 per unit and $3.7 million or $0.06 per unit for the years ended December 31, 2003, 2002 and 2001, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. The following is a reconciliation of gain/(loss) on disposition of depreciable real estate assets included in the FFO calculation and gain/(loss) on disposition
of depreciable assets included in our Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                    |  |      |        |   |      |   |        |      |  |   |       
|--------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|                                                                                                    |  | 2003 |        |   | 2002 |   |        | 2001
|Continuing Operations:                                                                              |  |      |        |   |      |   |        |      |  |   |       
|Gain on disposition of depreciable real estate assets per FFO calculation                           |  | $    | 37     |   |      | $ | 14,424 |      |  | $ | 11,495
|Impairment losses                                                                                   |  |      |       |   |      |   | (9,919 | )    |  |   |      
|                                                                                                    |  |      |        |   |      |   |        |      |  |   |       
|Gain on disposition and impairment of depreciable assets, net per Consolidated Statements of Income |  | $    | 37     |   |      | $ | 4,505  |      |  | $ | 11,495
|                                                                                                    |  |      |        |   |      |   |        |      |  |   |       
|Discontinued Operations:                                                                            |  |      |        |   |      |   |        |      |  |   |       
|Gain on disposition of depreciable real estate assets per FFO calculation                           |  | $    | 19,322 |   |      | $ | 17,179 |      |  | $ |      
|Impairment losses                                                                                   |  |      | (325   | ) |      |   | (4,057 | )    |  |   |      
|                                                                                                    |  |      |        |   |      |   |        |      |  |   |       
|Gain on disposition and impairment of depreciable assets, net per Consolidated Statements of Income |  | $    | 18,997 |   |      | $ | 13,122 |      |  | $ |      
|                                                                                                    |  |      |        |   |      |   |        |      |  |   |       



In addition to the
impairment losses detailed above, FFO for the year ended December 31, 2003 also includes a $2.4 million impairment loss included in our equity in earnings of unconsolidated affiliates related to the acquisition of certain assets of the MG-HIW, LLC
joint venture by the Operating Partnership.

|(3) | As a result of FASBs Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145), 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. FFO for both of the years ended December 31,
2002 and 2001 was decreased by $0.7 million, which represents a loss on the extinguishment of debt incurred during those periods. There were no losses on the extinguishment of debt incurred in 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the changes to the FFO calculation as outlined in footnotes
(1), (2) and (3), FFO has been reduced by the following in dollars and per unit amounts:



|               |  |      |        |   |      |   |         |      |  |   |        |  
|-------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|               |  | 2003 |        |   | 2002 |   |         | 2001 | 
|FFO in dollars |  | $    | (6,184 | ) |      | $ | (18,045 | )    |  | $ | (4,412 | )
|               |  |      |        |   |      |   |         |      |  |   |        |  
|FFO per unit   |  | $    | (0.10  | ) |      | $ | (0.30   | )    |  | $ | (0.07  | )
|               |  |      |        |   |      |   |         |      |  |   |        |  



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



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 losses, but only indicators of
reasonably possible losses. 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 two revolving 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. In
addition, we have assumed fixed rate and variable rate debt in connection with acquiring properties. Our interest rate risk management objective is 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 approximately $214.7 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 approximately $2.1 million.



38



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##### Table of Contents

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 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



We 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. These disclosure controls and procedures are further designed to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO) of our general partner, to allow timely decisions regarding required disclosure. SEC rules require that we disclose the conclusions of the CEO and CFO of our general partner about the
effectiveness of our disclosure controls and procedures.



The
CEO and CFO of our general partner evaluate our disclosure controls and procedures. This evaluation includes a review of the controls objectives and design, the controls implementation by the Operating Partnership and the effect of the
controls on the information generated for use in this Annual Report. In the course of the evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process
improvements, were being undertaken. Our disclosure controls and procedures are also evaluated on an ongoing basis by the following:



| |  | employees in our internal audit department;
| | - | -------------------------------------------



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



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



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



| |  | our independent auditors in connection with their audit and review activities.
| | - | ------------------------------------------------------------------------------



Among other matters, we sought in our evaluation to determine whether there were any significant deficiencies or material
weaknesses in our disclosure controls and procedures, or whether we had identified any acts of fraud involving personnel who have a significant role in our disclosure controls and procedures. In the professional auditing literature,
significant deficiencies are referred to as reportable conditions, which are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial
statements. A material weakness is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or
fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions.



39



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##### Table of Contents

Our management, and the CEO and CFO of our general partner, do not expect that our disclosure controls
and procedures 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 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.



Based on the most recent evaluation, which was completed as of December 31, 2003, the CEO and CFO of our general partner believe that our disclosure
controls and procedures are effective to ensure that material information relating to us and our consolidated subsidiaries is made known to management, including the CEO and CFO of our general partner, particularly during the period when our
periodic reports are being prepared, and that our disclosure controls and procedures are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with GAAP.



Since the date of this most recent evaluation, there have been no significant
changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.



40



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##### Table of Contents

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 to be
held 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 ethics that applies to our CEO and Senior Financial Officers, a copy of which 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 this code 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.



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 approximately 88.9% 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.



41



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##### Table of Contents

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 Auditors
| | -- | ----------------------------------------------------------------------------------------------------------------



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                                              



42



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##### Table of Contents

|      |  |      |  |                                                                                                                                                                                                      
|----- |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | FN   |  | Description                                                                                                                                                                                          
|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                                                                                
|      |  |     
|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    |  |      |  | 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 Current Report on Form 8-K dated December 14, 2000 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.



43



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##### Table of Contents

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 March 31, 2004.



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

/s/    RONALD P. GIBSONRonald P. GibsonChief Executive Officer




Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.



|                                                       |  |                                                                             |  |               
|------------------------------------------------------ |  | --------------------------------------------------------------------------- |  | --------------
|Signature                                              |  | Title                                                                       |  | Date          
|                                                       |  |                                                                            
|/s/    O. Temple Sloan, Jr.O. Temple Sloan, Jr.        |  | Chairman of the Board ofDirectors of the General Partner                    |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Ronald P. GibsonRonald P. Gibson                |  | Chief Executive Officer andDirector of the General Partner                  |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Edward J. FritschEdward J. Fritsch              |  | President, Chief Operating Officer andDirector of the General Partner       |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    John L. TurnerJohn L. Turner                    |  | Vice Chairman of the Board andDirector of the General Partner               |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Gene H. AndersonGene H. Anderson                |  | Senior Vice President andDirector of the General Partner                    |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Thomas W. AdlerThomas W. Adler                  |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Kay N. CallisonKay N. Callison                  |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    William E. Graham, Jr.William E. Graham, Jr.    |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Lawrence S. KaplanLawrence S. Kaplan            |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    L. Glenn Orr, Jr.L. Glenn Orr, Jr.              |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Willard H. Smith, Jr.Willard H. Smith, Jr.      |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    F. William Vandiver, JrF. William Vandiver, Jr. |  | Director of the General Partner                                             |  | March 30, 2004
|                                                       |  |                                                                            
|/s/    Terry L. StevensTerry L. Stevens                |  | Vice President, Chief Financial Officer andTreasurer of the General Partner |  | March 30, 2004



44



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##### Table of Contents

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.



45



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##### Table of Contents

INDEX TO FINANCIAL STATEMENTS



|                                                                                                  |  |     
|------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                  |  | Page
|Highwoods Realty Limited Partnership                                                              |  |     
|Report of Independent Auditors                                                                    |  | F-2 
|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                                                                                       |  | F-41
|Schedule III                                                                                      |  | F-42



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



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To The Owners

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 Operating 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 auditing standards generally accepted in the 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 accounting principles generally accepted
in the United States. 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.



In 2003, as discussed in Note 1 to the consolidated financial
statements, the Operating 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 Operating 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

February 20, 2004, except for Note 19

as to which the date is March 2, 2004



F-2



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Balance Sheets



($ in thousands)



|                                                                                                                |  |              |           |   |      |   |           |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                |  | December 31, |          
|                                                                                                                |  | 2003         |           |   | 2002 |  
|Assets:                                                                                                         |  |              |           |   |      |   |           |  
|Real estate assets, at cost:                                                                                    |  |              |           |   |      |   |           |  
|Land and improvements                                                                                           |  | $            | 397,102   |   |      | $ | 392,325   |  
|Buildings and tenant improvements                                                                               |  |              | 2,902,116 |   |      |   | 2,833,682 |  
|Development in process                                                                                          |  |              | 6,899     |   |      |   | 6,420     |  
|Land held for development                                                                                       |  |              | 189,072   |   |      |   | 163,471   |  
|Furniture, fixtures and equipment                                                                               |  |              | 21,813    |   |      |   | 20,960    |  
|                                                                                                                |  |              |           |   |      |   |           |  
|                                                                                                                |  |              | 3,517,002 |   |      |   | 3,416,858 |  
|Less  accumulated depreciation                                                                                 |  |              | (537,713  | ) |      |   | (455,556  | )
|                                                                                                                |  |              |           |   |      |   |           |  
|Net real estate assets                                                                                          |  |              | 2,979,289 |   |      |   | 2,961,302 |  
|Property held for sale                                                                                          |  |              | 65,724    |   |      |   | 147,424   |  
|Cash and cash equivalents                                                                                       |  |              | 18,342    |   |      |   | 10,730    |  
|Restricted cash                                                                                                 |  |              | 6,320     |   |      |   | 8,582     |  
|Accounts receivable, net of allowance of $1,235 and $1,450, respectively                                        |  |              | 17,782    |   |      |   | 13,389    |  
|Notes receivable                                                                                                |  |              | 15,703    |   |      |   | 9,949     |  
|Accrued straight-line rents receivable                                                                          |  |              | 51,189    |   |      |   | 48,777    |  
|Investments in unconsolidated affiliates                                                                        |  |              | 71,253    |   |      |   | 75,019    |  
|Other assets:                                                                                                   |  |              |           |   |      |   |           |  
|Deferred leasing costs                                                                                          |  |              | 110,362   |   |      |   | 99,895    |  
|Deferred financing costs                                                                                        |  |              | 46,198    |   |      |   | 26,120    |  
|Prepaid expenses and other                                                                                      |  |              | 13,793    |   |      |   | 15,295    |  
|                                                                                                                |  |              |           |   |      |   |           |  
|                                                                                                                |  |              | 170,353   |   |      |   | 141,310   |  
|Less  accumulated amortization                                                                                 |  |              | (84,764   | ) |      |   | (71,428   | )
|                                                                                                                |  |              |           |   |      |   |           |  
|Other assets, net                                                                                               |  |              | 85,589    |   |      |   | 69,882    |  
|                                                                                                                |  |              |           |   |      |   |           |  
|Total Assets                                                                                                    |  | $            | 3,311,191 |   |      | $ | 3,345,054 |  
|                                                                                                                |  |              |           |   |      |   |           |  
|Liabilities and Partners Capital:                                                                              |  |              |           |   |      |   |           |  
|Mortgages and notes payable                                                                                     |  | $            | 1,549,758 |   |      | $ | 1,489,220 |  
|Accounts payable, accrued expenses and other liabilities                                                        |  |              | 106,055   |   |      |   | 114,870   |  
|                                                                                                                |  |              |           |   |      |   |           |  
|Total Liabilities                                                                                               |  |              | 1,655,813 |   |      |   | 1,604,090 |  
|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, 104,945 outstanding at December 31, 2003 and 2002                                     |  |              | 103,308   |   |      |   | 103,308   |  
|Series B Preferred Units, 6,900,000 outstanding at December 31, 2003 and 2002                                   |  |              | 166,346   |   |      |   | 166,346   |  
|Series D Preferred Units, 400,000 outstanding at December 31, 2003 and 2002                                     |  |              | 96,842    |   |      |   | 96,842    |  
|Partners Capital:                                                                                              |  |              |           |   |      |   |           |  
|Class A Common Units:                                                                                           |  |              |           |   |      |   |           |  
|General partner Common Units, 592,682 and 599,659 outstanding at December 31, 2003 and 2002, respectively       |  |              | 11,393    |   |      |   | 12,332    |  
|Limited partner Common Units, 52,472,912 and 52,391,727 outstanding at December 31, 2003 and 2002, respectively |  |              | 1,128,025 |   |      |   | 1,220,902 |  
|Accumulated other comprehensive loss                                                                            |  |              | (3,650    | ) |      |   | (9,204    | )
|Deferred compensation  restricted units                                                                        |  |              | (4,433    | ) |      |   | (3,699    | )
|                                                                                                                |  |              |           |   |      |   |           |  
|Total Partners Capital                                                                                         |  |              | 1,131,335 |   |      |   | 1,220,331 |  
|                                                                                                                |  |              |           |   |      |   |           |  
|Total Liabilities and Partners Capital                                                                         |  | $            | 3,311,191 |   |      | $ | 3,345,054 |  
|                                                                                                                |  |              |           |   |      |   |           |  

See accompanying notes to consolidated financial statements.



F-3



---

##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Income



($ in
thousands, except per unit amounts)

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



|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                          |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Rental revenue                                                                                            |  | $    | 421,816 |   |      | $ | 432,967 |      |  | $ | 449,786 |  
|                                                                                                          |  |      |        
|Operating expenses:                                                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Rental property                                                                                           |  |      | 146,870 |   |      |   | 136,985 |      |  |   | 138,938 |  
|Depreciation and amortization                                                                             |  |      | 129,195 |   |      |   | 121,746 |      |  |   | 109,093 |  
|General and administrative (includes $3,700 nonrecurring compensation and management fee expense in 2002) |  |      | 24,187  |   |      |   | 23,644  |      |  |   | 21,086  |  
|Litigation expense                                                                                        |  |      |        |   |      |   | 2,700   |      |  |   |        |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                                                  |  |      | 300,252 |   |      |   | 285,075 |      |  |   | 269,117 |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Interest expense:                                                                                         |  |      |         |   |      |   |         |      |  |   |         |  
|Contractual                                                                                               |  |      | 110,832 |   |      |   | 108,881 |      |  |   | 103,182 |  
|Amortization of deferred financing costs                                                                  |  |      | 3,078   |   |      |   | 1,394   |      |  |   | 2,005   |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                          |  |      | 113,910 |   |      |   | 110,275 |      |  |   | 105,187 |  
|Other income:                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Interest and other income                                                                                 |  |      | 11,608  |   |      |   | 13,076  |      |  |   | 21,891  |  
|Equity in earnings of unconsolidated affiliates                                                           |  |      | 4,463   |   |      |   | 7,675   |      |  |   | 8,276   |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                          |  |      | 16,071  |   |      |   | 20,751  |      |  |   | 30,167  |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Income before gain on disposition of land and depreciable assets and discontinued operations              |  |      | 23,725  |   |      |   | 58,368  |      |  |   | 105,649 |  
|Gain on disposition of land                                                                               |  |      | 3,739   |   |      |   | 6,894   |      |  |   | 4,702   |  
|Gain on disposition and impairment of depreciable assets, net                                             |  |      | 37      |   |      |   | 4,505   |      |  |   | 11,495  |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations                                                                         |  |      | 27,501  |   |      |   | 69,767  |      |  |   | 121,846 |  
|Discontinued operations:                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Income from discontinued operations                                                                       |  |      | 16,305  |   |      |   | 25,075  |      |  |   | 28,407  |  
|Gain on sale of discontinued operations                                                                   |  |      | 18,997  |   |      |   | 13,122  |      |  |   |        |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                          |  |      | 35,302  |   |      |   | 38,197  |      |  |   | 28,407  |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                |  |      | 62,803  |   |      |   | 107,964 |      |  |   | 150,253 |  
|Distributions on preferred units                                                                          |  |      | (30,852 | ) |      |   | (30,852 | )    |  |   | (31,500 | )
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net income available for Class A common unitholders                                                       |  | $    | 31,951  |   |      | $ | 77,112  |      |  | $ | 118,753 |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net income/(loss) per common unit  basic:                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|(Loss)/income from continuing operations                                                                  |  | $    | (0.05   | ) |      | $ | 0.65    |      |  | $ | 1.47    |  
|Income from discontinued operations                                                                       |  |      | 0.59    |   |      |   | 0.64    |      |  |   | 0.46    |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                |  | $    | 0.54    |   |      | $ | 1.29    |      |  | $ | 1.93    |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net income/(loss) per common unit  diluted:                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|(Loss)/income from continuing operations                                                                  |  | $    | (0.05   | ) |      | $ | 0.65    |      |  | $ | 1.46    |  
|Income from discontinued operations                                                                       |  |      | 0.59    |   |      |   | 0.63    |      |  |   | 0.46    |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                |  | $    | 0.54    |   |      | $ | 1.28    |      |  | $ | 1.92    |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Weighted average common units outstanding  basic:                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Class A common units:                                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|General Partner                                                                                           |  |      | 595     |   |      |   | 600     |      |  |   | 612     |  
|Limited Partners                                                                                          |  |      | 58,892  |   |      |   | 59,363  |      |  |   | 60,622  |  
|Class B common units:                                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Limited Partners                                                                                          |  |      |        |   |      |   |        |      |  |   | 196     |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total                                                                                                     |  |      | 59,487  |   |      |   | 59,963  |      |  |   | 61,430  |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Weighted average common units outstanding  diluted:                                                      |  |      |         |   |      |   |         |      |  |   |         |  
|Class A common units:                                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|General Partner                                                                                           |  |      | 596     |   |      |   | 602     |      |  |   | 616     |  
|Limited Partners                                                                                          |  |      | 59,028  |   |      |   | 59,620  |      |  |   | 60,961  |  
|Class B common units:                                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Limited Partners                                                                                          |  |      |        |   |      |   |        |      |  |   | 196     |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total                                                                                                     |  |      | 59,624  |   |      |   | 60,222  |      |  |   | 61,773  |  
|                                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  



See accompanying notes
to consolidated financial statements.



F-4



---

##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Partners Capital



($ in thousands)

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



|                                                     |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|---------------------------------------------------- |  | ----------------------- | ------ | - | ----------------------- | - | --------- | --------------------------------- |  | - | --------------------- | - |  | - | ------ | - |  | - | --------- | -
|                                                     |  | Class A Common Unit     |        |   | DeferredCompensation    |   |           | AccumulatedOtherComprehensiveLoss |  |   | TotalPartnersCapital |  
|                                                     |  | GeneralPartnersCapital |        |   | LimitedPartnersCapital |   |           |                                   | 
|Balance at December 31, 2000                         |  | $                       | 14,114 |   |                         | $ | 1,397,367 |                                   |  | $ | (2,488                | ) |  | $ |       |   |  | $ | 1,408,993 |  
|Issuance of Common Units                             |  |                         | 36     |   |                         |   | 3,658     |                                   |  |   |                      |   |  |   |       |   |  |   | 3,694     |  
|Redemption of Common Units                           |  |                         | (127   | ) |                         |   | (12,545   | )                                 |  |   |                      |   |  |   |       |   |  |   | (12,672   | )
|Distributions paid on Common Units                   |  |                         | (1,429 | ) |                         |   | (141,460  | )                                 |  |   |                      |   |  |   |       |   |  |   | (142,889  | )
|Preferred distributions paid on Common Units         |  |                         | (315   | ) |                         |   | (31,185   | )                                 |  |   |                      |   |  |   |       |   |  |   | (31,500   | )
|Net income                                           |  |                         | 1,503  |   |                         |   | 148,750   |                                   |  |   |                      |   |  |   |       |   |  |   | 150,253   |  
|Adjustments of redeemable Common Units to fair value |  |                         | 114    |   |                         |   | 11,278    |                                   |  |   |                      |   |  |   |       |   |  |   | 11,392    |  
|Other comprehensive loss                             |  |                         |       |   |                         |   |          |                                   |  |   |                      |   |  |   | (9,441 | ) |  |   | (9,441    | )
|Issuance of restricted units                         |  |                         | 21     |   |                         |   | 2,088     |                                   |  |   | (2,109                | ) |  |   |       |   |  |   |          |  
|Repurchase of Common Units                           |  |                         | (1,348 | ) |                         |   | (133,406  | )                                 |  |   |                      |   |  |   |       |   |  |   | (134,754  | )
|Amortization of deferred compensation                |  |                         |       |   |                         |   |          |                                   |  |   | 1,036                 |   |  |   |       |   |  |   | 1,036     |  
|                                                     |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2001                         |  |                         | 12,569 |   |                         |   | 1,244,545 |                                   |  |   | (3,561                | ) |  |   | (9,441 | ) |  |   | 1,244,112 |  
|Issuance of Common Units                             |  |                         | 76     |   |                         |   | 7,478     |                                   |  |   |                      |   |  |   |       |   |  |   | 7,554     |  
|Redemption of Common Units                           |  |                         | (36    | ) |                         |   | (3,622    | )                                 |  |   |                      |   |  |   |       |   |  |   | (3,658    | )
|Retirement of treasury units                         |  |                         | (11    | ) |                         |   | (1,163    | )                                 |  |   |                      |   |  |   |       |   |  |   | (1,174    | )
|Distributions paid on Common Units                   |  |                         | (1,412 | ) |                         |   | (139,764  | )                                 |  |   |                      |   |  |   |       |   |  |   | (141,176  | )
|Preferred distributions paid on Common Units         |  |                         | (308   | ) |                         |   | (30,544   | )                                 |  |   |                      |   |  |   |       |   |  |   | (30,852   | )
|Net income                                           |  |                         | 1,080  |   |                         |   | 106,884   |                                   |  |   |                      |   |  |   |       |   |  |   | 107,964   |  
|Adjustments of redeemable common units to fair value |  |                         | 372    |   |                         |   | 36,850    |                                   |  |   |                      |   |  |   |       |   |  |   | 37,222    |  
|Other comprehensive income                           |  |                         |       |   |                         |   |          |                                   |  |   |                      |   |  |   | 237    |   |  |   | 237       |  
|Issuance of restricted units                         |  |                         | 14     |   |                         |   | 1,400     |                                   |  |   | (1,414                | ) |  |   |       |   |  |   |          |  
|Repurchase of Common Units                           |  |                         | (12    | ) |                         |   | (1,162    | )                                 |  |   |                      |   |  |   |       |   |  |   | (1,174    | )
|Amortization of deferred compensation                |  |                         |       |   |                         |   |          |                                   |  |   | 1,276                 |   |  |   |       |   |  |   | 1,276     |  
|                                                     |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2002                         |  |                         | 12,332 |   |                         |   | 1,220,902 |                                   |  |   | (3,699                | ) |  |   | (9,204 | ) |  |   | 1,220,331 |  
|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  | )
|Preferred distributions paid on Common Units         |  |                         | (309   | ) |                         |   | (30,543   | )                                 |  |   |                      |   |  |   |       |   |  |   | (30,852   | )
|Net income                                           |  |                         | 628    |   |                         |   | 62,175    |                                   |  |   |                      |   |  |   |       |   |  |   | 62,803    |  
|Adjustments of redeemable Common Units to fair value |  |                         | 6      |   |                         |   | 592       |                                   |  |   |                      |   |  |   |       |   |  |   | 598       |  
|Other comprehensive income                           |  |                         |       |   |                         |   |          |                                   |  |   |                      |   |  |   | 5,554  |   |  |   | 5,554     |  
|Issuance of restricted units                         |  |                         | 22     |   |                         |   | 2,200     |                                   |  |   | (2,222                | ) |  |   |       |   |  |   |          |  
|Repurchase of Common Units                           |  |                         | (93    | ) |                         |   | (9,184    | )                                 |  |   |                      |   |  |   |       |   |  |   | (9,277    | )
|Fair value of options issued                         |  |                         | 3      |   |                         |   | 310       |                                   |  |   | (313                  | ) |  |   |       |   |  |   |          |  
|Amortization of deferred compensation                |  |                         |       |   |                         |   |          |                                   |  |   | 1,801                 |   |  |   |       |   |  |   | 1,801     |  
|                                                     |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2003                         |  | $                       | 11,393 |   |                         | $ | 1,128,025 |                                   |  | $ | (4,433                | ) |  | $ | (3,650 | ) |  | $ | 1,131,335 |  
|                                                     |  |                         |        |   |                         |   |           |                                   |  |   |                       |   |  |   |        |   |  |   |           |  



See accompanying notes
to consolidated financial statements.



F-5



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Cash Flows



($ in
thousands)



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



|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                         |  | 2003 |          |   | 2002 |   |          | 2001 | 
|Operating activities:                                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Income from continuing operations                                                                        |  | $    | 27,501   |   |      | $ | 69,767   |      |  | $ | 121,846  |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |      |          |   |      |   |          |      |  |   |          |  
|Depreciation                                                                                             |  |      | 111,827  |   |      |   | 104,029  |      |  |   | 96,411   |  
|Amortization of lease commissions                                                                        |  |      | 17,368   |   |      |   | 17,717   |      |  |   | 12,682   |  
|Amortization of deferred compensation                                                                    |  |      | 1,801    |   |      |   | 1,276    |      |  |   | 1,036    |  
|Amortization of deferred financing costs                                                                 |  |      | 3,078    |   |      |   | 1,394    |      |  |   | 2,005    |  
|Amortization of accumulated other comprehensive loss                                                     |  |      | 1,688    |   |      |   | 1,543    |      |  |   | 1,565    |  
|Equity in earnings of unconsolidated affiliates                                                          |  |      | (4,463   | ) |      |   | (7,675   | )    |  |   | (8,276   | )
|Gain on disposition of land and depreciable assets                                                       |  |      | (3,776   | ) |      |   | (11,399  | )    |  |   | (16,197  | )
|Transition loss upon adoption of SFAS 133                                                                |  |      |         |   |      |   |         |      |  |   | 556      |  
|Loss on ineffective portion of derivative instruments                                                    |  |      |         |   |      |   |         |      |  |   | 554      |  
|Discontinued operations                                                                                  |  |      | 19,223   |   |      |   | 37,077   |      |  |   | 40,303   |  
|Changes in operating assets and liabilities:                                                             |  |      |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                                      |  |      | (4,393   | ) |      |   | 9,920    |      |  |   | (1,295   | )
|Prepaid expenses and other assets                                                                        |  |      | 3,764    |   |      |   | (7,751   | )    |  |   | (2,077   | )
|Accrued straight-line rents receivable                                                                   |  |      | (5,189   | ) |      |   | (3,344   | )    |  |   | (11,257  | )
|Accounts payable, accrued expenses and other liabilities                                                 |  |      | (14,154  | ) |      |   | (9,924   | )    |  |   | 10,510   |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                                |  |      | 154,275  |   |      |   | 202,630  |      |  |   | 248,366  |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Investing activities:                                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Additions to real estate assets                                                                          |  |      | (202,066 | ) |      |   | (130,821 | )    |  |   | (351,726 | )
|Proceeds from disposition of real estate assets                                                          |  |      | 225,246  |   |      |   | 302,205  |      |  |   | 161,389  |  
|Repayments from unconsolidated affiliates                                                                |  |      |         |   |      |   | 788      |      |  |   | 27,570   |  
|Distributions from unconsolidated affiliates                                                             |  |      | 8,801    |   |      |   | 10,919   |      |  |   | 8,940    |  
|Investments in notes receivable                                                                          |  |      | 3,701    |   |      |   | 3,777    |      |  |   | 58,321   |  
|Other investing activities                                                                               |  |      | (2,433   | ) |      |   | (515     | )    |  |   | (15,295  | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net cash provided by/(used in) investing activities                                                      |  |      | 33,249   |   |      |   | 186,353  |      |  |   | (110,801 | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Financing activities:                                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Distributions paid on common units                                                                       |  |      | (111,804 | ) |      |   | (141,176 | )    |  |   | (142,889 | )
|Dividends paid on preferred units                                                                        |  |      | (30,852  | ) |      |   | (30,852  | )    |  |   | (31,500  | )
|Net proceeds from the sale of common units                                                               |  |      | 1,976    |   |      |   | 5,788    |      |  |   | 1,780    |  
|Redemption/repurchase of common units                                                                    |  |      | (19,072  | ) |      |   | (4,832   | )    |  |   | (147,426 | )
|Redemption/repurchase of preferred units                                                                 |  |      |         |   |      |   |         |      |  |   | (18,501  | )
|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                                                                |  |      | 229,690  |   |      |   | 51,737   |      |  |   | 76,707   |  
|Repayment of mortgages and notes payable                                                                 |  |      | (260,638 | ) |      |   | (94,613  | )    |  |   | (176,918 | )
|Settlement of interest rate swap agreement                                                               |  |      | 3,866    |   |      |   |         |      |  |   |         |  
|Net change in deferred financing costs                                                                   |  |      | (2,078   | ) |      |   | (1,599   | )    |  |   | (1,010   | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net cash used in financing activities                                                                    |  |      | (179,912 | ) |      |   | (379,047 | )    |  |   | (239,257 | )
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Net increase/(decrease) in cash and cash equivalents                                                     |  |      | 7,612    |   |      |   | 9,936    |      |  |   | (101,692 | )
|Cash and cash equivalents at beginning of the period                                                     |  |      | 10,730   |   |      |   | 794      |      |  |   | 102,486  |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of the period                                                           |  | $    | 18,342   |   |      | $ | 10,730   |      |  | $ | 794      |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Supplemental disclosure of cash flow information:                                                        |  |      |          |   |      |   |          |      |  |   |          |  
|Cash paid for interest                                                                                   |  | $    | 113,686  |   |      | $ | 114,986  |      |  | $ | 118,704  |  
|                                                                                                         |  |      |          |   |      |   |          |      |  |   |          |  



See accompanying notes
to consolidated financial statements.



F-6



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



Consolidated Statements of Cash Flows - Continued



($ in thousands)



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



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                                   |  | $    | 67,611 |   |      | $ | 43,148 |  | $ | 6,516
|Cash and cash equivalents                                |  |      |       |   |      |   | 353    |  |   | 40   
|Accounts receivable                                      |  |      |       |   |      |   | 139    |  |   |     
|Notes receivable                                         |  |      | 9,455  |   |      |   |       |  |   |     
|Investment in unconsolidated affiliates                  |  |      | (1,861 | ) |      |   |       |  |   |     
|Deferred financing costs                                 |  |      | 17,810 |   |      |   |       |  |   |     
|                                                         |  |      |        |   |      |   |        |  |   |      
|                                                         |  | $    | 93,015 |   |      | $ | 43,640 |  | $ | 6,556
|                                                         |  |      |        |   |      |   |        |  |   |      
|Liabilities:                                             |  |      |        |   |      |   |        |  |   |      
|Mortgages and notes payable                              |  | $    | 82,486 |   |      | $ | 23,366 |  | $ | 3,922
|Accounts payable, accrued expenses and other liabilities |  |      | 7,327  |   |      |   | 18,508 |  |   | 73   
|                                                         |  |      |        |   |      |   |        |  |   |      
|                                                         |  | $    | 89,813 |   |      | $ | 41,874 |  | $ | 3,995
|                                                         |  |      |        |   |      |   |        |  |   |      
|Equity:                                                  |  | $    | 3,202  |   |      | $ | 1,766  |  | $ | 2,561
|                                                         |  |      |        |   |      |   |        |  |   |      



See accompanying notes
to consolidated financial statements.



F-7



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



December 31, 2003



1. DESCRIPTION
OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES



Description of the Operating Partnership



Highwoods Realty Limited Partnership (the Operating Partnership) is managed by its general partner, Highwoods Properties, Inc. (the
Company), a self-administered and self-managed real estate investment trust (REIT) which 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.



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. The Company is the sole general partner of the Operating Partnership. At December 31, 2003, the Company owned 100.0% of the preferred partnership interests (Preferred Units)
and 88.9% of the common partnership interests (Common Units) in the Operating Partnership. In 2003, the Company repurchased from limited partners (including certain officers and directors of the Company) 453,635 Common Units back into
the Operating Partnership, which increased the percentage of common partnership units owned by the Company from 88.4% at December 31, 2002 to 88.9% at December 31, 2003. Limited partners (including certain officers and directors of the Company) own
the remaining Common Units. Holders of Common Units may redeem them for the cash value of one share of the Companys Common Stock, $.01 par value (the Common Stock), or, at the Companys option, one share of Common Stock. 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 preferred interests in the Operating Partnership. The terms of each series of Preferred Units as to dividends, liquidation and redemption rights as more fully described in
Note 9.



Generally, the Operating Partnership is obligated to
redeem each 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 Common Unit presented for redemption for cash or one share of Common Stock. When a Common Unit holder redeems a 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.



Basis of Presentation



The consolidated financial statements include the accounts of the Operating Partnership and its majority-owned affiliates. All significant intercompany
balances and transactions have been eliminated in the consolidated financial statements.



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.



F-8



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIESContinued



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. The 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. The construction expenditures include all general and administrative costs, including compensation incurred in connection with specific construction
projects. The leasing expenditures include all 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 Statement of Financial Accounting Standards (SFAS) No. 141. 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. The capitalized above-market lease values are amortized as a reduction of based rental revenue over the remaining term of the respective leases and the capitalized
below-market lease values are amortized as an increase to based rental revenue over the remaining term of the respective leases.



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 cost to execute similar leases. 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 tenant relationships 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 tenant relationships 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 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
and used. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Operating Partnership records assets held for sale at the lower of the carrying amount
or fair value less cost to sell. The impairment loss is the amount by which the carrying amount exceeds the fair value less cost to sell. With respect to assets classified as held and used, the Operating Partnership periodically reviews these assets
to determine whether its carrying amount will be recovered from their undiscounted future operating cash flows and the Operating Partnership recognizes an impairment loss to the extent it believes the carrying amount is not recoverable. The
Operating Partnerships estimates of the undiscounted future operating cash flows expected to be generated are 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. As these factors are difficult to predict and are subject to future events that may alter the Operating Partnerships assumptions, the undiscounted
future operating cash flows estimated by the Operating Partnership in its impairment analyses may not be achieved and the Operating Partnership may be required to recognize future impairment losses on its properties.



F-9



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued



As of December 31, 2003, the Operating Partnership had 438,073 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 value of $65.7 million and have been classified as assets held for sale in the accompanying financial statements.



Rental revenue.Rental revenue is comprised of base rent, property operating cost recoveries from tenants, parking and other income and termination
fees which relate to specific tenants each of whom has paid a fee to terminate its lease obligation before the end of the contracted term on the lease.



In accordance with Generally Accepted Accounting Principles (GAAP), base 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.



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. Most 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 also 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 issues a bill or credit for the full amount, after considering
amounts paid by the tenants during the year. 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 any of the years ended December 31, 2002 and 2001. Final adjustments for the year ended December 31, 2003 have not yet been
determined.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued



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.



Investments in joint
ventures.The Operating Partnerships investments in unconsolidated affiliates consist of one corporation, eight limited liability companies, three limited partnerships and three general partnerships. 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 have financial or operating control. 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. Any difference between the carrying amount of these investments on the Operating Partnerships balance
sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated affiliates over the life of the property, generally 40 years.



From time to time, the Operating Partnership contributes real estate assets to an unconsolidated joint venture in exchange
for a combination of cash and an equity interest in the venture. The Operating Partnership records a partial gain on the contribution of the real estate assets to the extent of the third party investors interest and records a deferred gain to
the extent of its continuing interest in the unconsolidated joint venture.



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 their 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 strategic partners are required to guarantee customary exceptions to non-recourse liability
in non-recourse loans.



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.Holders of redeemable Common Units may redeem
each of their Common Units for cash equal to the fair market value of one share of the Operating Partnerships Common Stock at any time after expiration of the applicable lock-up period. The Company, the general partner of the
Operating Partnership, may at its option choose to satisfy the redemption requirement by issuing Common Stock on a one-for-one basis for the number of Common Units submitted for redemption. In accordance with Accounting Series Release 268 issued by
the Securities and Exchange Commission, these Common Units are classified outside of permanent partners capital in the accompanying balance sheet. The recorded value of the Common Units is based on fair value at the balance sheet date as
measured by the closing price of the Companys common stock on that date multiplied by the total number of Common Units outstanding.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued



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



Concentration of credit risk.Management of the Operating Partnership performs ongoing credit evaluations of its tenants. As of December 31, 2003,
the wholly-owned properties (excluding apartment units) 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 currently generates revenue greater
than 3.4%.



Common unit and stock compensation.The
Company 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 included herein, the Operating Partnership elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its stock options for options issued through December 31, 2002. During 2002, the
Financial Accounting Standards Board issued SFAS 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 148 for options issued on or after January 1,
2003.



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.



Per unit information. Per unit information is calculated using the weighted average number of units of Common Units outstanding (including common unit equivalents).



Use of estimates.The preparation of financial statements in accordance with generally accepted accounting principles
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.



Reclassifications.Certain amounts 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.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued



Impact
of Newly Adopted and Issued Accounting Standards



In April
2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145), 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 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 Accounting
Principles Board (APB) Opinion 30 for classification as an extraordinary item to also be reclassified. The Operating Partnership adopted SFAS 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 interest 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 the interpretation. The disclosure requirements in this Interpretation 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.



In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based CompensationTransition and
Disclosure (SFAS 148), which amends FASB 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 Statement 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 25, Accounting for Stock Issued to Employees
and Related Interpretations. (See Note 14 for further discussion).



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued



In January 2003, the FASB issued Interpretation No. 46 (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 FASB Interpretation No. 46 (revised December 2003), entities shall apply the Interpretation only to special-purpose entities subject
to the Interpretation 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 the Operating Partnership has no significant variable interests in special-purpose entities, the Interpretation is effective March 31, 2004. As of December 31, 2003, it was initially believed
that when the Interpretation becomes effective, it was reasonably possible the Operating Partnership would consolidate or disclose information about variable interest entities. Those entities would have consisted of three joint ventures with
unrelated investors in which the Operating Partnership had retained 50.00% or less minority equity interests (See Note 2 for further discussion). 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, which will eliminate any FIN 46 impact that was previously anticipated related to these joint ventures. (See Note 19 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 $24.8 million at December 31, 2003. The maximum exposure to loss assumes the
Operating Partnership would be required to fully satisfy its debt guarantees and experiences a complete loss of its equity investment in such entities.



In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS
149). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. SFAS 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 on the Operating Partnerships derivative instruments.



In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity (SFAS 150). SFAS 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). This Statement 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 this Statement and still existing at the beginning of the interim period of adoption. As of December
31, 2003, the provisions of SFAS 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 is classified as non-controlling interests in finite-life entities under SFAS 150. However, on March 2, 2004, the Operating Partnership acquired its partners interests in these
entities, which will eliminate the minority interest in VIEs that was expected upon the implementation of FIN 46. (See Note 19 for further discussion). Additionally, at its October 29, 2003 meeting, the FASB voted to defer indefinitely SFAS 150 as
it relates to non-controlling interests in finite-life entities.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



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. As required by GAAP, the Operating Partnership has accounted for its joint venture
activity using the equity method of accounting, as the Operating Partnership does not control these joint ventures. As a result, the assets and liabilities of the Operating Partnerships joint ventures are not included on its balance sheet.



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



|                                  |  |              |   |  |                   |         |                   |   |                  |  |             |         |      |   |                  |  |   |         |  |   |        
|--------------------------------- |  | ------------ | - |  | ----------------- | ------- | ----------------- | - | ---------------- |  | ----------- | ------- | ---- | - | ---------------- |  | - | ------- |  | - | -------
|                                  |  |              |   |  | December 31, 2003 |         | December 31, 2002
|                                  |  | PercentOwned |   |  | TotalAssets       |         | Debt              |   | TotalLiabilities |  | TotalAssets |         | Debt |   | TotalLiabilities
|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        | % |  |                   | 140,192 |                   |   | 67,241           |  |             | 69,522  |      |   | 141,147          |  |   | 68,209  |  |   | 70,482 
|Highwoods DLF 97/26 DLF 99/32, LP |  | 42.93        | % |  |                   | 115,854 |                   |   | 59,027           |  |             | 61,841  |      |   | 119,134          |  |   | 59,688  |  |   | 62,601 
|Highwoods-Markel Associates, LLC  |  | 50.00        | % |  |                   | 51,661  |                   |   | 40,000           |  |             | 41,128  |      |   | 16,026           |  |   | 11,625  |  |   | 12,583 
|MG-HIW, LLC                       |  | 20.00        | % |  |                   | 197,191 |                   |   | 136,207          |  |             | 141,854 |      |   | 355,102          |  |   | 242,240 |  |   | 249,340
|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      
|SF-HIW Harborview, LP             |  | 20.00        | % |  |                   | 40,895  |                   |   | 22,800           |  |             | 23,886  |      |   | 41,134           |  |   | 22,800  |  |   | 25,225 
|                                  |  |              |   |  |                   |         |                   |   |                  |  |             |         |      |   |                  |  |   |         |  |   |        
|Total                             |  |              |   |  | $                 | 783,823 |                   | $ | 517,237          |  | $           | 540,980 |      | $ | 896,651          |  | $ | 585,216 |  | $ | 610,371
|                                  |  |              |   |  |                   |         |                   |   |                  |  |             |         |      |   |                  |  |   |         |  |   |        



|                                  |  |                              |   |  |                              |         |                   |   |          |  |            |        |  |                  |        |     |         |   |          |      |                   |   |            |  |                  |        |  |   |        |  |   |        |  |   |        |  
|--------------------------------- |  | ---------------------------- | - |  | ---------------------------- | ------- | ----------------- | - | -------- |  | ---------- | ------ |  | ---------------- | ------ | --- | ------- | - | -------- | ---- | ----------------- | - | ---------- |  | ---------------- | ------ |  | - | ------ |  | - | ------ |  | - | ------ | -
|                                  |  | Year ended December 31, 2003 |   |  | Year ended December 31, 2002 |        
|                                  |  | PercentOwned                 |   |  | Revenue                      |         | OperatingExpenses |   | Interest |  | Depr/Amort |        |  | NetIncome/(Loss) |        |     | Revenue |   | Expenses |      | OperatingInterest |   | Depr/Amort |  | NetIncome/(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    |      |                   |   | 20,337     |  |                  | 5,549  |  |   | 4,653  |  |   | 3,391  |  |   | 6,744  |  
|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, LLC                       |  | 20.00                        | % |  |                              | 39,922  |                   |   | 15,081   |  |            | 7,475  |  |                  | 18,699 | (2) |         |   | (1,333   | )(2) |                   |   | 51,177     |  |                  | 18,156 |  |   | 10,741 |  |   | 8,377  |  |   | 13,903 |  
|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      |  
|SF-HIW Harborview, LP             |  | 20.00                        | % |  |                              | 6,840   |                   |   | 1,720    |  |            | 1,403  |  |                  | 866    |     |         |   | 2,851    |      |                   |   | 1,721      |  |                  | 458    |  |   | 432    |  |   | 289    |  |   | 542    |  
|                                  |  |                              |   |  |                              |         |                   |   |          |  |            |        |  |                  |        |     |         |   |          |      |                   |   |            |  |                  |        |  |   |        |  |   |        |  |   |        |  
|Total                             |  |                              |   |  | $                            | 128,729 |                   | $ | 49,999   |  | $          | 30,056 |  | $                | 36,566 |     |         | $ | 12,108   |      |                   | $ | 137,811    |  | $                | 51,319 |  | $ | 33,233 |  | $ | 25,985 |  | $ | 27,274 |  
|                                  |  |                              |   |  |                              |         |                   |   |          |  |            |        |  |                  |        |     |         |   |          |      |                   |   |            |  |                  |        |  |   |        |  |   |        |  |   |        |  

---

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

|(2) | Includes a $12.1 million impairment loss at the joint venture level of which the Operating Partnerships share is $2.4 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES - Continued



The following summarizes the formation and principal activities of the
various 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



In addition, 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.



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 approximately $142.0 million to a newly created
limited partnership (the DLF I Joint Venture). DLF contributed approximately $56.0 million for a 77.19% interest in the DLF I Joint Venture, and the DLF I Joint Venture borrowed approximately $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 sole and exclusive property manager and leasing agent of the DLF I Joint Ventures
properties, for which the Operating Partnership received fees of $0.9 million, $0.9 million and $0.8 million in 2003, 2002 and 2001, respectively.



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 approximately $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 approximately $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 approximately $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 sole and exclusive property manager and leasing agent of the DLF II Joint Ventures properties, for which the
Operating Partnership received fees of $0.5 million in 2003, 2002 and 2001.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES - Continued



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 sole and exclusive property manager and leasing agent of the joint ventures properties, for
which the Operating Partnership received fees of $0.1 million, $0.1 million and $0.05 million in 2003, 2002 and 2001, respectively.



On December 29, 2003, the Operating Partnership contributed an additional three in-service office properties encompassing approximately 290,853 rentable
square feet valued at approximately $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 their 50.0% ownership interest and
the joint venture borrowed and refinanced approximately $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 approximately $31.9 million. The
Operating Partnership is the sole and exclusive manager and leasing agent for the properties and receives customary management fees and leasing commissions, which have been included in the totals above.



MG-HIW Joint Ventures



On December 19, 2000, the Operating Partnership formed or agreed to form five joint ventures with Denver-based Miller Global
Properties, LLC (Miller Global). In the first joint venture, MG-HIW, LLC, the Operating Partnership sold or contributed 19 in-service office properties encompassing approximately 2.5 million rentable square feet valued at approximately
$335.0 million. As part of the formation of MG-HIW, LLC, Miller Global contributed approximately $85.0 million in cash for an 80.0% ownership interest and the joint venture borrowed approximately $238.8 million from a third-party lender. The
Operating Partnership retained a 20.0% ownership interest and received net cash proceeds of approximately $307.0 million. During 2001, the Operating Partnership 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 the Operating Partnership retained its 20.0% ownership interest and received net cash proceeds of approximately $4.8 million. In the
remaining four joint ventures, 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 encompassing 347,000 rentable square feet that costs approximately $50.4 million in the aggregate. The fourth joint venture, MG-HIW Metrowest I, LLC is expected to develop one property encompassing 88,000 rentable square
feet with a budgeted cost of approximately $10.8 million. The Operating Partnership is the sole and exclusive developer of these properties, and received $0.03 million and $0.6 million in development fees in 2002 and 2001, respectively. The
Operating Partnership did not receive development fees in 2003. In addition, the Operating Partnership is the sole and exclusive property manager and leasing agent for the properties in all of these joint ventures and received fees of $2.0 million,
$2.9 million and $1.5 million in 2003, 2002 and 2001, respectively.



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 SF-HIW Harborview, LP discussion).



On July 29, 2003, the Operating Partnership acquired the assets and/or its
partners 80.0% equity interest related to 15 properties encompassing 1.3 million square feet owned by MG-HIW, LLC. (See Note 3 for further discussion on this acquisition).



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES - Continued



On March 2, 2004, the Operating Partnership exercised its options and
acquired its partners 80.0% interest in the remaining assets of MG-HIW, LLC and its partners 50.0% interests in MG-HIW Metrowest I, LLC and MG-HIW, Metrowest II, LLC. (See Note 19 for further discussion).



Plaza Colonnade, LLC



On June 14, 2002, the Operating Partnership contributed $1.1 million cash to Plaza Colonnade, LLC, a newly formed limited
liability Operating Partnership to construct a 285,000 square foot development property. The total project costs are estimated at $70.6 million. 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 which is expected to cost $69.7 million. The Operating Partnership is a co-developer of this property and received development fees of $0.4
million in 2003. The construction loan requires that the joint venture invest $9.3 million, $4.6 million of which will be the Operating Partnerships share. The Operating Partnership and its partners in this joint venture have each guaranteed
50.0% of the loan. The loan repayment guarantees are reduced upon the project reaching certain predetermined criteria. 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. (See Note 15 for further discussion).



SF-HIW Harborview, LP



On September 11, 2002, the Operating Partnership contributed Harborview Plaza to SF-HIW Harborview Plaza, LP, a newly formed joint venture with a different partner, in exchange for a 20.0% limited partnership interest and $12.1 million in
cash. The Operating Partnership is the sole and exclusive property manager and leasing agent of this joint ventures property, for which it received fees of $0.2 million and $0.06 million in 2003 and 2002, respectively.



3. ACQUISITION OF JOINT
VENTURE ASSETS AND EQUITY INTERESTS



On July 29, 2003, the Operating Partnership acquired the assets and/or its partners 80.0% equity interest related to 15 properties encompassing 1.3
million square feet owned by MG-HIW, LLC. The properties are located in Atlanta, Raleigh and Tampa. At the closing of the transaction, 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 transaction implies a valuation (100.0% ownership) of $141.2 million, which includes the properties and other net assets. The Operating Partnership accounted for the acquisition in accordance with the
provisions of Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141). The Operating Partnership allocated $125.7 million of the purchase price to net tangible assets and $11.7 million to
identified intangible assets acquired based on their fair values. The Operating Partnership assessed fair value based on available market information and estimated cash flow projections that utilize discount and capitalization rates deemed
appropriate by management. The weighted average amortization period of the identified intangible assets is approximately five years. The results of operations subsequent to the acquisition are included in the Operating Partnerships
Consolidated Statements of Income for the year ended December 31, 2003.



An impairment charge of $12.1 million was recorded by MG-HIW, LLC joint venture for assets classified as held for sale as of June 30, 2003, which were subsequently sold by MG-HIW, LLC to the Operating Partnership on July 29, 2003. The
Operating Partnerships share of this charge of $2.4 million reduced the Operating Partnerships equity in earnings of unconsolidated affiliates for the year ended December 31, 2003.



Also as a part of the MG-HIW, LLC acquisition on July 29, 2003, the Operating
Partnership was assigned Miller Globals 50.0% equity interest in the single property encompassing 53,896 square feet owned by MG-HIW Peachtree Corners III, LLC. The construction loan, which was made to this joint venture by an affiliate of the
Operating Partnership had an interest rate of LIBOR plus 200 basis points and was paid in full on July 29, 2003 in connection with the assignment.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



3. ACQUISITION OF JOINT VENTURE ASSETS AND
EQUITY INTERESTS - Continued



Additionally, the Operating Partnership entered into an option agreement to acquire Miller Globals 80.0% interest in the remaining assets of MG-HIW, LLC. The remaining assets of MG-HIW, LLC are five properties encompassing 1.3 million
square feet located in the central business district of Orlando. The properties were 83.8% leased as of December 31, 2003 and are encumbered by $136.2 million of floating rate debt with interest based on LIBOR plus 200 basis points, which will be
assumed by the Operating Partnership at closing. The Operating Partnership acquired this 80.0% interest on March 2, 2004. (See Notes 15 and 19 for further discussion).



Also as part of the MG-HIW, LLC acquisition on July 29, 2003, the Operating Partnership entered into an option agreement
with its partner, Miller Global, to acquire their 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 is outstanding at December 31, 2003, will be either paid in full or assumed by the Operating Partnership in connection with the acquisition of the remaining assets.
The Operating Partnership acquired this 50.0% interest on March 2, 2004. (See Notes 15 and 19 for further discussion).



The following unaudited pro forma information has been prepared assuming the acquisition of the MG-HIW joint venture properties described above occurred
January 1, 2002 ($ in thousands, except per share amounts):



|                                |  |                                           |         |      |   |        
|------------------------------- |  | ----------------------------------------- | ------- | ---- | - | -------
|                                |  | Pro Forma for the Year Ended December 31,
|                                |  | 2003                                      |         | 2002
|Rental revenue and other income |  | $                                         | 500,382 |      | $ | 549,876
|Net income                      |  | $                                         | 69,711  |      | $ | 115,303
|                                |  |                                          
|Net income per share - basic    |  | $                                         | 0.65    |      | $ | 1.41   
|Net income per share - diluted  |  | $                                         | 0.65    |      | $ | 1.40   



The pro forma
information is not necessarily indicative of what the Operating Partnerships results of operations would have been if the transaction had occurred at the beginning of the period presented. Additionally, the pro forma information does not
purport to be indicative of the Operating Partnerships results of operations for future periods.



4. DISPOSITIONS



During 2003, the Operating Partnership contributed to joint ventures or sold approximately 3.6 million rentable square feet of office, industrial and retail properties, 122.8 acres of revenue-producing land and 108.5 acres of development
land for gross proceeds of $257.2 million. The Operating Partnership recognized gains totaling $23.5 million related to these dispositions and deferred the recognition of additional gain of $2.7 million in accordance with Statement of Financial
Accounting Standards No. 66, Accounting for Sales of Real Estate (SFAS 66) as a result of the Operating Partnership retaining its 50.0% equity interest in Highwoods-Markel Associates, LLC after contributing the buildings to
the joint venture. See Note 2 for further discussion of the Highwoods-Markel Associates, LLC transaction and Note 15 for further discussion of the deferral of gains due to rental shortfall and re-tenanting cost guarantees.



During 2002, the Operating Partnership contributed to joint ventures or sold
approximately 2.5 million rentable square feet of office and industrial properties and 137.7 acres of development land for gross proceeds of $302.2 million. The Operating Partnership recognized a gain of $24.5 million related to these dispositions
and deferred the recognition of additional gain of $1.0 million as a result of the outstanding put option related to SF-HIW Harborview, LP. See Note 15 for further discussion of the deferral of gains due to rental shortfall and re-tenanting cost
guarantees.



During 2001, the Operating Partnership contributed
to joint ventures or sold approximately 425,000 rentable square feet of office and industrial properties, 215.7 acres of development land and 1,672 apartment units for gross proceeds of $180.3 million. The Operating Partnership recognized a gain of
$16.2 million related to these dispositions.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. MORTGAGES AND NOTES PAYABLE



The Operating Partnerships 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 |  |                  | 37,289    |     |      |   | 41,081   
|Variable rate mortgage loan due 2006                  |  |                  | 64,676    |     |      |   |         
|Variable rate mortgage loan due 2007                  |  |                  | 4,033     |     |      |   | 4,309    
|                                                      |  |                  |           |     |      |   |          
|                                                      |  |                  | 823,758   |     |      |   | 500,720  
|                                                      |  |                  |           |     |      |   |          
|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                                       |  |                  |          |     |      |   | 125,000  
|Put Option Notes due 2011                             |  |                  | 100,000   |     |      |   | 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                                                 |  | $                | 1,549,758 |     |      | $ | 1,489,220
|                                                      |  |                  |           |     |      |   |          

---

|(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 10-year secured debt at an effective rate of 5.25%. $100.0 million was refinanced with a 2-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 the Operating Partnerships $250.0 million Revolving Loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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):



|                           |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|-------------------------- |  | ----- | --------- | ------------------------------------------- | ---- | ---------- | ---- | - | ------- |  | ---- | ------- |  | - | ------ |  | - | ------- |  | - | -------
|                           |  | Total |           | Amounts due during year ending December 31, |      | Thereafter
|                           |  |       | 2004      |                                             | 2005 |            | 2006 |   | 2007    |  | 2008 |        
|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) |  |       | 755,049   |                                             |      | 12,871     |      |   | 81,447  |  |      | 19,362  |  |   | 79,385 |  |   | 13,965  |  |   | 548,019
|                           |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Total Fixed Rate Debt      |  |       | 1,315,049 |                                             |      | 12,871     |      |   | 81,447  |  |      | 129,362 |  |   | 79,385 |  |   | 113,965 |  |   | 898,019
|                           |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Variable Rate Debt:        |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Unsecured:                 |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Term Loans                 |  |       | 120,000   |                                             |      |           |      |   | 120,000 |  |      |        |  |   |       |  |   |        |  |   |       
|Revolving Loan (4)         |  |       | 46,000    |                                             |      |           |      |   |        |  |      | 46,000  |  |   |       |  |   |        |  |   |       
|Secured:                   |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Mortgage loans payable (3) |  |       | 68,709    |                                             |      | 235        |      |   | 279     |  |      | 64,968  |  |   | 3,227  |  |   |        |  |   |       
|                           |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Total Variable Rate Debt   |  |       | 234,709   |                                             |      | 235        |      |   | 120,279 |  |      | 110,968 |  |   | 3,227  |  |   |        |  |   |       
|                           |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        
|Total Long Term Debt       |  | $     | 1,549,758 |                                             | $    | 13,106     |      | $ | 201,726 |  | $    | 240,330 |  | $ | 82,612 |  | $ | 113,965 |  | $ | 898,019
|                           |  |       |           |                                             |      |            |      |   |         |  |      |         |  |   |        |  |   |         |  |   |        

---

|(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 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) | 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 consist
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 Put Option Notes bear 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 will be 6.39% plus the applicable spread determined as of 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. If the counter party elects not to exercise this option, the Operating Partnership would be required to repurchase the Put Option
Notes from the Trust on June 15, 2004 at 100.0% of the principal amount plus accrued and unpaid interest.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The mortgage loans payable were secured by real estate assets with an aggregate carrying value of $1.4 billion at December 31, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(4) | On July 17, 2003, the Operating Partnership amended and restated its existing revolving loan. The amended and restated $250.0 million revolving loan (the Revolving Loan)
is from a group of ten lender banks, matures in July 2006 and replaced its previous $300.0 million revolving loan. The Revolving Loan carries an interest rate based upon its senior unsecured credit ratings. As a result, interest would currently
accrue 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 its 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 Operating Partnerships revolving loan would be automatically
increased by 60 basis points.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. MORTGAGES AND NOTES PAYABLE - Continued



On February 3, 2003, the Operating Partnership repurchased 100.0% of the
principal amount of the MandatOry Par Put Remarketed Securities (MOPPRS) due February 1, 2013 from the sole holder thereof in exchange for a secured note in the principal amount of $142.8 million. The secured note bears interest at a
fixed rate of 6.03% and has a maturity date of February 28, 2013. This transaction was accounted for as an exchange of indebtedness under EITF 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments. In
accordance with EITF 96-19, the intermediaries acted as principals and the present value of the cash flows under the terms of the new debt instrument using the MOPPRS effective interest rate was less than 10.0% different from the present value of
the remaining cash flows under the terms of the MOPPRS. Accordingly, the transaction was considered an exchange, not an extinguishment and no loss was recognized. The option premium paid to the lender was $17.7 million and was recorded as a deferred
financing cost and will be amortized to interest expense over the remaining term of the new debt. Fees paid by the Operating Partnership to third parties (such as legal fees) were expensed as incurred.



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.



Other Information



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 $46.2 million of deferred financing costs, with $22.5 million of accumulated amortization. Deferred financing costs include deferred loan fees, which are included in depreciation and amortization expense, and discounts on bonds,
notes payable and public debt issuance costs, which are included in interest expense. The Operating Partnership estimates future amortization of deferred financings costs will be as follows ($ in thousands):



|           |  |       |       
|---------- |  | ----- | ------
|           |  | Total
|2004       |  | $     | 3,582 
|2005       |  |       | 3,696 
|2006       |  |       | 3,058 
|2007       |  |       | 2,398 
|2008       |  |       | 2,189 
|Thereafter |  |       | 8,729 
|           |  |       |       
|           |  | $     | 23,652
|           |  |       |       



6. EMPLOYEE
BENEFIT PLANS



Management Compensation
Program



The officers of the Company, which is the 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 Company and, assuming certain levels of the Companys performance, 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 the Companys actual performance versus its annual plan using the following measures: return on invested capital; growth in funds from operations
(FFO) per share; property level cash flow as a percentage of plan; general and administrative expenses as a percentage of revenue; and growth in same property net operating income. To the extent this weighted average is less than or
exceeds the Companys targeted performance level, the bonus percentage paid is proportionally reduced or increased on a predetermined scale. Depending on the Companys performance, annual incentive bonuses could range from zero to 200.0%
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.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



6. EMPLOYEE BENEFIT PLANS - Continued



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.



On January 1, 1999, the Company established a compensation program which allows officers and certain other members of management to participate in a long term incentive plan which includes annual grants of stock options, restricted shares
and grants of units in the Shareholder Value Plan. The stock options vest ratably over four years and remain outstanding for ten years from date of grant.



The restricted shares vest 50.0% three years from the date of grant and the remaining 50.0% five years from date of grant. The restricted share awards are
recorded at market value on the date of grant as unearned compensation expense and amortized 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    |  |                         | 260,231   |   |      |   | 211,669   |      |  |   | 127,008   |  
|Number of restricted shares awarded           |  |                         | 104,076   |   |      |   | 78,969    |      |  |   | 89,910    |  
|Restricted shares repurchased or cancelled    |  |                         | (556      | ) |      |   | (30,407   | )    |  |   | (5,249    | )
|                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|Restricted shares outstanding at December 31  |  |                         | 363,751   |   |      |   | 260,231   |      |  |   | 211,669   |  
|                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|Annual expense, net                           |  | $                       | 1,733,492 |   |      | $ | 1,276,000 |      |  | $ | 1,036,000 |  
|                                              |  |                         |           |   |      |   |           |      |  |   |           |  
|Average fair value per share at date of grant |  | $                       | 24.03     |   |      | $ | 24.90     |      |  | $ | 24.82     |  
|                                              |  |                         |           |   |      |   |           |      |  |   |           |  



The Shareholder Value
Plan rewards the officers of the Company when the total shareholder returns measured by increases in the market value of the Common Stock plus the dividends on those shares exceed a comparable index of the Companys peers over a three year
period. The payout for this program is determined by the Companys percent change in shareholder return compared to the composite index of its peer group. 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 payouts under this plan in 2003, 2002 or 2001.



The Company established a deferred compensation plan pursuant to which
various officers could elect to defer a portion of the compensation that would otherwise be paid to the officer for investment in units of phantom stock or 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 employ 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. Over the two-year vesting period, the Company records 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. Compensation expense of $0.7 million and $0.2 million were recorded by the Operating Partnership for the years ended December 31, 2003 and 2002.



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.



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



6. EMPLOYEE BENEFIT PLANS - Continued



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 to $0.2 million
and $0.1 million in 2003 and 2002, respectively.



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, 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. On January 17, 2003, the
Operating Partnership acquired an additional 23.46 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 taken down 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
Bluegrass, 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 Bluegrass for the condemned property of $0.7 million. On September 30,
2003, as a result of the condemnation, the Operating Partnership received the proceeds of $1.8 million. A related party payable of $0.7 million to Bluegrass 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 abstaining from the vote).



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



8. RELATED PARTY TRANSACTIONS - Continued



During 2000, in connection with the formation of the 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.



The Operating Partnership advanced $0.8 million to an officer and director related to certain expenses paid by the Operating
Partnership on behalf of the officer and director. During 2002, this advance, along with accrued interest, was repaid by the officer and director.



As of December 31, 2003, the Operating Partnership had a $1.7 million receivable due from MG-HIW, LLC. The amount has been subsequently paid in full.



9. PARTNERS CAPITAL



Distributions



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



On February 2, 2004, the Board of Directors declared a distribution of $0.425 per Common Unit which was paid on March 5, 2004, to Common Unitholders of record on February 13, 2004.



Preferred Units



On February 12, 1997, the Company issued 125,000 85/8% 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. The net proceeds (after underwriting commission and other offering costs) of the Series A Preferred Shares issued were $121.8 million.
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
85/8% of the liquidation preference per annum (equivalent to $86.25 per share). 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. On June 19, 2001, the Company repurchased in a privately negotiated transaction 20,055 of these 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 was retired. Of the $86.25 dividend paid per Series A Preferred Share in 2003, $49.24 will be taxed as ordinary income and $37.01 will be taxed as
capital gain.



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. The net proceeds (after underwriting commission and other offering costs) of the Series B Preferred Shares issued were $166.3 million. 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 8.0% 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 will be taxed as ordinary income and
$0.86 will be taxed as capital gain.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



9. PARTNERS CAPITAL - Continued



On April 23, 1998, the Company issued 4,000,000 depositary shares (the Series D Depositary Shares), each
representing a 1/10 fractional interest in an 8.0% 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. The net proceeds (after underwriting commission and other offering costs) of the Series D Preferred Shares issued were $96.8 million. Holders of 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 8.0% 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 will be taxed as
ordinary income and $8.58 will be taxed as capital gain.



The
net proceeds raised from each of three preferred stock issuances were contributed by the Company to the Operating Partnership in exchange for preferred interests in the Operating Partnership (Preferred Units). The terms of each series of
Preferred Units generally parallel the terms of the respective preferred stock as to distributions, liquidation and redemption rights.



Unit Repurchases



During 2003, the Operating Partnership repurchased a total of 0.5 million 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.



10. DERIVATIVE FINANCIAL INSTRUMENTS



Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, 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 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 objective is 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 enters 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 LIBOR interest rate hedge
contracts in 2003. Net payments made to counter parties under LIBOR 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.



In addition, 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.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



10. DERIVATIVE FINANCIAL INSTRUMENTS - Continued



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 hedge is 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 MandatOry Par Put Remarketable Securities (MOPPRS) issued by the Operating Partnership. The termination of this treasury lock
agreement resulted in a payment of $1.5 million to the Operating Partnership. Because this gain was offset by an increase in the fair value of the MOPPRS of $1.5 million, no gain or loss was recognized during the year ended December 31, 2003.



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 and 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 effects 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 fix 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 remain 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 within the next 12 months, will be approximately $0.8 million.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



11. OTHER COMPREHENSIVE INCOME/(LOSS)



Other comprehensive income/(loss) represents net income plus the results of
certain non-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                                                                             |  | $                 | 62,803 |                   | $ | 107,964 |  
|Other comprehensive income/(loss):                                                     |  |                   |        |                   |   |         |  
|Realized derivative gains/(losses) on cashflow hedges                                  |  |                   | 3,866  |                   |   | (1,306  | )
|Amortization 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                                                             |  | $                 | 68,357 |                   | $ | 108,201 |  
|                                                                                       |  |                   |        |                   |   |         |  



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



In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS 144 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 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. SFAS 144 is effective as of January 1, 2002 and extends
the reporting requirements of discontinued operations to include those long-lived assets which:



| | (1) | are classified held for sale at December 31, 2003 as a result of disposal activities that were initiated subsequent to January 1, 2002 or
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (2) | were sold during 2002 and 2003 as a result of disposal activities that were initiated subsequent to January 1, 2002.
| | --- | --------------------------------------------------------------------------------------------------------------------



Per SFAS 144, those long-lived assets which were sold during 2002 and
resulted from disposal activities initiated prior to January 1, 2002 should be accounted for in accordance with SFAS 121 and APB 30. During 2002, the Operating Partnership sold three properties which resulted from disposal activities initiated prior
to January 1, 2002, and the gains realized on these sales are appropriately included in the gain/(loss) on disposition of depreciable assets in the Operating Partnerships Consolidated Statements of Income.



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 5.5 million square feet of
property and 7.8 acres of revenue-producing land sold during 2002 and 2003 and 438,073 square feet of property and 88 apartment units held for sale at December 31, 2003. These were a result of disposal activities that were initiated subsequent to
the effective date of SFAS 144 and are classified as discontinued operations in the Operating Partnerships Consolidated Statements of Income ($ in thousands):



|                                                                       |  |                         |        |      |   |         |  |   |        
|---------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------- |  | - | -------
|                                                                       |  | Year Ended December 31,
|                                                                       |  | 2003                    |        | 2002 |   | 2001   
|Total revenue                                                          |  | $                       | 26,301 |      | $ | 52,229  |  | $ | 55,918 
|Rental operating expenses                                              |  |                         | 7,078  |      |   | 14,952  |  |   | 15,615 
|Depreciation and amortization                                          |  |                         | 2,918  |      |   | 12,002  |  |   | 11,896 
|Interest expense                                                       |  |                         |       |      |   | 200     |  |   |       
|                                                                       |  |                         |        |      |   |         |  |   |        
|Income from discontinued operations                                    |  |                         | 16,305 |      |   | 25,075  |  |   | 28,407 
|Gain on sale/impairment of discontinued operations                     |  |                         | 18,997 |      |   | 13,122  |  |   |       
|                                                                       |  |                         |        |      |   |         |  |   |        
|Total discontinued operations                                          |  | $                       | 35,302 |      | $ | 38,197  |  | $ | 28,407 
|                                                                       |  |                         |        |      |   |         |  |   |        
|Carrying value of assets held for sale and assets sold during the year |  | $                       | 41,311 |      | $ | 224,829 |  | $ | 367,635
|                                                                       |  |                         |        |      |   |         |  |   |        



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



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



In addition, SFAS 144 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 two office properties held for sale, which have now been sold, was greater than their fair value less cost to sell and has recognized a $0.3 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 Statements of Income for the year ended December 31, 2002.



SFAS 144 also requires that the carrying value of a long-lived
asset classified as held and used be compared to the sum of its estimated future undiscounted cash flows. If the carrying value is greater than the sum of its undiscounted future cash flows, an impairment loss should be recognized. At December 31,
2003, because there were no properties held for use with a carrying value exceeding the sum of their 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, and is included in gain on disposition of depreciable assets in the Consolidated Statements of Income for the year ended December 31, 2002. In addition,
in 2002, the Company recognized a $9.1 million impairment loss related to one office property that has been demolished and will be redeveloped into a class A suburban office property and whereby the carrying value exceeded the sum of the
propertys undiscounted future cash flows. This impairment loss is included in gain on disposition of depreciable assets in the Consolidated Statements of Income for the year ended December 31, 2002.



13. EARNINGS PER COMMON UNIT



FASB Statement No. 128 replaced the calculation of
primary and fully diluted earnings per Common Unit with basic and diluted earnings per Common Unit. Unlike primary earnings per Common Unit, basic earnings per Common Unit excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per Common Unit is computed using the weighted average number of Common Units and 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. All earnings per Common Unit amounts for all periods presented have, where
appropriate, been restated to conform to the FASB Statement 128 requirements.



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



13. EARNINGS PER COMMON UNIT - Continued



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



|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                            |  | 2003                                      |         |   | 2002 |   |         | 2001 | 
|                                                                                                                            |  | ($ in thousands, except per unit amounts) |        
|Numerator:                                                                                                                  |  |                                           |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                                  |  | $                                         | 62,803  |   |      | $ | 107,964 |      |  | $ | 150,253 |  
|Non-convertible preferred unit distributions                                                                                |  |                                           | (30,852 | ) |      |   | (30,852 | )    |  |   | (31,500 | )
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|Numerator for basic earnings per Common Unit - income available for Class A Common Unit holders                             |  | $                                         | 31,951  |   |      | $ | 77,112  |      |  | $ | 118,753 |  
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|Numerator for diluted earnings per share  net income available for Class A Common Unit holders  after assumed
conversions |  | $                                         | 31,951  |   |      | $ | 77,112  |      |  | $ | 118,753 |  
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|Denominator:                                                                                                                |  |                                           |         |   |      |   |         |      |  |   |         |  
|Denominator for basic earnings per Common Unit  weighted-average shares                                                    |  |                                           | 59,487  |   |      |   | 59,963  |      |  |   | 61,430  |  
|Effect of dilutive securities:                                                                                              |  |                                           |         |   |      |   |         |      |  |   |         |  
|Employee stock options                                                                                                      |  |                                           | 135     |   |      |   | 254     |      |  |   | 337     |  
|Warrants                                                                                                                    |  |                                           | 2       |   |      |   | 5       |      |  |   | 6       |  
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|Dilutive potential Common Units                                                                                             |  |                                           | 137     |   |      |   | 259     |      |  |   | 343     |  
|Denominator for diluted earnings per Common Unit  adjusted weighted average Common Units and assumed conversions           |  |                                           | 59,624  |   |      |   | 60,222  |      |  |   | 61,773  |  
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|Basic earnings per Common Unit                                                                                              |  | $                                         | 0.54    |   |      | $ | 1.29    |      |  | $ | 1.93    |  
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  
|Diluted earnings per Common Unit                                                                                            |  | $                                         | 0.54    |   |      | $ | 1.28    |      |  | $ | 1.92    |  
|                                                                                                                            |  |                                           |         |   |      |   |         |      |  |   |         |  



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.



In 1995,
the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123). SFAS 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 on the fair value of the award and is recognized over the service period (generally the vesting period of the award). However, SFAS 123 specifically allows an
entity to continue to measure compensation cost under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) so long as pro forma disclosures of net income and earnings per share are
made as if SFAS 123 had been adopted. Through December 31, 2002, the Operating Partnership elected to follow APB 25 and related interpretations in accounting for its employee stock options.



In December 2002, the FASB issued SFAS 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 Statement 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 123. The Operating Partnership applied the prospective method of accounting and expensed 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.



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



14. STOCK OPTIONS AND WARRANTS - Continued



Under SFAS 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 options, 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 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.



Because SFAS 123 is applicable only to options
granted subsequent to December 31, 1994, only options granted subsequent to that date were valued using this Black-Scholes model. The fair value of the options granted in 2003 was estimated at the dates of the grant using the following weighted
average assumptions: risk-free interest rates of 2.98% and 3.94%, dividend yield of 8.10% 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 dates of the grant 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 value of the options granted in 2001 was estimated at the dates of grant 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 Operating Partnerships stock option plans for options issued before January 1, 2003 been determined based on the
fair value at the dates of grant for awards granted between January 1, 1995 and December 31, 2002 consistent with the provisions of SFAS 123, the Operating Partnerships net income and net income per unit would have decreased to the pro forma
amounts as indicated:



|                                                                                                 |  |                                           |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ----------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                 |  | Year Ended December 31,                   |       
|                                                                                                 |  | 2003                                      |        |   | 2002 |   |        | 2001 | 
|                                                                                                 |  | ($ in thousands, except per unit amounts) |       
|Net income available for common unitholders - as reported                                        |  | $                                         | 31,951 |   |      | $ | 77,112 |      |  | $ | 118,753 |  
|Add: Stock option expense included in reported net income                                        |  |                                           | 68     |   |      |   |       |      |  |   |        |  
|Deduct: Total stock option expense determined under fair value recognition method for all awards |  |                                           | (736   | ) |      |   | (865   | )    |  |   | (2,315  | )
|                                                                                                 |  |                                           |        |   |      |   |        |      |  |   |         |  
|Pro forma net income available for common unitholders                                            |  | $                                         | 31,283 |   |      | $ | 76,247 |      |  | $ | 116,438 |  
|                                                                                                 |  |                                           |        |   |      |   |        |      |  |   |         |  
|Basic net income per common unit - as reported                                                   |  | $                                         | 0.54   |   |      | $ | 1.29   |      |  | $ | 1.93    |  
|Basic net income per common unit - pro forma                                                     |  | $                                         | 0.53   |   |      | $ | 1.27   |      |  | $ | 1.90    |  
|Diluted net income per common unit - as reported                                                 |  | $                                         | 0.54   |   |      | $ | 1.28   |      |  | $ | 1.92    |  
|Diluted net income per common unit - pro forma                                                   |  | $                                         | 0.52   |   |      | $ | 1.27   |      |  | $ | 1.88    |  



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



14. STOCK OPTIONS AND WARRANTS - Continued



The following table summarizes information about employees and Board
of Directors stock options outstanding at December 31, 2003, 2002 and 2001:



|                              |  |                     |   |  |                                 |      
|----------------------------- |  | ------------------- | - |  | ------------------------------- | -----
|                              |  | Options Outstanding
|                              |  | Number of Shares    |   |  | Weighted Average Exercise Price
|Balances at December 31, 2000 |  | 3,273,658           |   |  | $                               | 23.06
|Options granted               |  | 741,883             |   |  |                                 | 25.02
|Options canceled              |  | (119,123            | ) |  |                                 | 26.98
|Options exercised             |  | (41,794             | ) |  |                                 | 18.27
|                              |  |                     |   |  |                                 |      
|Balances at December 31, 2001 |  | 3,854,624           |   |  |                                 | 23.38
|Options granted               |  | 570,338             |   |  |                                 | 26.96
|Options canceled              |  | (204,739            | ) |  |                                 | 25.68
|Options exercised             |  | (547,978            | ) |  |                                 | 21.71
|                              |  |                     |   |  |                                 |      
|Balances at December 31, 2002 |  | 3,672,245           |   |  |                                 | 24.14
|Options granted               |  | 756,953             |   |  |                                 | 21.03
|Options canceled              |  | (2,250              | ) |  |                                 | 30.34
|Options exercised             |  | (56,300             | ) |  |                                 | 19.08
|                              |  |                     |   |  |                                 |      
|Balances at December 31, 2003 |  | 4,370,648           |   |  | $                               | 22.89
|                              |  |                     |   |  |                                 |      



|                  |  |                     |  |                                 |      
|----------------- |  | ------------------- |  | ------------------------------- | -----
|                  |  | Options Exercisable
|                  |  | Number of Shares    |  | Weighted Average Exercise Price
|December 31, 2001 |  | 1,712,626           |  | $                               | 23.76
|December 31, 2002 |  | 1,729,325           |  | $                               | 24.04
|December 31, 2003 |  | 2,478,781           |  | $                               | 23.03



Exercise prices for
options outstanding as of December 31, 2003 ranged from $14.59 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 value of options
granted during 2003, 2002 and 2001 was $0.93, $0.72 and $1.11, respectively for each option share.



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 of Warrants |  | Exercise Price
|February 1995    |  | 35,000             |  | $              | 21.00
|April 1996       |  | 150,000            |  | $              | 28.00
|October 1997     |  | 538,035            |  | $              | 32.50
|December 1997    |  | 120,000            |  | $              | 34.13
|                 |  |                    |  |                |      
|Total            |  | 843,035            |  |                |      
|                 |  |                    |  |                |      



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



14. STOCK OPTIONS AND WARRANTS - Continued



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 date 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 the 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 Company believes that the risk is not significant.



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.



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.



The obligation for future minimum lease payments is 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 $23.4 million at December 31, 2003. The amounts remaining to be paid under these contracts as of December 31, 2003 totaled $17.5 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.



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



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. The Operating Partnerships partner in SF-HIW Harborview,
LP has the right to put its 80.0% equity interest in the partnership to the Operating Partnership in exchange for cash at anytime during the one-year period commencing on September 11, 2014. As a result, the Operating Partnership has deferred a gain
of $1.0 million until the expiration of the put option. The value of the equity interest will be determined based upon the then fair market value of SF-Harborview, LP assets and liabilities.



In connection with several of its joint ventures with unaffiliated parties,
the Operating Partnership has agreed to guarantee certain rent shortfalls and re-tenanting costs for certain properties contributed or sold to the joint ventures. As of December 31, 2003, the Operating Partnership has $10.9 million accrued for
obligations related to these agreements. The Operating Partnership believes that its estimates related to these agreements are adequate. However, if its assumptions and estimates prove to be incorrect, future losses may occur.



Other Guarantees



The following is a discussion of the various guarantees existing at December 31, 2003 that fall under the initial
recognition and measurement requirements of FIN 45. The following discussion also includes those guarantees in existence prior to the January 1, 2003 effective date which only fall under the disclosure requirements of the Interpretation and as such
no liability was recorded.



In December 2000, the Operating
Partnership guaranteed its 80.0% partner in MG-HIW, LLC joint venture a minimum internal rate of return on $50.0 million of their equity investment in the remaining assets of the joint venture (the Orlando assets). On July 29, 2003, the
Operating Partnership entered into an option agreement to acquire Miller Globals 80.0% interest in the Orlando assets for between $62.5 and $65.2 million depending on the closing date and the distributions from the joint venture prior to
closing. Based on the terms of the agreement, the purchase option price range satisfies the internal rate of return guarantee. 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 can be drawn by Miller Global in the event the Operating Partnership does not exercise its option to purchase their 80.0% interest in the remaining assets of MG-HIW, LLC by March 24, 2004. Given the Operating
Partnership intends to exercise its option in March 2004, the fair value of the letter of credit guarantee liability does not have a material impact on the Operating Partnerships financial condition or results of operations and is therefore
not recorded as a liability in the Operating Partnerships Balance Sheet. (See Note 19 for further discussion).



As part of the MG-HIW, LLC acquisition on July 29, 2003, the Operating Partnership entered into an option agreement with its partner, Miller Global, to
acquire their 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 is outstanding at December 31, 2003, will be either paid in full or assumed by the Operating Partnership in connection with the acquisition of the assets. 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 be 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 agreement is $3.7 million, however, the Operating Partnership is able to seek recourse from their partner for 50.0% of that amount. (See Note 19 for
further discussion).



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



In connection with the Des Moines joint venture guarantees in place prior to
January 1, 2003, the maximum potential amount of future payments the Operating Partnership could be required to make under the guarantee 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 currently averages 1.3% and mature in 2015. Guarantees of $9.5 million will expire upon two industrial buildings becoming 93.8% and 95.0% leased. Currently,
these buildings are 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 is 91.0%. If the joint ventures are unable to repay the outstanding balance under the loans, the Operating Partnership will be required, under the terms of the agreements, to
repay the outstanding balance. Recourse provisions exist to enable the Operating Partnership to recover some or all of its losses 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.



In
connection with the RRHWoods, LLC joint venture, the Operating Partnership renewed its guarantee of $6.2 million to a bank in July 2003. The bank provides a letter of credit securing industrial revenue bonds, which 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 their 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.



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. The construction loan matures in February 2006, with two one-year options to extend the maturity date that are conditional
on completion and lease-up of the project. The term of the construction completion agreement requires the core and shell of the building to be completed by December 15, 2005. Currently, the building is scheduled to be completed in December 2004.
Both guarantees arose from the formation of the joint venture to construct an office building. If the joint venture is unable to repay the outstanding balance under the construction loan agreement or complete the construction of the office building,
the Operating Partnership would be 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. The maximum potential amount of
future payments by the Operating Partnership under these agreements is $34.9 million. No recourse provisions exist that would enable 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 obtain and liquidate the building to recover the amounts paid should the Operating Partnership be required to perform under the guarantee.



In addition to the Plaza Colonnade, LLC construction loan and completion
agreement described above, the partners collectively 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 in 2002. The Operating Partnership and its partner would be
held liable under the letter of credit agreements should the joint venture not complete construction of the building. The letters of credit expire in December 31, 2004. No recourse provisions exist that would enable the Operating Partnership to
recover from the other partner amounts drawn under the letter of credit.



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



15. COMMITMENTS AND CONTINGENCIES - Continued



Dispositions



In connection with the disposition of 225,220 square feet of property in 2002, fully leased to Capital One Services, Inc., a
subsidiary of Capital One Financial Services, Inc., the Operating Partnership agreed to guarantee any rent shortfalls, and re-tenanting costs for a five year period of time from the date of sale. The Operating Partnerships contingent liability
with respect to such guarantee as of December 31, 2003 is $16.5 million. Because of this guarantee, in accordance with SFAS 66, the Operating Partnership deferred the gain of approximately $6.9 million, which will be recognized when the contingency
period is concluded. The Operating Partnership believes that its estimate related to the agreement is accurate. However, if its assumptions and estimates prove to be incorrect, future losses may occur.



In connection with the disposition of 298,000 square feet of property in
2003, fully leased to Capital One Services, Inc., a subsidiary of Capital One Financial Services, Inc., the Operating Partnership agreed to guarantee, over various contingency periods through April 2006, any rent shortfalls on certain space. The
Operating Partnerships contingent liability with respect to such guarantee as of December 31, 2003 is $4.4 million. Because of this guarantee, in accordance with SFAS 66, the Operating Partnership deferred $4.4 million of the total $8.4
million gain. The deferred portion of the gain will be recognized when each contingency period is concluded.



In connection with the disposition of 1.9 million square feet of industrial property at the end of 2003, 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 is $2.4 million. Because of this guarantee, in accordance with SFAS 66, the Operating Partnership deferred $2.4 million of the total $5.2 million gain. The deferred portion of the gain will be recognized when
each contingency period is concluded.



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 such proceedings are expected to have a material adverse effect on the Operating Partnerships business,
financial condition and results of operations.



The Operating
Partnership incurred $2.7 million in year ended December 31, 2002 for litigation expense related to various legal proceedings from previously completed mergers and acquisitions. These were fully settled in early 2003.



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS



The following disclosures of
estimated fair values were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary 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:



|                              |  |                  |            |   |            |   |            |  
|----------------------------- |  | ---------------- | ---------- | - | ---------- | - | ---------- | -
|                              |  | CarryingAmount   |            |   | Fair Value |  
|                              |  | ($ in thousands) |           
|Cash and cash equivalents     |  | $                | 18,342     |   |            | $ | 18,342     |  
|Accounts and notes receivable |  | $                | 33,485     |   |            | $ | 33,485     |  
|Mortgages and notes payable   |  | $                | (1,549,758 | ) |            | $ | (1,630,551 | )



The fair values for
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.



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HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



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 no tenant currently comprises more than 3.4% of consolidated revenues. The following table summarizes the 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 Revenue (A):                                                                                             |  |                         |           |   |      |   |           |      |  |   |           |  
|Office segment                                                                                                  |  | $                       | 347,332   |   |      | $ | 360,328   |      |  | $ | 370,451   |  
|Industrial segment                                                                                              |  |                         | 34,549    |   |      |   | 33,343    |      |  |   | 34,954    |  
|Retail segment                                                                                                  |  |                         | 38,818    |   |      |   | 38,193    |      |  |   | 36,476    |  
|Apartment segment                                                                                               |  |                         | 1,117     |   |      |   | 1,103     |      |  |   | 7,905     |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  
|Total Rental Revenue                                                                                            |  | $                       | 421,816   |   |      | $ | 432,967   |      |  | $ | 449,786   |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  
|Net Operating Income (A):                                                                                       |  |                         |           |   |      |   |           |      |  |   |           |  
|Office segment                                                                                                  |  | $                       | 220,377   |   |      | $ | 242,401   |      |  | $ | 253,437   |  
|Industrial segment                                                                                              |  |                         | 26,997    |   |      |   | 26,310    |      |  |   | 28,467    |  
|Retail segment                                                                                                  |  |                         | 27,004    |   |      |   | 26,603    |      |  |   | 24,809    |  
|Apartment segment                                                                                               |  |                         | 568       |   |      |   | 668       |      |  |   | 4,135     |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  
|Total Net Operating Income                                                                                      |  |                         | 274,946   |   |      |   | 295,982   |      |  |   | 310,848   |  
|                                                                                                                |  |                         |          
|Reconciliation to income before gain on disposition of land and depreciable assets and discontinued operations: |  |                         |           |   |      |   |           |      |  |   |           |  
|Depreciation and amortization                                                                                   |  |                         | (129,195  | ) |      |   | (121,746  | )    |  |   | (109,093  | )
|Interest expense                                                                                                |  |                         | (113,910  | ) |      |   | (110,275  | )    |  |   | (105,187  | )
|General and administrative expenses                                                                             |  |                         | (24,187   | ) |      |   | (23,644   | )    |  |   | (21,086   | )
|Litigation expense                                                                                              |  |                         |          |   |      |   | (2,700    | )    |  |   |          |  
|Interest and other income                                                                                       |  |                         | 11,608    |   |      |   | 13,076    |      |  |   | 21,891    |  
|Equity in earnings of unconsolidated affiliates                                                                 |  |                         | 4,463     |   |      |   | 7,675     |      |  |   | 8,276     |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  
|Income before gain on disposition of land and depreciable assets and discontinued operations                    |  | $                       | 23,725    |   |      | $ | 58,368    |      |  | $ | 105,649   |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  
|                                                                                                                |  | December 31,            |          
|                                                                                                                |  | 2003                    |           |   | 2002 |   |           | 2001 | 
|Total Assets:                                                                                                   |  |                         |           |   |      |   |           |      |  |   |           |  
|Office segment                                                                                                  |  | $                       | 2,563,868 |   |      | $ | 2,572,260 |      |  | $ | 2,766,572 |  
|Industrial segment                                                                                              |  |                         | 271,540   |   |      |   | 354,399   |      |  |   | 343,606   |  
|Retail segment                                                                                                  |  |                         | 284,221   |   |      |   | 268,515   |      |  |   | 263,622   |  
|Apartment segment                                                                                               |  |                         | 11,956    |   |      |   | 11,017    |      |  |   | 10,397    |  
|Corporate and other                                                                                             |  |                         | 179,606   |   |      |   | 138,863   |      |  |   | 204,358   |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  
|Total Assets                                                                                                    |  | $                       | 3,311,191 |   |      | $ | 3,345,054 |      |  | $ | 3,588,555 |  
|                                                                                                                |  |                         |           |   |      |   |           |      |  |   |           |  

---

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



F-38



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



18. QUARTERLY FINANCIAL DATA (Unaudited)



The following table sets forth quarterly financial information for the
Operating Partnerships fiscal years ended December 31, 2003 and 2002 and have been adjusted to reflect the reporting requirements of discontinued operations under SFAS 144 ($ in thousands except per share amounts):



|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|------------------------------------------- |  | ------------------------------------ | ------- | - | ----------------- | - | ------- | ---------------- |  | - | ----------------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                            |  | For the year ended December 31, 2003 |        
|                                            |  | FirstQuarter (1)                     |         |   | SecondQuarter (1) |   |         | ThirdQuarter (1) |  |   | FourthQuarter (1) |   |  | Total |        
|Rental revenue and other income             |  | $                                    | 108,462 |   |                   | $ | 106,247 |                  |  | $ | 110,356           |   |  | $     | 112,822 |   |  | $ | 437,887 |  
|                                            |  |                                      |         |   |                  
|Income from continuing operations           |  |                                      | 8,457   |   |                   |   | 5,055   |                  |  |   | 7,982             |   |  |       | 6,007   |   |  |   | 27,501  |  
|Income from discontinued operations         |  |                                      | 4,601   |   |                   |   | 6,597   |                  |  |   | 15,655            |   |  |       | 8,449   |   |  |   | 35,302  |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income                                  |  |                                      | 13,058  |   |                   |   | 11,652  |                  |  |   | 23,637            |   |  |       | 14,456  |   |  |   | 62,803  |  
|Distributions on preferred units            |  |                                      | (7,713  | ) |                   |   | (7,713  | )                |  |   | (7,713            | ) |  |       | (7,713  | ) |  |   | (30,852 | )
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income available for common unitholders |  | $                                    | 5,345   |   |                   | $ | 3,939   |                  |  | $ | 15,924            |   |  | $     | 6,743   |   |  | $ | 31,951  |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income per unit  basic:                |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Income/(loss) from continuing operations    |  | $                                    | 0.01    |   |                   | $ | (0.04   | )                |  | $ | 0.01              |   |  | $     | (0.03   | ) |  | $ | (0.05   | )
|Discontinued operations                     |  |                                      | 0.08    |   |                   |   | 0.11    |                  |  |   | 0.26              |   |  |       | 0.14    |   |  |   | 0.59    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income                                  |  | $                                    | 0.09    |   |                   | $ | 0.07    |                  |  | $ | 0.27              |   |  | $     | 0.11    |   |  | $ | 0.54    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income per unit  diluted:              |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Income/(loss) from continuing operations    |  | $                                    | 0.01    |   |                   | $ | (0.04   | )                |  | $ | 0.01              |   |  | $     | (0.03   | ) |  | $ | (0.05   | )
|Discontinued operations                     |  |                                      | 0.08    |   |                   |   | 0.11    |                  |  |   | 0.26              |   |  |       | 0.14    |   |  |   | 0.59    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income                                  |  | $                                    | 0.09    |   |                   | $ | 0.07    |                  |  | $ | 0.27              |   |  | $     | 0.11    |   |  | $ | 0.54    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  



|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|------------------------------------------- |  | ------------------------------------ | ------- | - | ----------------- | - | ------- | ---------------- |  | - | ----------------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                            |  | For the year ended December 31, 2002 |        
|                                            |  | FirstQuarter (1)                     |         |   | SecondQuarter (1) |   |         | ThirdQuarter (1) |  |   | FourthQuarter (1) |   |  | Total |        
|Rental revenue and other income             |  | $                                    | 116,891 |   |                   | $ | 110,550 |                  |  | $ | 112,832           |   |  | $     | 113,445 |   |  | $ | 453,718 |  
|                                            |  |                                      |         |   |                  
|Income from continuing operations           |  |                                      | 24,066  |   |                   |   | 23,342  |                  |  |   | 14,536            |   |  |       | 7,823   |   |  |   | 69,767  |  
|Income from discontinued operations         |  |                                      | 6,961   |   |                   |   | 8,677   |                  |  |   | 2,793             |   |  |       | 19,766  |   |  |   | 38,197  |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income                                  |  |                                      | 31,027  |   |                   |   | 32,019  |                  |  |   | 17,329            |   |  |       | 27,589  |   |  |   | 107,964 |  
|Distributions on preferred units            |  |                                      | (7,713  | ) |                   |   | (7,713  | )                |  |   | (7,713            | ) |  |       | (7,713  | ) |  |   | (30,852 | )
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income available for common unitholders |  | $                                    | 23,314  |   |                   | $ | 24,306  |                  |  | $ | 9,616             |   |  | $     | 19,876  |   |  | $ | 77,112  |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income per unit  basic:                |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Income from continuing operations           |  | $                                    | 0.27    |   |                   | $ | 0.26    |                  |  | $ | 0.11              |   |  | $     | 0.01    |   |  | $ | 0.65    |  
|Discontinued operations                     |  |                                      | 0.12    |   |                   |   | 0.14    |                  |  |   | 0.05              |   |  |       | 0.33    |   |  |   | 0.64    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income                                  |  | $                                    | 0.39    |   |                   | $ | 0.40    |                  |  | $ | 0.16              |   |  | $     | 0.34    |   |  | $ | 1.29    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income per unit  diluted:              |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Income from continuing operations           |  | $                                    | 0.27    |   |                   | $ | 0.26    |                  |  | $ | 0.11              |   |  | $     | 0.01    |   |  | $ | 0.65    |  
|Discontinued operations                     |  |                                      | 0.12    |   |                   |   | 0.14    |                  |  |   | 0.05              |   |  |       | 0.32    |   |  |   | 0.63    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  
|Net income                                  |  | $                                    | 0.39    |   |                   | $ | 0.40    |                  |  | $ | 0.16              |   |  | $     | 0.33    |   |  | $ | 1.28    |  
|                                            |  |                                      |         |   |                   |   |         |                  |  |   |                   |   |  |       |         |   |  |   |         |  

---

|(1) | In October 2001, the FASB issued Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Asset (SFAS 144) which requires assets classified
as held for sale or sold as a result of disposal activities initiated subsequent to January 1, 2002 to be reported as discontinued operations. Thus, in all periods presented above, we have reclassified the operations and/or gain/(loss) from disposal
of those properties to discontinued operations and those long lived assets sold or held for sale as a result of disposal activities initiated prior to January 1, 2002 remain classified within continuing operations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-39



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



19. SUBSEQUENT EVENTS



On March 2, 2004, the Operating Partnership exercised its option and acquired its partners 80.0% equity interest in
the remaining assets of MG-HIW, LLC, which consists of five properties encompassing 1.3 million square feet located in the central business district of Orlando (Orlando properties). 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, which has been assumed by the Operating Partnership. At the closing of the transaction, the Operating Partnership paid its partner,
Miller Global, $62.5 million and the $7.5 million letter of credit was cancelled. The transaction implies a valuation (100.0% ownership) of $214.3 million, which includes the properties and other net assets of the joint venture.



In January 2004, the Operating Partnership signed a Letter of Intent with
Kapital-Consult, manager for Dreilander-Fonds, a European investment firm, under which Kapital-Consult will acquire a 60.0% equity interest in the Orlando properties for approximately $45.5 million, excluding certain development rights to be
retained by the Operating Partnership. Although the transaction is subject to documentation and other closing conditions, it is expected to close no later than the end of the second quarter of 2004.



Also on March 2, 2004, the Operating Partnership exercised its option and
acquired 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. 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, of which $7.3 million was outstanding at December 31, 2003, was paid in full
by the Operating Partnership at closing.



See Note 3 for
proforma information assuming the acquisition of the above assets had occurred on January 1, 2002.



F-40



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##### Table of Contents

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 |       | Chargedto expense |   | Deductions |  |   | Balance atend ofyear
|Year ended December 31, 2003 Allowance for doubtful accounts |  | $                          | 1,450 |                   | $ | 806        |  | $ | (1,021               | ) |  | $ | 1,235
|                                                             |  |                            |       |                   |   |            |  |   |                      |   |  |   |      
|Year ended December 31, 2002 Allowance for doubtful accounts |  | $                          | 1,087 |                   | $ | 2,761      |  | $ | (2,398               | ) |  | $ | 1,450
|                                                             |  |                            |       |                   |   |            |  |   |                      |   |  |   |      
|Year ended December 31, 2001 Allowance for doubtful accounts |  | $                          | 825   |                   | $ | 2,164      |  | $ | (1,902               | ) |  | $ | 1,087
|                                                             |  |                            |       |                   |   |            |  |   |                      |   |  |   |      



F-41



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##### Table of Contents

HIGHWOODS REALTY LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

12/31/2003

(In Thousands)



|                                  |  |         |      |                  |                        |  |              |  |                                           |                        |      |                                                  |      |                        |   |       |       |                         |        |  |                     |  |                                      |   |  |      |  |          
|--------------------------------- |  | ------- | ---- | ---------------- | ---------------------- |  | ------------ |  | ----------------------------------------- | ---------------------- | ---- | ------------------------------------------------ | ---- | ---------------------- | - | ----- | ----- | ----------------------- | ------ |  | ------------------- |  | ------------------------------------ | - |  | ---- |  | ---------
|Description                       |  | City    |      | 2003Encumberance |                        |  | Initial Cost |  | Cost Capitalized Subsequent to Acquistion |                        |      | Gross Amount at Which Carried at Close of Period |      | Building &Improvements |   | Total |       | AccumulatedDepreciation |        |  | Date ofConstruction |  | Life onWhichDepreciation is 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                                     |                        |      |                                                  |      | 605                    |   |       | 1,115 |                         | 3,768  |  | 4,883               |  | 988                                  |   |  | 1972 |  | 5-40 yrs.
|1700 Century Circle               |  | Atlanta |      |                  |                        |  |              |  | 2,482                                     |                        |      |                                                  |      | 460                    |   |       |       |                         | 2,942  |  | 2,942               |  | 241                                  |   |  | 1983 |  | 5-40 yrs.
|1800 Century Boulevard            |  | Atlanta |      |                  |                        |  | 1,441        |  | 29,037                                    |                        |      |                                                  |      | 9,792                  |   |       | 1,441 |                         | 38,829 |  | 40,270              |  | 6,154                                |   |  | 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                                     |                        |      |                                                  |      | 1,345                  |   |       |       |                         | 10,255 |  | 10,255              |  | 1,801                                |   |  | 1976 |  | 5-40 yrs.
|1900 Century Boulevard            |  | Atlanta |      |                  |                        |  |              |  | 4,737                                     |                        |      |                                                  |      | 915                    |   |       |       |                         | 5,652  |  | 5,652               |  | 1,417                                |   |  | 1971 |  | 5-40 yrs.
|2200 Century Parkway              |  | Atlanta |      |                  |                        |  |              |  | 14,410                                    |                        |      |                                                  |      | 1,856                  |   |       |       |                         | 16,266 |  | 16,266              |  | 3,431                                |   |  | 1971 |  | 5-40 yrs.
|2400 Century Center               |  | Atlanta |      |                  |                        |  |              |  |                                           |                        |      |                                                  |      | 15,920                 |   |       |       |                         | 15,920 |  | 15,920              |  | 4,191                                |   |  | 1998 |  | 5-40 yrs.
|2600 Century Parkway              |  | Atlanta |      |                  |                        |  |              |  | 10,663                                    |                        |      |                                                  |      | 811                    |   |       |       |                         | 11,474 |  | 11,474              |  | 2,211                                |   |  | 1973 |  | 5-40 yrs.
|2635 Century Parkway              |  | Atlanta |      |                  |                        |  |              |  | 21,610                                    |                        |      |                                                  |      | 1,292                  |   |       |       |                         | 22,902 |  | 22,902              |  | 4,283                                |   |  | 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                                     |                        |      |                                                  |      | 509                    |   |       | 979   |                         | 6,744  |  | 7,723               |  | 1,168                                |   |  | 1985 |  | 5-40 yrs.
|50 Glenlake                       |  | Atlanta |      |                  |                        |  | 2,500        |  | 20,006                                    |                        |      |                                                  |      | 239                    |   |       | 2,500 |                         | 20,245 |  | 22,745              |  | 3,165                                |   |  | 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                                     |                        |      |                                                  |      | 183                    |   |       | 277   |                         | 1,851  |  | 2,128               |  | 310                                  |   |  | 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                                     |                        |      |                                                  |      | 1,309                  |   |       | 1,290 |                         | 9,876  |  | 11,166              |  | 1,308                                |   |  | 1981 |  | 5-40 yrs.
|Century Plaza II                  |  | Atlanta |      |                  |                        |  | 1,380        |  | 7,733                                     |                        |      |                                                  |      | 1,338                  |   |       | 1,380 |                         | 9,071  |  | 10,451              |  | 1,052                                |   |  | 1984 |  | 5-40 yrs.
|Chastain Place I                  |  | Atlanta |      |                  |                        |  | 472          |  |                                           |                        |      |                                                  |      | 4,101                  |   |       | 472   |                         | 4,101  |  | 4,573               |  | 1,325                                |   |  | 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          |  |                                           |                        |      |                                                  |      | 1,679                  |   |       | 539   |                         | 1,679  |  | 2,218               |  | 488                                  |   |  | 1999 |  | 5-40 yrs.
|Chattahoochee Avenue              |  | Atlanta |      |                  |                        |  | 248          |  | 1,876                                     |                        |      |                                                  |      | 303                    |   |       | 248   |                         | 2,179  |  | 2,427               |  | 548                                  |   |  | 1970 |  | 5-40 yrs.
|Corporate Lakes                   |  | Atlanta |      |                  |                        |  | 1,275        |  | 7,300                                     |                        |      |                                                  |      | 489                    |   |       | 1,275 |                         | 7,789  |  | 9,064               |  | 1,601                                |   |  | 1988 |  | 5-40 yrs.
|Cosmopolitan North                |  | Atlanta |      |                  |                        |  | 2,855        |  | 4,180                                     |                        |      |                                                  |      | 1,540                  |   |       | 2,855 |                         | 5,720  |  | 8,575               |  | 1,348                                |   |  | 1980 |  | 5-40 yrs.
|Deerfield I                       |  | Atlanta |      |                  | (3)                    |  | 1,100        |  | 2,637                                     |                        |      |                                                  |      | 30                     |   |       | 1,100 |                         | 2,667  |  | 3,767               |  | 24                                   |   |  | 1999 |  | 5-40 yrs.
|Deerfield II                      |  | Atlanta |      |                  | (3)                    |  | 1,500        |  | 4,223                                     |                        |      |                                                  |      | (861                   | ) |       | 1,500 |                         | 3,362  |  | 4,862               |  | (11                                  | ) |  | 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                                     |                        |      |                                                  |      | 748                    |   |       | 1,128 |                         | 6,755  |  | 7,883               |  | 1,362                                |   |  | 1991 |  | 5-40 yrs.
|Highwoods Center I at Tradeport   |  | Atlanta |      |                  | (1)                    |  | 307          |  |                                           |                        |      |                                                  |      | 3,418                  |   |       | 307   |                         | 3,418  |  | 3,725               |  | 963                                  |   |  | 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          |  |                                           |                        |      |                                                  |      | 3,358                  |   |       | 409   |                         | 3,358  |  | 3,767               |  | 1,207                                |   |  | 2001 |  | 5-40 yrs.
|Kennestone Corporate Center       |  | Atlanta |      |                  |                        |  | 518          |  | 4,922                                     |                        |      |                                                  |      | 340                    |   |       | 518   |                         | 5,262  |  | 5,780               |  | 978                                  |   |  | 1985 |  | 5-40 yrs.
|La Vista Business Park            |  | Atlanta |      |                  |                        |  | 821          |  | 5,265                                     |                        |      |                                                  |      | 1,060                  |   |       | 821   |                         | 6,325  |  | 7,146               |  | 1,273                                |   |  | 1973 |  | 5-40 yrs.
|Newpoint Place I                  |  | Atlanta |      |                  |                        |  | 825          |  |                                           |                        |      |                                                  |      | 4,135                  |   |       | 825   |                         | 4,135  |  | 4,960               |  | 1,515                                |   |  | 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          |  |                                           |                        |      |                                                  |      | 2,567                  |   |       | 668   |                         | 2,567  |  | 3,235               |  | 760                                  |   |  | 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                                     |                        |      |                                                  |      | 82                     |   |       | 326   |                         | 2,098  |  | 2,424               |  | 381                                  |   |  | 1970 |  | 5-40 yrs.



F-42



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##### Table of Contents

|                                  |  |           |      |                   |                         |  |              |  |                                           |                         |        |                                                  |      |                         |   |       |        |                          |        |                      |        |                                        |       |  |      |  |          
|--------------------------------- |  | --------- | ---- | ----------------- | ----------------------- |  | ------------ |  | ----------------------------------------- | ----------------------- | ------ | ------------------------------------------------ | ---- | ----------------------- | - | ----- | ------ | ------------------------ | ------ | -------------------- | ------ | -------------------------------------- | ----- |  | ---- |  | ---------
|Description                       |  | City      |      | 2003 Encumberance |                         |  | Initial Cost |  | Cost Capitalized Subsequent to Acquistion |                         |        | Gross Amount at Which Carried at Close of Period |      | Building & Improvements |   | Total |        | Accumulated Depreciation |        | Date of Construction |        | Life on Which Depreciation is Computed
|                                  |  |           | Land |                   | Building & Improvements |  | Land         |  |                                           | Building & Improvements |        |                                                  | Land |                         |   |       |        |                         
|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                                     |                         |        |                                                  |      | 534                     |   |       | 873    |                          | 5,489  |                      | 6,362  |                                        | 1,128 |  | 1981 |  | 5-40 yrs.
|Oakbrook II                       |  | Atlanta   |      |                   | (2)                     |  | 1,579        |  | 8,962                                     |                         |        |                                                  |      | 1,274                   |   |       | 1,579  |                          | 10,236 |                      | 11,815 |                                        | 2,415 |  | 1983 |  | 5-40 yrs.
|Oakbrook III                      |  | Atlanta   |      |                   | (2)                     |  | 1,480        |  | 8,399                                     |                         |        |                                                  |      | 514                     |   |       | 1,480  |                          | 8,913  |                      | 10,393 |                                        | 1,785 |  | 1984 |  | 5-40 yrs.
|Oakbrook IV                       |  | Atlanta   |      |                   | (2)                     |  | 953          |  | 5,408                                     |                         |        |                                                  |      | 457                     |   |       | 953    |                          | 5,865  |                      | 6,818  |                                        | 1,256 |  | 1985 |  | 5-40 yrs.
|Oakbrook V                        |  | Atlanta   |      |                   | (2)                     |  | 2,206        |  | 12,518                                    |                         |        |                                                  |      | 1,066                   |   |       | 2,206  |                          | 13,584 |                      | 15,790 |                                        | 3,026 |  | 1985 |  | 5-40 yrs.
|Oakbrook Summit                   |  | Atlanta   |      |                   |                         |  | 950          |  | 6,688                                     |                         |        |                                                  |      | 634                     |   |       | 950    |                          | 7,322  |                      | 8,272  |                                        | 1,489 |  | 1981 |  | 5-40 yrs.
|Oxford Lake Business Center       |  | Atlanta   |      |                   |                         |  | 855          |  | 7,155                                     |                         |        |                                                  |      | 362                     |   |       | 855    |                          | 7,517  |                      | 8,372  |                                        | 1,331 |  | 1985 |  | 5-40 yrs.
|Peachtree Corners II              |  | Atlanta   |      |                   | (3)                     |  | 2,000        |  | 6,097                                     |                         |        |                                                  |      | 261                     |   |       | 2,000  |                          | 6,358  |                      | 8,358  |                                        | 109   |  | 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                                     |                         |        |                                                  |      | 165                     |   |       | 810    |                          | 4,754  |                      | 5,564  |                                        | 830   |  | 1988 |  | 5-40 yrs.
|Tradeport I                       |  | Atlanta   |      |                   |                         |  | 557          |  |                                           |                         |        |                                                  |      | 2,916                   |   |       | 557    |                          | 2,916  |                      | 3,473  |                                        | 777   |  | 1999 |  | 5-40 yrs.
|Tradeport II                      |  | Atlanta   |      |                   |                         |  | 557          |  |                                           |                         |        |                                                  |      | 3,520                   |   |       | 557    |                          | 3,520  |                      | 4,077  |                                        | 1,077 |  | 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                                    |                         |        |                                                  |      | 300                     |   |       | 1,793  |                          | 15,264 |                      | 17,057 |                                        | 2,440 |  | 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                                       |                         |        |                                                  |      | 288                     |   |       | 70     |                          | 800    |                      | 870    |                                        | 323   |  | 1984 |  | 5-40 yrs.
|4105 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 26           |  | 190                                       |                         |        |                                                  |      | 20                      |   |       | 26     |                          | 210    |                      | 236    |                                        | 57    |  | 1984 |  | 5-40 yrs.
|4109 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 87           |  | 639                                       |                         |        |                                                  |      | 49                      |   |       | 87     |                          | 688    |                      | 775    |                                        | 153   |  | 1984 |  | 5-40 yrs.
|4201 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 110          |  | 812                                       |                         |        |                                                  |      | 140                     |   |       | 110    |                          | 952    |                      | 1,062  |                                        | 252   |  | 1982 |  | 5-40 yrs.
|4205 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 134          |  | 984                                       |                         |        |                                                  |      | 81                      |   |       | 134    |                          | 1,065  |                      | 1,199  |                                        | 256   |  | 1982 |  | 5-40 yrs.
|4209 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 91           |  | 669                                       |                         |        |                                                  |      | 62                      |   |       | 91     |                          | 731    |                      | 822    |                                        | 185   |  | 1982 |  | 5-40 yrs.
|4215 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 133          |  | 983                                       |                         |        |                                                  |      | 93                      |   |       | 133    |                          | 1,076  |                      | 1,209  |                                        | 262   |  | 1982 |  | 5-40 yrs.
|4301 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 232          |  | 1,710                                     |                         |        |                                                  |      | 280                     |   |       | 232    |                          | 1,990  |                      | 2,222  |                                        | 505   |  | 1982 |  | 5-40 yrs.
|4321 Stuart Andrew Boulevard      |  | Charlotte |      |                   |                         |  | 73           |  | 537                                       |                         |        |                                                  |      | 55                      |   |       | 73     |                          | 592    |                      | 665    |                                        | 141   |  | 1982 |  | 5-40 yrs.
|4601 Park Square                  |  | Charlotte |      |                   |                         |  | 2,601        |  | 7,808                                     |                         |        |                                                  |      | 1,064                   |   |       | 2,601  |                          | 8,872  |                      | 11,473 |                                        | 1,237 |  | 1972 |  | 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          |  |                                           |                         |        |                                                  |      | 2,547                   |   |       | 160    |                          | 2,547  |                      | 2,707  |                                        | 688   |  | 1999 |  | 5-40 yrs.
|First Citizens Building           |  | Charlotte |      |                   |                         |  | 647          |  | 5,505                                     |                         |        |                                                  |      | 860                     |   |       | 647    |                          | 6,365  |                      | 7,012  |                                        | 1,817 |  | 1989 |  | 5-40 yrs.
|Fourteen Parkway Plaza Building   |  | Charlotte |      |                   |                         |  | 483          |  |                                           |                         |        |                                                  |      | 7,086                   |   |       | 483    |                          | 7,086  |                      | 7,569  |                                        | 1,552 |  | 1999 |  | 5-40 yrs.
|Mallard Creek I                   |  | Charlotte |      |                   | (4)                     |  | 1,248        |  | 4,184                                     |                         |        |                                                  |      | 971                     |   |       | 1,248  |                          | 5,155  |                      | 6,403  |                                        | 851   |  | 1986 |  | 5-40 yrs.
|Mallard Creek III                 |  | Charlotte |      |                   |                         |  | 845          |  | 4,810                                     |                         |        |                                                  |      | 319                     |   |       | 845    |                          | 5,129  |                      | 5,974  |                                        | 757   |  | 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        |  |                                           |                         |        |                                                  |      | 11,813                  |   |       | 1,665  |                          | 11,813 |                      | 13,478 |                                        | 2,311 |  | 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                                     |                         |        |                                                  |      | 319                     |   |       | 750    |                          | 4,573  |                      | 5,323  |                                        | 931   |  | 1984 |  | 5-40 yrs.
|Oakhill Business Park Laurel Oak  |  | Charlotte |      |                   | (2)                     |  | 471          |  | 2,675                                     |                         |        |                                                  |      | 390                     |   |       | 471    |                          | 3,065  |                      | 3,536  |                                        | 752   |  | 1984 |  | 5-40 yrs.
|Oakhill Business Park Live Oak    |  | Charlotte |      |                   |                         |  | 1,403        |  | 5,611                                     |                         |        |                                                  |      | 1,537                   |   |       | 1,403  |                          | 7,148  |                      | 8,551  |                                        | 1,761 |  | 1989 |  | 5-40 yrs.
|Oakhill Business Park Scarlet Oak |  | Charlotte |      |                   | (2)                     |  | 1,073        |  | 6,087                                     |                         |        |                                                  |      | 513                     |   |       | 1,073  |                          | 6,600  |                      | 7,673  |                                        | 1,465 |  | 1982 |  | 5-40 yrs.
|Oakhill Business Park Twin Oak    |  | Charlotte |      |                   | (2)                     |  | 1,243        |  | 7,055                                     |                         |        |                                                  |      | 901                     |   |       | 1,243  |                          | 7,956  |                      | 9,199  |                                        | 1,601 |  | 1985 |  | 5-40 yrs.
|Oakhill Business Park Water Oak   |  | Charlotte |      |                   | (2)                     |  | 1,623        |  | 9,209                                     |                         |        |                                                  |      | 1,219                   |   |       | 1,623  |                          | 10,428 |                      | 12,051 |                                        | 2,285 |  | 1985 |  | 5-40 yrs.
|Oakhill Business Park Willow Oak  |  | Charlotte |      |                   | (2)                     |  | 442          |  | 2,510                                     |                         |        |                                                  |      | 973                     |   |       | 442    |                          | 3,483  |                      | 3,925  |                                        | 1,142 |  | 1982 |  | 5-40 yrs.
|Oakhill Land                      |  | Charlotte |      |                   |                         |  | 4,064        |  |                                           |                         |        |                                                  |      |                         |   |       | 4,064  |                          |        |                      | 4,064  |                                        |       |  | N/A  |  | N/A      
|Pinebrook                         |  | Charlotte |      |                   |                         |  | 846          |  | 4,630                                     |                         |        |                                                  |      | 502                     |   |       | 846    |                          | 5,132  |                      | 5,978  |                                        | 970   |  | 1986 |  | 5-40 yrs.
|Ridgefield                        |  | Charlotte |      |                   |                         |  | 795          |  |                                           |                         |        |                                                  |      |                         |   |       | 795    |                          |        |                      | 795    |                                        |       |  | N/A  |  | N/A      
|One Parkway Plaza Building        |  | Charlotte |      |                   |                         |  | 1,110        |  | 4,748                                     |                         |        |                                                  |      | 1,105                   |   |       | 1,110  |                          | 5,853  |                      | 6,963  |                                        | 1,385 |  | 1982 |  | 5-40 yrs.
|Two Parkway Plaza Building        |  | Charlotte |      |                   |                         |  | 1,694        |  | 6,777                                     |                         |        |                                                  |      | 1,146                   |   |       | 1,694  |                          | 7,923  |                      | 9,617  |                                        | 1,885 |  | 1983 |  | 5-40 yrs.
|Three Parkway Plaza Building      |  | Charlotte |      |                   | (5)                     |  | 1,570        |  | 6,282                                     |                         |        |                                                  |      | 1,008                   |   |       | 1,570  |                          | 7,290  |                      | 8,860  |                                        | 1,773 |  | 1984 |  | 5-40 yrs.
|Six Parkway Plaza Building        |  | Charlotte |      |                   |                         |  |              |  |                                           |                         |        |                                                  |      | 3,114                   |   |       |        |                          | 3,114  |                      | 3,114  |                                        | 932   |  | 1996 |  | 5-40 yrs.
|Seven Parkway Plaza Building      |  | Charlotte |      |                   |                         |  |              |  | 4,648                                     |                         |        |                                                  |      | 269                     |   |       |        |                          | 4,917  |                      | 4,917  |                                        | 1,024 |  | 1985 |  | 5-40 yrs.
|Twelve Parkway Plaza              |  | Charlotte |      |                   |                         |  | 112          |  |                                           |                         |        |                                                  |      | 1,804                   |   |       | 112    |                          | 1,804  |                      | 1,916  |                                        | 434   |  | 1999 |  | 5-40 yrs.
|University Center                 |  | Charlotte |      |                   |                         |  | 1,307        |  |                                           |                         |        |                                                  |      | 209                     |   |       | 1,307  |                          | 209    |                      | 1,516  |                                        | 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      



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##### Table of Contents

|                                           |  |              |      |                   |                         |  |              |  |                                            |                         |         |                                                  |      |                         |   |       |       |                          |        |                      |        |                                        |       |  |      |  |          
|------------------------------------------ |  | ------------ | ---- | ----------------- | ----------------------- |  | ------------ |  | ------------------------------------------ | ----------------------- | ------- | ------------------------------------------------ | ---- | ----------------------- | - | ----- | ----- | ------------------------ | ------ | -------------------- | ------ | -------------------------------------- | ----- |  | ---- |  | ---------
|Description                                |  | City         |      | 2003 Encumberance |                         |  | Initial Cost |  | Cost Capitalized Subsequent to Acquisition |                         |         | Gross Amount at Which Carried at Close of Period |      | Building & Improvements |   | Total |       | Accumulated Depreciation |        | Date of Construction |        | Life on Which Depreciation is Computed
|                                           |  |              | Land |                   | Building & Improvements |  | Land         |  |                                            | Building & Improvements |         |                                                  | Land |                         |   |       |       |                         
|Columbia, SC                               |  |              |      |                   |                         |  |              |  |                                            |                         |         |                                                  |      |                         |   |       |       |                          |        |                      |        |                                        |       |  |      |  |          
|Centerpoint I                              |  | Columbia     |      |                   |                         |  | 1,313        |  | 7,452                                      |                         |         |                                                  |      | 415                     |   |       | 1,313 |                          | 7,867  |                      | 9,180  |                                        | 1,620 |  | 1988 |  | 5-40 yrs.
|Centerpoint II                             |  | Columbia     |      |                   |                         |  | 1,183        |  | 8,045                                      |                         |         |                                                  |      | 571                     |   |       | 1,183 |                          | 8,616  |                      | 9,799  |                                        | 1,997 |  | 1996 |  | 5-40 yrs.
|Centerpoint V                              |  | Columbia     |      |                   |                         |  | 265          |  |                                            |                         |         |                                                  |      | 1,626                   |   |       | 265   |                          | 1,626  |                      | 1,891  |                                        | 473   |  | 1997 |  | 5-40 yrs.
|Centerpoint VI                             |  | Columbia     |      |                   |                         |  | 276          |  |                                            |                         |         |                                                  |      |                         |   |       | 276   |                          |        |                      | 276    |                                        |       |  | N/A  |  | N/A      
|Fontaine I                                 |  | Columbia     |      |                   |                         |  | 1,219        |  | 6,907                                      |                         |         |                                                  |      | 1,482                   |   |       | 1,219 |                          | 8,389  |                      | 9,608  |                                        | 1,802 |  | 1985 |  | 5-40 yrs.
|Fontaine II                                |  | Columbia     |      |                   |                         |  | 941          |  | 5,335                                      |                         |         |                                                  |      | 352                     |   |       | 941   |                          | 5,687  |                      | 6,628  |                                        | 1,203 |  | 1987 |  | 5-40 yrs.
|Fontaine III                               |  | Columbia     |      |                   |                         |  | 853          |  | 4,832                                      |                         |         |                                                  |      | (527                    | ) |       | 853   |                          | 4,305  |                      | 5,158  |                                        | 885   |  | 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          |  | 2,806                                      |                         |         |                                                  |      | 371                     |   |       | 705   |                          | 3,177  |                      | 3,882  |                                        | 502   |  | 1989 |  | 5-40 yrs.
|Bank of America Plaza                      |  | Greenville   |      |                   |                         |  | 642          |  | 9,485                                      |                         |         |                                                  |      | 2,601                   |   |       | 642   |                          | 12,086 |                      | 12,728 |                                        | 2,716 |  | 1973 |  | 5-40 yrs.
|Brookfield Plaza                           |  | Greenville   |      |                   | (2)                     |  | 1,489        |  | 8,450                                      |                         |         |                                                  |      | 1,054                   |   |       | 1,489 |                          | 9,504  |                      | 10,993 |                                        | 2,276 |  | 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   |      |                   |                         |  | 1,032        |  |                                            |                         |         |                                                  |      | 10,716                  |   |       | 1,032 |                          | 10,716 |                      | 11,748 |                                        | 942   |  | 2001 |  | 5-40 yrs.
|Patewood Business Center                   |  | Greenville   |      |                   |                         |  | 1,312        |  | 7,447                                      |                         |         |                                                  |      | 318                     |   |       | 1,312 |                          | 7,765  |                      | 9,077  |                                        | 1,557 |  | 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          |  | 5,117                                      |                         |         |                                                  |      | 395                     |   |       | 942   |                          | 5,512  |                      | 6,454  |                                        | 1,044 |  | 1987 |  | 5-40 yrs.
|Patewood III                               |  | Greenville   |      |                   | (2)                     |  | 835          |  | 4,740                                      |                         |         |                                                  |      | 264                     |   |       | 835   |                          | 5,004  |                      | 5,839  |                                        | 972   |  | 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        |  |                                            |                         |         |                                                  |      | 9,262                   |   |       | 2,360 |                          | 9,262  |                      | 11,622 |                                        | 2,244 |  | 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 - 48th & Penn           |  | Kansas City  |      |                   | (6)                     |  | 418          |  | 4,872                                      |                         |         |                                                  |      | 977                     |   |       | 418   |                          | 5,849  |                      | 6,267  |                                        | 1,011 |  | 1948 |  | 5-40 yrs.
|Country Club Plaza - Balcony Office        |  | Kansas City  |      |                   | (6)                     |  | 65           |  | 591                                        |                         |         |                                                  |      | 270                     |   |       | 65    |                          | 861    |                      | 926    |                                        | 187   |  | 1928 |  | 5-40 yrs.
|Country Club Plaza - Balcony Retail        |  | Kansas City  |      |                   | (6)                     |  | 889          |  | 10,349                                     |                         |         |                                                  |      | 2,477                   |   |       | 889   |                          | 12,826 |                      | 13,715 |                                        | 1,948 |  | 1925 |  | 5-40 yrs.
|Country Club Plaza - Court of the Penguins |  | Kansas City  |      |                   | (6)                     |  | 566          |  | 6,589                                      |                         |         |                                                  |      | 1,573                   |   |       | 566   |                          | 8,162  |                      | 8,728  |                                        | 1,211 |  | 1945 |  | 5-40 yrs.
|Country Club Plaza - Esplanade Office      |  | Kansas City  |      |                   | (6)                     |  | 375          |  | 3,408                                      |                         |         |                                                  |      | 95                      |   |       | 375   |                          | 3,503  |                      | 3,878  |                                        | 490   |  | 1945 |  | 5-40 yrs.
|Country Club Plaza - Esplanade Retail      |  | Kansas City  |      |                   | (6)                     |  | 748          |  | 8,813                                      |                         |         |                                                  |      | 1,963                   |   |       | 748   |                          | 10,776 |                      | 11,524 |                                        | 1,634 |  | 1928 |  | 5-40 yrs.
|Country Club Plaza - Granada Shops         |  | Kansas City  |      |                   | (6)                     |  |              |  |                                            |                         |         |                                                  |      | 4,637                   |   |       |       |                          | 4,637  |                      | 4,637  |                                        | 207   |  | 2002 |  | 5-40 yrs.
|Country Club Plaza - Halls Block           |  | Kansas City  |      |                   | (6)                     |  | 275          |  | 3,202                                      |                         |         |                                                  |      | 224                     |   |       | 275   |                          | 3,426  |                      | 3,701  |                                        | 455   |  | 1964 |  | 5-40 yrs.
|Country Club Plaza - Macy Block            |  | Kansas City  |      |                   | (6)                     |  | 504          |  | 5,954                                      |                         |         |                                                  |      | 199                     |   |       | 504   |                          | 6,153  |                      | 6,657  |                                        | 833   |  | 1926 |  | 5-40 yrs.
|Country Club Plaza - Millcreek Office      |  | Kansas City  |      |                   | (6)                     |  | 79           |  | 723                                        |                         |         |                                                  |      | 264                     |   |       | 79    |                          | 987    |                      | 1,066  |                                        | 179   |  | 1925 |  | 5-40 yrs.
|Country Club Plaza - Millcreek Retail      |  | Kansas City  |      |                   | (6)                     |  | 602          |  | 7,031                                      |                         |         |                                                  |      | 1,209                   |   |       | 602   |                          | 8,240  |                      | 8,842  |                                        | 1,420 |  | 1920 |  | 5-40 yrs.
|Country Club Plaza - Nichols Block Office  |  | Kansas City  |      |                   | (6)                     |  | 74           |  | 680                                        |                         |         |                                                  |      | 99                      |   |       | 74    |                          | 779    |                      | 853    |                                        | 159   |  | 1938 |  | 5-40 yrs.
|Country Club Plaza - Nichols Retail        |  | Kansas City  |      |                   | (6)                     |  | 600          |  | 6,999                                      |                         |         |                                                  |      | 411                     |   |       | 600   |                          | 7,410  |                      | 8,010  |                                        | 992   |  | 1930 |  | 5-40 yrs.
|Country Club Plaza - Plaza Central         |  | Kansas City  |      |                   | (6)                     |  | 405          |  | 4,744                                      |                         |         |                                                  |      | 974                     |   |       | 405   |                          | 5,718  |                      | 6,123  |                                        | 1,050 |  | 1958 |  | 5-40 yrs.
|Country Club Plaza - Retail                |  | Kansas City  |      |                   | (6)                     |  |              |  | 408                                        |                         |         |                                                  |      | 305                     |   |       |       |                          | 713    |                      | 713    |                                        | 47    |  | N/A  |  | N/A      
|Country Club Plaza - Savings South         |  | Kansas City  |      |                   | (6)                     |  | 357          |  | 4,162                                      |                         |         |                                                  |      | 2,239                   |   |       | 357   |                          | 6,401  |                      | 6,758  |                                        | 980   |  | 1948 |  | 5-40 yrs.
|Country Club Plaza - Seville Shops West    |  | Kansas City  |      |                   | (6)                     |  | 300          |  | 3,495                                      |                         |         |                                                  |      | 12,700                  |   |       | 300   |                          | 16,195 |                      | 16,495 |                                        | 2,061 |  | 1999 |  | 5-40 yrs.
|Country Club Plaza - Seville Square        |  | Kansas City  |      |                   | (6)                     |  | 3,202        |  | 20,566                                     |                         |         |                                                  |      | 3,503                   |   |       | 3,202 |                          | 24,069 |                      | 27,271 |                                        | 2,593 |  | 1999 |  | 5-40 yrs.
|Country Club Plaza - Swanson Block         |  | Kansas City  |      |                   | (6)                     |  | 949          |  | 11,126                                     |                         |         |                                                  |      | 605                     |   |       | 949   |                          | 11,731 |                      | 12,680 |                                        | 1,565 |  | 1967 |  | 5-40 yrs.
|Country Club Plaza - Theatre Office        |  | Kansas City  |      |                   | (6)                     |  | 242          |  | 2,201                                      |                         |         |                                                  |      | 659                     |   |       | 242   |                          | 2,860  |                      | 3,102  |                                        | 502   |  | 1928 |  | 5-40 yrs.
|Country Club Plaza - Theatre Retail        |  | Kansas City  |      |                   | (6)                     |  | 1,197        |  | 13,965                                     |                         |         |                                                  |      | 3,488                   |   |       | 1,197 |                          | 17,453 |                      | 18,650 |                                        | 2,719 |  | 1928 |  | 5-40 yrs.
|Country Club Plaza - Time Office           |  | Kansas City  |      |                   | (6)                     |  | 199          |  | 1,811                                      |                         |         |                                                  |      | 687                     |   |       | 199   |                          | 2,498  |                      | 2,697  |                                        | 404   |  | 1945 |  | 5-40 yrs.
|Country Club Plaza - Time Retail           |  | Kansas City  |      |                   | (6)                     |  | 1,292        |  | 15,072                                     |                         |         |                                                  |      | 6,470                   |   |       | 1,292 |                          | 21,542 |                      | 22,834 |                                        | 2,659 |  | 1929 |  | 5-40 yrs.
|Country Club Plaza - Triangle Block        |  | Kansas City  |      |                   | (6)                     |  | 308          |  | 3,595                                      |                         |         |                                                  |      | 1,234                   |   |       | 308   |                          | 4,829  |                      | 5,137  |                                        | 651   |  | 1925 |  | 5-40 yrs.
|Country Club Plaza - Valencia Place Retail |  | Kansas City  |      |                   | (6)                     |  | 441          |  |                                            |                         |         |                                                  |      | 17,591                  |   |       | 441   |                          | 17,591 |                      | 18,032 |                                        | 1,937 |  | 1999 |  | 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      



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##### Table of Contents

|                               |  |            |      |                  |                        |  |              |  |                                           |                        |        |                                                 |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |           |  |          
|------------------------------ |  | ---------- | ---- | ---------------- | ---------------------- |  | ------------ |  | ----------------------------------------- | ---------------------- | ------ | ----------------------------------------------- | ---- | ---------------------- | - | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | --------- |  | ---------
|Description                    |  | City       |      | 2003Encumberance |                        |  | Initial Cost |  | Cost CapitalizedSubsequent to Acquisition |                        |        | Gross Amount atWhich Carried at Close of Period |      | Building &Improvements |   | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                               |  |            | Land |                  | Building &Improvements |  | Land         |  |                                           | Building &Improvements |        |                                                 | Land |                        |   |       |       |                        
|Colonial Shops                 |  | KansasCity |      |                  |                        |  | 138          |  | 644                                       |                        |        |                                                 |      | 39                     |   |       | 138   |                         | 683    |                     | 821    |                                     | 115   |  | 1907      |  | 5-40 yrs.
|Corinth Executive Building     |  | KansasCity |      |                  |                        |  | 514          |  | 2,290                                     |                        |        |                                                 |      | 637                    |   |       | 514   |                         | 2,927  |                     | 3,441  |                                     | 563   |  | 1973      |  | 5-40 yrs.
|Corinth Office Building        |  | KansasCity |      | 660              |                        |  | 529          |  | 2,149                                     |                        |        |                                                 |      | 383                    |   |       | 529   |                         | 2,532  |                     | 3,061  |                                     | 427   |  | 1960      |  | 5-40 yrs.
|Corinth Shops South            |  | KansasCity |      |                  |                        |  | 1,043        |  | 4,349                                     |                        |        |                                                 |      | (7                     | ) |       | 1,043 |                         | 4,342  |                     | 5,385  |                                     | 623   |  | 1953      |  | 5-40 yrs.
|Corinth Square North Shops     |  | KansasCity |      |                  |                        |  | 2,693        |  | 11,237                                    |                        |        |                                                 |      | 468                    |   |       | 2,693 |                         | 11,705 |                     | 14,398 |                                     | 1,657 |  | 1962      |  | 5-40 yrs.
|Fairway North                  |  | KansasCity |      |                  |                        |  | 753          |  | 3,212                                     |                        |        |                                                 |      | 370                    |   |       | 753   |                         | 3,582  |                     | 4,335  |                                     | 720   |  | 1985      |  | 5-40 yrs.
|Fairway Shops                  |  | KansasCity |      | 2,318            |                        |  | 673          |  | 3,152                                     |                        |        |                                                 |      | (165                   | ) |       | 673   |                         | 2,987  |                     | 3,660  |                                     | 494   |  | 1940      |  | 5-40 yrs.
|Fairway West                   |  | KansasCity |      |                  |                        |  | 851          |  | 3,447                                     |                        |        |                                                 |      | 494                    |   |       | 851   |                         | 3,941  |                     | 4,792  |                                     | 770   |  | 1983      |  | 5-40 yrs.
|Residential - Land             |  | KansasCity |      |                  |                        |  | 484          |  |                                           |                        | 127    |                                                 |      |                        |   |       | 611   |                         |        |                     | 611    |                                     |       |  | N/A       |  | N/A      
|Land - Hotel Land - Valencia   |  | KansasCity |      |                  |                        |  | 943          |  |                                           |                        |        |                                                 |      |                        |   |       | 943   |                         |        |                     | 943    |                                     |       |  | N/A       |  | N/A      
|Land - JCN Parkway 4502-1      |  | KansasCity |      |                  |                        |  | 50           |  |                                           |                        |        |                                                 |      |                        |   |       | 50    |                         |        |                     | 50     |                                     |       |  | N/A       |  | N/A      
|Land - JCN Parkway 4510 & 4518 |  | KansasCity |      |                  |                        |  | 100          |  |                                           |                        |        |                                                 |      |                        |   |       | 100   |                         |        |                     | 100    |                                     |       |  | N/A       |  | N/A      
|Land - Lionsgate               |  | KansasCity |      |                  |                        |  | 2,622        |  |                                           |                        |        |                                                 |      |                        |   |       | 2,622 |                         |        |                     | 2,622  |                                     |       |  | N/A       |  | N/A      
|Land - Woodsonia Commercial    |  | KansasCity |      |                  |                        |  | 2,611        |  |                                           |                        |        |                                                 |      |                        |   |       | 2,611 |                         |        |                     | 2,611  |                                     |       |  | N/A       |  | N/A      
|Neptune Apartments             |  | KansasCity |      | 4,121            |                        |  | 1,073        |  | 6,139                                     |                        |        |                                                 |      | 298                    |   |       | 1,073 |                         | 6,437  |                     | 7,510  |                                     | 892   |  | 1988      |  | 5-40 yrs.
|Parklane Apartments            |  | KansasCity |      |                  |                        |  | 273          |  | 1,574                                     |                        |        |                                                 |      | 148                    |   |       | 273   |                         | 1,722  |                     | 1,995  |                                     | 200   |  | 1924      |  | 5-40 yrs.
|Red Bridge & Holmes            |  | KansasCity |      |                  |                        |  | 390          |  |                                           |                        | (390   | )                                               |      |                        |   |       |       |                         |        |                     |        |                                     |       |  | N/A       |  | N/A      
|Wornall Road Apartments        |  | KansasCity |      |                  |                        |  | 186          |  | 173                                       |                        |        |                                                 |      | 21                     |   |       | 186   |                         | 194    |                     | 380    |                                     | 28    |  | 1918      |  | 5-40 yrs.
|Nichols Building               |  | KansasCity |      | 700              |                        |  | 490          |  | 1,984                                     |                        |        |                                                 |      | 246                    |   |       | 490   |                         | 2,230  |                     | 2,720  |                                     | 408   |  | 1978      |  | 5-40 yrs.
|One Ward Parkway               |  | KansasCity |      |                  |                        |  | 666          |  | 3,874                                     |                        |        |                                                 |      | (41                    | ) |       | 666   |                         | 3,833  |                     | 4,499  |                                     | 871   |  | 1980      |  | 5-40 yrs.
|Park Plaza                     |  | KansasCity |      |                  | (6)                    |  | 1,352        |  | 6,283                                     |                        |        |                                                 |      | 900                    |   |       | 1,352 |                         | 7,183  |                     | 8,535  |                                     | 1,161 |  | 1983      |  | 5-40 yrs.
|Parkway Building               |  | KansasCity |      |                  |                        |  | 395          |  | 2,007                                     |                        |        |                                                 |      | (13                    | ) |       | 395   |                         | 1,994  |                     | 2,389  |                                     | 446   |  | 1906-1910 |  | 5-40 yrs.
|Prairie Village Office Center  |  | KansasCity |      |                  |                        |  | 749          |  | 2,997                                     |                        | (749   | )                                               |      | (2,997                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1960      |  | 5-40 yrs.
|Prairie Village Rest & Bank    |  | KansasCity |      |                  | (8)                    |  |              |  |                                           |                        |        |                                                 |      | 1,372                  |   |       |       |                         | 1,372  |                     | 1,372  |                                     | 149   |  | 1948      |  | 5-40 yrs.
|Prairie Village Shops          |  | KansasCity |      |                  | (8)                    |  | 3,289        |  | 14,377                                    |                        |        |                                                 |      | 1,996                  |   |       | 3,289 |                         | 16,373 |                     | 19,662 |                                     | 2,567 |  | 1948      |  | 5-40 yrs.
|Shannon Valley Shopping Center |  | KansasCity |      | 5,680            |                        |  | 1,891        |  | 7,468                                     |                        |        |                                                 |      | 1,210                  |   |       | 1,891 |                         | 8,678  |                     | 10,569 |                                     | 1,500 |  | 1988      |  | 5-40 yrs.
|Somerset                       |  | KansasCity |      |                  |                        |  | 30           |  | 122                                       |                        |        |                                                 |      |                        |   |       | 30    |                         | 122    |                     | 152    |                                     | 17    |  | 1998      |  | 5-40 yrs.
|Two Brush Creek                |  | KansasCity |      |                  |                        |  | 961          |  | 4,312                                     |                        |        |                                                 |      | 58                     |   |       | 961   |                         | 4,370  |                     | 5,331  |                                     | 749   |  | 1983      |  | 5-40 yrs.
|Valencia Place Office          |  | KansasCity |      |                  | (6)                    |  | 1,530        |  |                                           |                        |        |                                                 |      | 36,705                 |   |       | 1,530 |                         | 36,705 |                     | 38,235 |                                     | 4,674 |  | 1999      |  | 5-40 yrs.
|WhiteHorse Commercial          |  | KansasCity |      |                  |                        |  | 2,200        |  |                                           |                        | (2,200 | )                                               |      |                        |   |       |       |                         |        |                     |        |                                     |       |  | N/A       |  | N/A      
|                               |  |            |      |                  |                        |  |              |  |                                           |                        |        |                                                
|Memphis, TN                    |  |            |      |                  |                        |  |              |  |                                           |                        |        |                                                 |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |           |  |          
|3400 Players Club Parkway      |  | Memphis    |      |                  | (2)                    |  | 1,005        |  |                                           |                        |        |                                                 |      | 5,593                  |   |       | 1,005 |                         | 5,593  |                     | 6,598  |                                     | 1,710 |  | 1997      |  | 5-40 yrs.
|6000 Poplar Ave                |  | Memphis    |      |                  |                        |  | 2,340        |  | 11,385                                    |                        |        |                                                 |      | 551                    |   |       | 2,340 |                         | 11,936 |                     | 14,276 |                                     | 966   |  | 1985      |  | 5-40 yrs.
|6060 Poplar Ave                |  | Memphis    |      |                  |                        |  | 1,980        |  | 8,677                                     |                        |        |                                                 |      | 465                    |   |       | 1,980 |                         | 9,142  |                     | 11,122 |                                     | 767   |  | 1987      |  | 5-40 yrs.
|Atrium I & II                  |  | Memphis    |      |                  |                        |  | 1,570        |  | 6,253                                     |                        |        |                                                 |      | 843                    |   |       | 1,570 |                         | 7,096  |                     | 8,666  |                                     | 1,384 |  | 1984      |  | 5-40 yrs.
|Centrum                        |  | Memphis    |      |                  |                        |  | 1,013        |  | 5,580                                     |                        |        |                                                 |      | 422                    |   |       | 1,013 |                         | 6,002  |                     | 7,015  |                                     | 1,089 |  | 1979      |  | 5-40 yrs.
|Hickory Hill Medical Plaza     |  | Memphis    |      |                  |                        |  | 398          |  | 2,259                                     |                        |        |                                                 |      | 143                    |   |       | 398   |                         | 2,402  |                     | 2,800  |                                     | 487   |  | 1988      |  | 5-40 yrs.
|International Place II         |  | Memphis    |      |                  | (4)                    |  | 4,847        |  | 27,509                                    |                        |        |                                                 |      | 2,077                  |   |       | 4,847 |                         | 29,586 |                     | 34,433 |                                     | 6,227 |  | 1988      |  | 5-40 yrs.
|Shadow Creek I                 |  | Memphis    |      |                  |                        |  | 973          |  |                                           |                        |        |                                                 |      | 7,655                  |   |       | 973   |                         | 7,655  |                     | 8,628  |                                     | 1,022 |  | 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                                     |                        |        |                                                 |      | 308                    |   |       | 996   |                         | 5,959  |                     | 6,955  |                                     | 1,177 |  | 1991      |  | 5-40 yrs.
|Southwind Office Center B      |  | Memphis    |      |                  |                        |  | 1,356        |  | 7,695                                     |                        |        |                                                 |      | 425                    |   |       | 1,356 |                         | 8,120  |                     | 9,476  |                                     | 1,682 |  | 1990      |  | 5-40 yrs.
|Southwind Office Center C      |  | Memphis    |      |                  | (2)                    |  | 1,070        |  |                                           |                        |        |                                                 |      | 5,936                  |   |       | 1,070 |                         | 5,936  |                     | 7,006  |                                     | 1,225 |  | 1998      |  | 5-40 yrs.
|Southwind Office Center D      |  | Memphis    |      |                  |                        |  | 744          |  |                                           |                        |        |                                                 |      | 6,285                  |   |       | 744   |                         | 6,285  |                     | 7,029  |                                     | 1,462 |  | 1999      |  | 5-40 yrs.
|The Colonnade                  |  | Memphis    |      |                  |                        |  | 1,300        |  | 6,468                                     |                        |        |                                                 |      | 1,603                  |   |       | 1,300 |                         | 8,071  |                     | 9,371  |                                     | 1,977 |  | 1998      |  | 5-40 yrs.
|                               |  |            |      |                  |                        |  |              |  |                                           |                        |        |                                                
|Nashville, TN                  |  |            |      |                  |                        |  |              |  |                                           |                        |        |                                                 |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |           |  |          
|3322 West End                  |  | Nashville  |      |                  |                        |  | 3,025        |  | 27,490                                    |                        |        |                                                 |      | 1,781                  |   |       | 3,025 |                         | 29,271 |                     | 32,296 |                                     | 3,296 |  | 1986      |  | 5-40 yrs.
|3401 West End                  |  | Nashville  |      |                  |                        |  | 4,880        |  | 19,909                                    |                        |        |                                                 |      | 3,636                  |   |       | 4,880 |                         | 23,545 |                     | 28,425 |                                     | 5,561 |  | 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                                    |                        |        |                                                 |      | 2,121                  |   |       |       |                         | 21,789 |                     | 21,789 |                                     | 4,735 |  | 1985      |  | 5-40 yrs.
|Century City Plaza I           |  | Nashville  |      |                  |                        |  | 903          |  | 3,612                                     |                        |        |                                                 |      | 805                    |   |       | 903   |                         | 4,417  |                     | 5,320  |                                     | 1,100 |  | 1987      |  | 5-40 yrs.
|Cool Springs I                 |  | Nashville  |      |                  |                        |  | 1,983        |  |                                           |                        |        |                                                 |      | 15,172                 |   |       | 1,983 |                         | 15,172 |                     | 17,155 |                                     | 3,850 |  | 1999      |  | 5-40 yrs.
|Cool Springs II                |  | Nashville  |      |                  |                        |  | 2,285        |  |                                           |                        |        |                                                 |      | 22,365                 |   |       | 2,285 |                         | 22,365 |                     | 24,650 |                                     | 2,142 |  | 1999      |  | 5-40 yrs.
|Cool Springs Land              |  | Nashville  |      |                  |                        |  | 7,412        |  |                                           |                        | 1,326  |                                                 |      |                        |   |       | 8,738 |                         |        |                     | 8,738  |                                     |       |  | N/A       |  | N/A      
|Eakin & Smith                  |  | Nashville  |      |                  |                        |  | 2,692        |  | 12,097                                    |                        |        |                                                 |      |                        |   |       | 2,692 |                         | 12,097 |                     | 14,789 |                                     | 2,607 |  | 1999      |  | 5-40 yrs.
|Eastpark I, II, & III          |  | Nashville  |      |                  |                        |  | 2,371        |  | 9,553                                     |                        |        |                                                 |      | 2,926                  |   |       | 2,371 |                         | 12,479 |                     | 14,850 |                                     | 2,925 |  | 1978      |  | 5-40 yrs.
|Harpeth on the Green II        |  | Nashville  |      |                  | (1)                    |  | 1,419        |  | 5,677                                     |                        |        |                                                 |      | 1,033                  |   |       | 1,419 |                         | 6,710  |                     | 8,129  |                                     | 1,392 |  | 1984      |  | 5-40 yrs.
|Harpeth on the Green III       |  | Nashville  |      |                  | (1)                    |  | 1,660        |  | 6,649                                     |                        |        |                                                 |      | 913                    |   |       | 1,660 |                         | 7,562  |                     | 9,222  |                                     | 1,391 |  | 1987      |  | 5-40 yrs.
|Harpeth on the Green IV        |  | Nashville  |      |                  | (1)                    |  | 1,713        |  | 6,842                                     |                        |        |                                                 |      | 1,053                  |   |       | 1,713 |                         | 7,895  |                     | 9,608  |                                     | 1,805 |  | 1989      |  | 5-40 yrs.
|Harpeth on The Green V         |  | Nashville  |      |                  | (1)                    |  | 662          |  |                                           |                        |        |                                                 |      | 5,558                  |   |       | 662   |                         | 5,558  |                     | 6,220  |                                     | 1,517 |  | 1998      |  | 5-40 yrs.



---

##### Table of Contents

|                              |  |               |      |                  |                        |  |              |  |                                           |                        |        |                                                 |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|----------------------------- |  | ------------- | ---- | ---------------- | ---------------------- |  | ------------ |  | ----------------------------------------- | ---------------------- | ------ | ----------------------------------------------- | ---- | ---------------------- | - | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | ---- |  | ---------
|Description                   |  | City          |      | 2003Encumberance |                        |  | Initial Cost |  | Cost CapitalizedSubsequent to Acquisition |                        |        | Gross Amount atWhich Carried at Close of Period |      | Building &Improvements |   | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                              |  |               | Land |                  | Building &Improvements |  | Land         |  |                                           | Building &Improvements |        |                                                 | Land |                        |   |       |       |                        
|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        |  |                                           |                        |        |                                                 |      | 9,284                  |   |       | 1,772 |                         | 9,284  |                     | 11,056 |                                     | 2,957 |  | 1996 |  | 5-40 yrs.
|Highwoods Plaza II            |  | Nashville     |      |                  | (1)                    |  | 1,448        |  |                                           |                        |        |                                                 |      | 7,837                  |   |       | 1,448 |                         | 7,837  |                     | 9,285  |                                     | 2,209 |  | 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          |  |                                           |                        |        |                                                 |      | 5,596                  |   |       | 605   |                         | 5,596  |                     | 6,201  |                                     | 1,674 |  | 1998 |  | 5-40 yrs.
|Lakeview Ridge III            |  | Nashville     |      |                  | (1)                    |  | 1,073        |  |                                           |                        |        |                                                 |      | 13,210                 |   |       | 1,073 |                         | 13,210 |                     | 14,283 |                                     | 2,437 |  | 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     |      |                  |                        |  | 3,115        |  |                                           |                        |        |                                                 |      |                        |   |       | 3,115 |                         |        |                     | 3,115  |                                     |       |  | N/A  |  | N/A      
|Seven Springs - Land II       |  | Nashville     |      |                  |                        |  | 3,715        |  |                                           |                        |        |                                                 |      |                        |   |       | 3,715 |                         |        |                     | 3,715  |                                     |       |  | N/A  |  | N/A      
|SouthPointe                   |  | Nashville     |      |                  |                        |  | 1,655        |  |                                           |                        |        |                                                 |      | 9,252                  |   |       | 1,655 |                         | 9,252  |                     | 10,907 |                                     | 2,795 |  | 1998 |  | 5-40 yrs.
|Southwind Land                |  | Nashville     |      |                  |                        |  | 4,248        |  |                                           |                        |        |                                                 |      |                        |   |       | 4,248 |                         |        |                     | 4,248  |                                     |       |  | 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                                     |                        |        |                                                 |      | 665                    |   |       | 1,497 |                         | 7,923  |                     | 9,420  |                                     | 1,335 |  | 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      
|Metrowest Center              |  | Orlando       |      |                  |                        |  | 1,344        |  | 7,629                                     |                        |        |                                                 |      | 1,051                  |   |       | 1,344 |                         | 8,680  |                     | 10,024 |                                     | 1,687 |  | 1988 |  | 5-40 yrs.
|MetroWest Land                |  | Orlando       |      |                  |                        |  | 3,134        |  |                                           |                        |        |                                                 |      |                        |   |       | 3,134 |                         |        |                     | 3,134  |                                     |       |  | N/A  |  | N/A      
|Sunport Center                |  | Orlando       |      |                  |                        |  | 1,505        |  | 9,982                                     |                        |        |                                                 |      | (98                    | ) |       | 1,505 |                         | 9,884  |                     | 11,389 |                                     | 1,549 |  | 1990 |  | 5-40 yrs.
|                              |  |               |      |                  |                        |  |              |  |                                           |                        |        |                                                
|Piedmont Triad, NC            |  |               |      |                  |                        |  |              |  |                                           |                        |        |                                                 |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|101 Stratford                 |  | PiedmontTriad |      |                  |                        |  | 1,205        |  | 6,916                                     |                        |        |                                                 |      | 1,002                  |   |       | 1,205 |                         | 7,918  |                     | 9,123  |                                     | 1,215 |  | 1986 |  | 5-40 yrs.
|150 Stratford                 |  | PiedmontTriad |      |                  |                        |  | 2,777        |  | 11,440                                    |                        |        |                                                 |      | 807                    |   |       | 2,777 |                         | 12,247 |                     | 15,024 |                                     | 2,878 |  | 1991 |  | 5-40 yrs.
|160 Stratford -Land           |  | PiedmontTriad |      |                  |                        |  | 966          |  |                                           |                        |        |                                                 |      |                        |   |       | 966   |                         |        |                     | 966    |                                     |       |  | N/A  |  | N/A      
|2606 Phoenix Drive-100 Series |  | PiedmontTriad |      |                  |                        |  | 63           |  | 466                                       |                        | (63    | )                                               |      | (466                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|2606 Phoenix Drive-200 Series |  | PiedmontTriad |      |                  |                        |  | 63           |  | 466                                       |                        | (63    | )                                               |      | (466                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|2606 Phoenix Drive-300 Series |  | PiedmontTriad |      |                  |                        |  | 31           |  | 229                                       |                        | (31    | )                                               |      | (229                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|2606 Phoenix Drive-400 Series |  | PiedmontTriad |      |                  |                        |  | 52           |  | 382                                       |                        | (52    | )                                               |      | (382                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|2606 Phoenix Drive-500 Series |  | PiedmontTriad |      |                  |                        |  | 64           |  | 471                                       |                        | (64    | )                                               |      | (471                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|2606 Phoenix Drive-600 Series |  | PiedmontTriad |      |                  |                        |  | 78           |  | 575                                       |                        | (78    | )                                               |      | (575                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|2606 Phoenix Drive-700 Series |  | PiedmontTriad |      |                  |                        |  |              |  | 533                                       |                        |        |                                                 |      | (533                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1988 |  | 5-40 yrs.
|2606 Phoenix Drive-800 Series |  | PiedmontTriad |      |                  |                        |  |              |  | 2,308                                     |                        |        |                                                 |      | (2,308                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|500 Northridge                |  | PiedmontTriad |      |                  |                        |  | 1,789        |  | 4,174                                     |                        | (1,789 | )                                               |      | (4,174                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1988 |  | 5-40 yrs.
|500 Radar Road                |  | PiedmontTriad |      |                  |                        |  | 202          |  | 1,484                                     |                        |        |                                                 |      | 211                    |   |       | 202   |                         | 1,695  |                     | 1,897  |                                     | 421   |  | 1981 |  | 5-40 yrs.
|502 Radar Road                |  | PiedmontTriad |      |                  |                        |  | 39           |  | 285                                       |                        |        |                                                 |      | 96                     |   |       | 39    |                         | 381    |                     | 420    |                                     | 125   |  | 1986 |  | 5-40 yrs.
|504 Radar Road                |  | PiedmontTriad |      |                  |                        |  | 39           |  | 285                                       |                        |        |                                                 |      | 80                     |   |       | 39    |                         | 365    |                     | 404    |                                     | 79    |  | 1986 |  | 5-40 yrs.
|506 Radar Road                |  | PiedmontTriad |      |                  |                        |  | 39           |  | 285                                       |                        |        |                                                 |      | 20                     |   |       | 39    |                         | 305    |                     | 344    |                                     | 68    |  | 1986 |  | 5-40 yrs.
|520 Northridge                |  | PiedmontTriad |      |                  |                        |  | 1,700        |  | 4,166                                     |                        | (1,700 | )                                               |      | (4,166                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|540 Northridge                |  | PiedmontTriad |      |                  |                        |  | 1,934        |  | 4,638                                     |                        | (1,934 | )                                               |      | (4,638                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|550 Northridge                |  | PiedmontTriad |      |                  |                        |  | 444          |  | 1,075                                     |                        | (444   | )                                               |      | (1,075                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|531 Northridge Office         |  | PiedmontTriad |      |                  |                        |  | 1,601        |  | 3,809                                     |                        |        |                                                 |      |                        |   |       | 1,601 |                         | 3,809  |                     | 5,410  |                                     | 87    |  | 1989 |  | 5-40 yrs.
|531 Northridge Warehouse      |  | PiedmontTriad |      |                  |                        |  | 4,540        |  | 10,810                                    |                        |        |                                                 |      |                        |   |       | 4,540 |                         | 10,810 |                     | 15,350 |                                     | 248   |  | 1989 |  | 5-40 yrs.
|6348 Burnt Poplar             |  | PiedmontTriad |      |                  |                        |  | 721          |  | 2,889                                     |                        |        |                                                 |      | 36                     |   |       | 721   |                         | 2,925  |                     | 3,646  |                                     | 649   |  | 1990 |  | 5-40 yrs.
|6350 Burnt Poplar             |  | PiedmontTriad |      |                  |                        |  | 339          |  | 1,369                                     |                        |        |                                                 |      | 60                     |   |       | 339   |                         | 1,429  |                     | 1,768  |                                     | 341   |  | 1992 |  | 5-40 yrs.
|710 Almondridge               |  | PiedmontTriad |      |                  |                        |  | 2,555        |  | 10,232                                    |                        | (2,555 | )                                               |      | (10,232                | ) |       |       |                         |        |                     |        |                                     |       |  | 1988 |  | 5-40 yrs.
|711 Almondridge               |  | PiedmontTriad |      |                  |                        |  | 217          |  | 536                                       |                        | (217   | )                                               |      | (536                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1988 |  | 5-40 yrs.
|7341 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 113          |  | 841                                       |                        |        |                                                 |      | 174                    |   |       | 113   |                         | 1,015  |                     | 1,128  |                                     | 256   |  | 1988 |  | 5-40 yrs.
|7343 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 72           |  | 538                                       |                        |        |                                                 |      | 103                    |   |       | 72    |                         | 641    |                     | 713    |                                     | 167   |  | 1988 |  | 5-40 yrs.
|7345 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 66           |  | 492                                       |                        |        |                                                 |      | 17                     |   |       | 66    |                         | 509    |                     | 575    |                                     | 113   |  | 1988 |  | 5-40 yrs.
|7347 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 97           |  | 719                                       |                        |        |                                                 |      | 92                     |   |       | 97    |                         | 811    |                     | 908    |                                     | 221   |  | 1988 |  | 5-40 yrs.
|7349 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 53           |  | 393                                       |                        |        |                                                 |      | 58                     |   |       | 53    |                         | 451    |                     | 504    |                                     | 105   |  | 1988 |  | 5-40 yrs.
|7351 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 106          |  | 788                                       |                        |        |                                                 |      | 114                    |   |       | 106   |                         | 902    |                     | 1,008  |                                     | 180   |  | 1988 |  | 5-40 yrs.
|7353 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 123          |  | 912                                       |                        |        |                                                 |      | 44                     |   |       | 123   |                         | 956    |                     | 1,079  |                                     | 205   |  | 1988 |  | 5-40 yrs.
|7355 West Friendly Avenue     |  | PiedmontTriad |      |                  |                        |  | 72           |  | 531                                       |                        |        |                                                 |      | 51                     |   |       | 72    |                         | 582    |                     | 654    |                                     | 138   |  | 1988 |  | 5-40 yrs.
|7906 Industrial Village Road  |  | PiedmontTriad |      |                  |                        |  | 62           |  | 460                                       |                        |        |                                                 |      | 19                     |   |       | 62    |                         | 479    |                     | 541    |                                     | 104   |  | 1985 |  | 5-40 yrs.



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##### Table of Contents

|                                  |  |               |      |                   |                         |  |              |  |                                            |                         |       |                                                  |      |                         |   |       |        |                          |        |                      |        |                                        |       |  |      |  |          
|--------------------------------- |  | ------------- | ---- | ----------------- | ----------------------- |  | ------------ |  | ------------------------------------------ | ----------------------- | ----- | ------------------------------------------------ | ---- | ----------------------- | - | ----- | ------ | ------------------------ | ------ | -------------------- | ------ | -------------------------------------- | ----- |  | ---- |  | ---------
|Description                       |  | City          |      | 2003 Encumberance |                         |  | Initial Cost |  | Cost Capitalized Subsequent to Acquisition |                         |       | Gross Amount at Which Carried at Close of Period |      | Building & Improvements |   | Total |        | Accumulated Depreciation |        | Date of Construction |        | Life on Which Depreciation is Computed
|                                  |  |               | Land |                   | Building & Improvements |  | Land         |  |                                            | Building & Improvements |       |                                                  | Land |                         |   |       |        |                         
|7908 Industrial Village Road      |  | PiedmontTriad |      |                   |                         |  | 62           |  | 460                                        |                         |       |                                                  |      | 109                     |   |       | 62     |                          | 569    |                      | 631    |                                        | 129   |  | 1985 |  | 5-40 yrs.
|7910 Industrial Village Road      |  | PiedmontTriad |      |                   |                         |  | 62           |  | 460                                        |                         |       |                                                  |      | 11                      |   |       | 62     |                          | 471    |                      | 533    |                                        | 107   |  | 1985 |  | 5-40 yrs.
|Airpark East-Building 1           |  | PiedmontTriad |      |                   | (7)                     |  | 377          |  | 1,510                                      |                         |       |                                                  |      | 162                     |   |       | 377    |                          | 1,672  |                      | 2,049  |                                        | 455   |  | 1990 |  | 5-40 yrs.
|Airpark East-Building 2           |  | PiedmontTriad |      |                   | (7)                     |  | 461          |  | 1,842                                      |                         |       |                                                  |      | 175                     |   |       | 461    |                          | 2,017  |                      | 2,478  |                                        | 447   |  | 1986 |  | 5-40 yrs.
|Airpark East-Building 3           |  | PiedmontTriad |      |                   | (7)                     |  | 321          |  | 1,283                                      |                         |       |                                                  |      | 227                     |   |       | 321    |                          | 1,510  |                      | 1,831  |                                        | 406   |  | 1986 |  | 5-40 yrs.
|Airpark East-Building A           |  | PiedmontTriad |      |                   | (7)                     |  | 507          |  | 2,913                                      |                         |       |                                                  |      | 800                     |   |       | 507    |                          | 3,713  |                      | 4,220  |                                        | 1,011 |  | 1986 |  | 5-40 yrs.
|Airpark East-Building B           |  | PiedmontTriad |      |                   | (7)                     |  | 736          |  | 3,220                                      |                         |       |                                                  |      | 809                     |   |       | 736    |                          | 4,029  |                      | 4,765  |                                        | 1,044 |  | 1988 |  | 5-40 yrs.
|Airpark East-Building C           |  | PiedmontTriad |      |                   | (7)                     |  | 2,384        |  | 9,539                                      |                         |       |                                                  |      | 2,227                   |   |       | 2,384  |                          | 11,766 |                      | 14,150 |                                        | 2,936 |  | 1990 |  | 5-40 yrs.
|Airpark East-Building D           |  | PiedmontTriad |      |                   | (7)                     |  | 850          |  |                                            |                         | 1,025 |                                                  |      | 4,702                   |   |       | 1,875  |                          | 4,702  |                      | 6,577  |                                        | 1,347 |  | 1997 |  | 5-40 yrs.
|Airpark East-Copier Consultants   |  | PiedmontTriad |      |                   | (7)                     |  | 223          |  | 1,008                                      |                         |       |                                                  |      | 313                     |   |       | 223    |                          | 1,321  |                      | 1,544  |                                        | 326   |  | 1990 |  | 5-40 yrs.
|Airpark East-HewlettPackard       |  | PiedmontTriad |      |                   | (7)                     |  | 465          |  |                                            |                         | 558   |                                                  |      | 969                     |   |       | 1,023  |                          | 969    |                      | 1,992  |                                        | 270   |  | 1996 |  | 5-40 yrs.
|Airpark East-Highland             |  | PiedmontTriad |      |                   | (7)                     |  | 145          |  | 1,078                                      |                         |       |                                                  |      | (2                      | ) |       | 145    |                          | 1,076  |                      | 1,221  |                                        | 200   |  | 1990 |  | 5-40 yrs.
|Airpark East-Inacom Building      |  | PiedmontTriad |      |                   | (7)                     |  | 265          |  |                                            |                         | 396   |                                                  |      | 922                     |   |       | 661    |                          | 922    |                      | 1,583  |                                        | 360   |  | 1996 |  | 5-40 yrs.
|Airpark East-Service Center 1     |  | PiedmontTriad |      |                   | (7)                     |  | 236          |  | 1,099                                      |                         |       |                                                  |      | 236                     |   |       | 236    |                          | 1,335  |                      | 1,571  |                                        | 370   |  | 1985 |  | 5-40 yrs.
|Airpark East-Service Center 2     |  | PiedmontTriad |      |                   | (7)                     |  | 192          |  | 889                                        |                         |       |                                                  |      | 303                     |   |       | 192    |                          | 1,192  |                      | 1,384  |                                        | 305   |  | 1985 |  | 5-40 yrs.
|Airpark East-Service Center 3     |  | PiedmontTriad |      |                   | (7)                     |  | 304          |  | 1,214                                      |                         |       |                                                  |      | 363                     |   |       | 304    |                          | 1,577  |                      | 1,881  |                                        | 397   |  | 1985 |  | 5-40 yrs.
|Airpark East-Service Center 4     |  | PiedmontTriad |      |                   | (7)                     |  | 224          |  | 898                                        |                         |       |                                                  |      | 228                     |   |       | 224    |                          | 1,126  |                      | 1,350  |                                        | 346   |  | 1985 |  | 5-40 yrs.
|Airpark East-Service Court        |  | PiedmontTriad |      |                   | (7)                     |  | 170          |  | 774                                        |                         |       |                                                  |      | 84                      |   |       | 170    |                          | 858    |                      | 1,028  |                                        | 221   |  | 1990 |  | 5-40 yrs.
|Airpark East-Simplex              |  | PiedmontTriad |      |                   | (7)                     |  | 271          |  |                                            |                         | 350   |                                                  |      | 652                     |   |       | 621    |                          | 652    |                      | 1,273  |                                        | 143   |  | 1997 |  | 5-40 yrs.
|Airpark East-Warehouse 1          |  | PiedmontTriad |      |                   | (7)                     |  | 354          |  | 1,535                                      |                         |       |                                                  |      | 110                     |   |       | 354    |                          | 1,645  |                      | 1,999  |                                        | 406   |  | 1985 |  | 5-40 yrs.
|Airpark East-Warehouse 2          |  | PiedmontTriad |      |                   | (7)                     |  | 372          |  | 1,488                                      |                         |       |                                                  |      | 147                     |   |       | 372    |                          | 1,635  |                      | 2,007  |                                        | 417   |  | 1985 |  | 5-40 yrs.
|Airpark East-Warehouse 3          |  | PiedmontTriad |      |                   | (7)                     |  | 340          |  | 1,480                                      |                         |       |                                                  |      | 448                     |   |       | 340    |                          | 1,928  |                      | 2,268  |                                        | 398   |  | 1986 |  | 5-40 yrs.
|Airpark East-Warehouse 4          |  | PiedmontTriad |      |                   | (7)                     |  | 657          |  | 2,628                                      |                         |       |                                                  |      | 58                      |   |       | 657    |                          | 2,686  |                      | 3,343  |                                        | 598   |  | 1988 |  | 5-40 yrs.
|Airpark North - DC1               |  | PiedmontTriad |      |                   | (7)                     |  | 857          |  | 2,891                                      |                         |       |                                                  |      | 329                     |   |       | 857    |                          | 3,220  |                      | 4,077  |                                        | 754   |  | 1986 |  | 5-40 yrs.
|Airpark North - DC2               |  | PiedmontTriad |      |                   | (7)                     |  | 1,298        |  | 4,375                                      |                         |       |                                                  |      | 315                     |   |       | 1,298  |                          | 4,690  |                      | 5,988  |                                        | 1,077 |  | 1987 |  | 5-40 yrs.
|Airpark North - DC3               |  | PiedmontTriad |      |                   | (7)                     |  | 448          |  | 1,511                                      |                         |       |                                                  |      | 236                     |   |       | 448    |                          | 1,747  |                      | 2,195  |                                        | 518   |  | 1988 |  | 5-40 yrs.
|Airpark North - DC4               |  | PiedmontTriad |      |                   | (7)                     |  | 447          |  | 1,508                                      |                         |       |                                                  |      | 145                     |   |       | 447    |                          | 1,653  |                      | 2,100  |                                        | 426   |  | 1988 |  | 5-40 yrs.
|Airpark South Warehouse 1         |  | PiedmontTriad |      |                   |                         |  | 546          |  |                                            |                         |       |                                                  |      | 3,261                   |   |       | 546    |                          | 3,261  |                      | 3,807  |                                        | 626   |  | 1998 |  | 5-40 yrs.
|Airpark South Warehouse 2         |  | PiedmontTriad |      |                   |                         |  | 749          |  |                                            |                         |       |                                                  |      | 2,517                   |   |       | 749    |                          | 2,517  |                      | 3,266  |                                        | 286   |  | 1999 |  | 5-40 yrs.
|Airpark South Warehouse 3         |  | PiedmontTriad |      |                   |                         |  | 603          |  |                                            |                         |       |                                                  |      | 2,368                   |   |       | 603    |                          | 2,368  |                      | 2,971  |                                        | 234   |  | 1999 |  | 5-40 yrs.
|Airpark South Warehouse 4         |  | PiedmontTriad |      |                   |                         |  | 499          |  |                                            |                         |       |                                                  |      | 2,460                   |   |       | 499    |                          | 2,460  |                      | 2,959  |                                        | 581   |  | 1999 |  | 5-40 yrs.
|Airpark South Warehouse 6         |  | PiedmontTriad |      |                   |                         |  | 1,733        |  |                                            |                         |       |                                                  |      | 5,504                   |   |       | 1,733  |                          | 5,504  |                      | 7,237  |                                        | 688   |  | 1999 |  | 5-40 yrs.
|Airpark West 1                    |  | PiedmontTriad |      |                   | (5)                     |  | 954          |  | 3,820                                      |                         |       |                                                  |      | 907                     |   |       | 954    |                          | 4,727  |                      | 5,681  |                                        | 1,429 |  | 1984 |  | 5-40 yrs.
|Airpark West 2                    |  | PiedmontTriad |      |                   | (5)                     |  | 884          |  | 3,536                                      |                         |       |                                                  |      | 635                     |   |       | 884    |                          | 4,171  |                      | 5,055  |                                        | 1,242 |  | 1985 |  | 5-40 yrs.
|Airpark West 4                    |  | PiedmontTriad |      |                   | (5)                     |  | 226          |  | 903                                        |                         |       |                                                  |      | 188                     |   |       | 226    |                          | 1,091  |                      | 1,317  |                                        | 296   |  | 1985 |  | 5-40 yrs.
|Airpark West 5                    |  | PiedmontTriad |      |                   | (5)                     |  | 242          |  | 967                                        |                         |       |                                                  |      | 323                     |   |       | 242    |                          | 1,290  |                      | 1,532  |                                        | 317   |  | 1985 |  | 5-40 yrs.
|Airpark West 6                    |  | PiedmontTriad |      |                   | (5)                     |  | 326          |  | 1,304                                      |                         |       |                                                  |      | 195                     |   |       | 326    |                          | 1,499  |                      | 1,825  |                                        | 430   |  | 1985 |  | 5-40 yrs.
|ALO                               |  | PiedmontTriad |      |                   |                         |  | 177          |  |                                            |                         |       |                                                  |      | 994                     |   |       | 177    |                          | 994    |                      | 1,171  |                                        | 89    |  | 1998 |  | 5-40 yrs.
|Brigham Road - Land               |  | PiedmontTriad |      |                   |                         |  | 7,299        |  |                                            |                         |       |                                                  |      |                         |   |       | 7,299  |                          |        |                      | 7,299  |                                        |       |  | N/A  |  | N/A      
|Chesapeake                        |  | PiedmontTriad |      |                   | (5)                     |  | 1,236        |  | 4,944                                      |                         |       |                                                  |      | 7                       |   |       | 1,236  |                          | 4,951  |                      | 6,187  |                                        | 1,101 |  | 1993 |  | 5-40 yrs.
|Chimney Rock A/B                  |  | PiedmontTriad |      |                   |                         |  | 1,611        |  | 4,041                                      |                         |       |                                                  |      | 243                     |   |       | 1,611  |                          | 4,284  |                      | 5,895  |                                        | 783   |  | 1981 |  | 5-40 yrs.
|Chimney Rock C                    |  | PiedmontTriad |      |                   |                         |  | 604          |  | 1,512                                      |                         |       |                                                  |      | 17                      |   |       | 604    |                          | 1,529  |                      | 2,133  |                                        | 212   |  | 1983 |  | 5-40 yrs.
|Chimney Rock D                    |  | PiedmontTriad |      |                   |                         |  | 236          |  | 591                                        |                         |       |                                                  |      | 52                      |   |       | 236    |                          | 643    |                      | 879    |                                        | 128   |  | 1983 |  | 5-40 yrs.
|Chimney Rock E                    |  | PiedmontTriad |      |                   |                         |  | 1,694        |  | 4,261                                      |                         |       |                                                  |      | (72                     | ) |       | 1,694  |                          | 4,189  |                      | 5,883  |                                        | 604   |  | 1985 |  | 5-40 yrs.
|Chimney Rock F                    |  | PiedmontTriad |      |                   |                         |  | 1,432        |  | 3,604                                      |                         |       |                                                  |      | (262                    | ) |       | 1,432  |                          | 3,342  |                      | 4,774  |                                        | 500   |  | 1987 |  | 5-40 yrs.
|Chimney Rock G                    |  | PiedmontTriad |      |                   |                         |  | 1,044        |  | 2,619                                      |                         |       |                                                  |      | (172                    | ) |       | 1,044  |                          | 2,447  |                      | 3,491  |                                        | 363   |  | 1987 |  | 5-40 yrs.
|Consolidated Center/ Building I   |  | PiedmontTriad |      |                   |                         |  | 625          |  | 2,183                                      |                         |       |                                                  |      | 32                      |   |       | 625    |                          | 2,215  |                      | 2,840  |                                        | 360   |  | 1983 |  | 5-40 yrs.
|Consolidated Center/ Building II  |  | PiedmontTriad |      |                   |                         |  | 625          |  | 4,435                                      |                         |       |                                                  |      | 270                     |   |       | 625    |                          | 4,705  |                      | 5,330  |                                        | 777   |  | 1983 |  | 5-40 yrs.
|Consolidated Center/ Building III |  | PiedmontTriad |      |                   |                         |  | 680          |  | 3,572                                      |                         |       |                                                  |      | 55                      |   |       | 680    |                          | 3,627  |                      | 4,307  |                                        | 550   |  | 1989 |  | 5-40 yrs.
|Consolidated Center/ Building IV  |  | PiedmontTriad |      |                   |                         |  | 376          |  | 1,654                                      |                         |       |                                                  |      | 208                     |   |       | 376    |                          | 1,862  |                      | 2,238  |                                        | 372   |  | 1989 |  | 5-40 yrs.
|Deep River Corporate Center       |  | PiedmontTriad |      |                   |                         |  | 1,033        |  | 5,864                                      |                         |       |                                                  |      | 743                     |   |       | 1,033  |                          | 6,607  |                      | 7,640  |                                        | 1,610 |  | 1989 |  | 5-40 yrs.
|Enterprise Warehouse I            |  | PiedmontTriad |      |                   |                         |  | 487          |  |                                            |                         |       |                                                  |      | 3,573                   |   |       | 487    |                          | 3,573  |                      | 4,060  |                                        | 258   |  | 2002 |  | 5-40 yrs.
|Forsyth Corporate Center          |  | PiedmontTriad |      |                   | (2)                     |  | 326          |  | 1,853                                      |                         |       |                                                  |      | 688                     |   |       | 326    |                          | 2,541  |                      | 2,867  |                                        | 679   |  | 1985 |  | 5-40 yrs.
|Highwoods Park Building I         |  | PiedmontTriad |      |                   |                         |  | 1,993        |  |                                            |                         |       |                                                  |      | 8,612                   |   |       | 1,993  |                          | 8,612  |                      | 10,605 |                                        | 299   |  | 2001 |  | 5-40 yrs.
|Inman Road Land                   |  | PiedmontTriad |      |                   |                         |  | 941          |  |                                            |                         | (941  | )                                                |      |                         |   |       |        |                          |        |                      |        |                                        |       |  | N/A  |  | N/A      
|Jefferson Pilot Land              |  | PiedmontTriad |      |                   |                         |  | 11,759       |  |                                            |                         | 5,595 |                                                  |      |                         |   |       | 17,354 |                          |        |                      | 17,354 |                                        |       |  | N/A  |  | N/A      
|Madison Park - Building 5610      |  | PiedmontTriad |      |                   |                         |  | 211          |  | 493                                        |                         | (211  | )                                                |      | (493                    | ) |       |        |                          |        |                      |        |                                        |       |  | 1988 |  | 5-40 yrs.
|Madison Park - Building 5620      |  | PiedmontTriad |      |                   |                         |  | 941          |  | 2,218                                      |                         |       |                                                  |      | (20                     | ) |       | 941    |                          | 2,198  |                      | 3,139  |                                        | 307   |  | 1983 |  | 5-40 yrs.
|Madison Park - Building 5630      |  | PiedmontTriad |      |                   |                         |  | 1,486        |  | 3,503                                      |                         |       |                                                  |      | (9                      | ) |       | 1,486  |                          | 3,494  |                      | 4,980  |                                        | 485   |  | 1983 |  | 5-40 yrs.
|Madison Park - Building 5635      |  | PiedmontTriad |      |                   |                         |  | 893          |  | 2,104                                      |                         |       |                                                  |      | 441                     |   |       | 893    |                          | 2,545  |                      | 3,438  |                                        | 725   |  | 1986 |  | 5-40 yrs.
|Madison Park - Building 5640      |  | PiedmontTriad |      |                   |                         |  | 1,827        |  | 6,522                                      |                         |       |                                                  |      | (41                     | ) |       | 1,827  |                          | 6,481  |                      | 8,308  |                                        | 916   |  | 1985 |  | 5-40 yrs.
|Madison Park - Building 5650      |  | PiedmontTriad |      |                   |                         |  | 1,081        |  | 2,548                                      |                         |       |                                                  |      | 25                      |   |       | 1,081  |                          | 2,573  |                      | 3,654  |                                        | 356   |  | 1984 |  | 5-40 yrs.
|Madison Park -Building 5655       |  | PiedmontTriad |      |                   |                         |  | 1,941        |  | 7,108                                      |                         |       |                                                  |      | 143                     |   |       | 1,941  |                          | 7,251  |                      | 9,192  |                                        | 1,027 |  | 1987 |  | 5-40 yrs.



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##### Table of Contents

|                                              |  |                  |      |                  |                        |  |              |  |                                           |                        |      |                                                  |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |           |  |          
|--------------------------------------------- |  | ---------------- | ---- | ---------------- | ---------------------- |  | ------------ |  | ----------------------------------------- | ---------------------- | ---- | ------------------------------------------------ | ---- | ---------------------- | - | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | --------- |  | ---------
|Description                                   |  | City             |      | 2003Encumberance |                        |  | Initial Cost |  | Cost CapitalizedSubsequent to Acquisition |                        |      | Gross Amount at Which Carried at Close of Period |      | Building &Improvements |   | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                                              |  |                  | Land |                  | Building &Improvements |  | Land         |  |                                           | Building &Improvements |      |                                                  | Land |                        |   |       |       |                        
|Madison Park - Building 5660                  |  | PiedmontTriad    |      |                  |                        |  | 1,910        |  | 4,501                                     |                        |      |                                                  |      | (34                    | ) |       | 1,910 |                         | 4,467  |                     | 6,377  |                                     | 624   |  | 1984      |  | 5-40 yrs.
|Madison Parking Deck                          |  | PiedmontTriad    |      |                  |                        |  | 5,755        |  | 8,822                                     |                        |      |                                                  |      | 487                    |   |       | 5,755 |                         | 9,309  |                     | 15,064 |                                     | 1,167 |  | 1987      |  | 5-40 yrs.
|Regency One-Piedmont Center                   |  | PiedmontTriad    |      |                  |                        |  | 515          |  |                                           |                        |      |                                                  |      | 2,925                  |   |       | 515   |                         | 2,925  |                     | 3,440  |                                     | 866   |  | 1996      |  | 5-40 yrs.
|Regency Two-Piedmont Center                   |  | PiedmontTriad    |      |                  |                        |  | 435          |  |                                           |                        |      |                                                  |      | 2,462                  |   |       | 435   |                         | 2,462  |                     | 2,897  |                                     | 847   |  | 1996      |  | 5-40 yrs.
|Sears Cenfact                                 |  | PiedmontTriad    |      |                  | (1)                    |  | 831          |  | 3,446                                     |                        |      |                                                  |      | 347                    |   |       | 831   |                         | 3,793  |                     | 4,624  |                                     | 885   |  | 1989      |  | 5-40 yrs.
|The Knollwood-370                             |  | PiedmontTriad    |      |                  | (7)                    |  | 1,819        |  | 7,443                                     |                        |      |                                                  |      | 560                    |   |       | 1,819 |                         | 8,003  |                     | 9,822  |                                     | 1,984 |  | 1994      |  | 5-40 yrs.
|The Knollwood-380                             |  | PiedmontTriad    |      |                  | (7)                    |  | 2,977        |  | 11,970                                    |                        |      |                                                  |      | 1,317                  |   |       | 2,977 |                         | 13,287 |                     | 16,264 |                                     | 3,232 |  | 1990      |  | 5-40 yrs.
|The Knollwood - 380 Retail                    |  | PiedmontTriad    |      |                  | (7)                    |  |              |  | 1                                         |                        |      |                                                  |      | 228                    |   |       |       |                         | 229    |                     | 229    |                                     | 113   |  | 1995      |  | 5-40 yrs.
|University Commercial Center-Archer 4         |  | PiedmontTriad    |      |                  |                        |  | 514          |  | 2,058                                     |                        |      |                                                  |      | 278                    |   |       | 514   |                         | 2,336  |                     | 2,850  |                                     | 590   |  | 1986      |  | 5-40 yrs.
|University Commercial Center-Landmark 3       |  | PiedmontTriad    |      |                  |                        |  | 429          |  | 1,771                                     |                        |      |                                                  |      | 474                    |   |       | 429   |                         | 2,245  |                     | 2,674  |                                     | 525   |  | 1985      |  | 5-40 yrs.
|University Commercial Center-Service Center 1 |  | PiedmontTriad    |      |                  |                        |  | 276          |  | 1,155                                     |                        |      |                                                  |      | 165                    |   |       | 276   |                         | 1,320  |                     | 1,596  |                                     | 345   |  | 1983      |  | 5-40 yrs.
|University Commercial Center-Service Center 2 |  | PiedmontTriad    |      |                  |                        |  | 215          |  | 859                                       |                        |      |                                                  |      | 44                     |   |       | 215   |                         | 903    |                     | 1,118  |                                     | 217   |  | 1983      |  | 5-40 yrs.
|University Commercial Center-Service Center 3 |  | PiedmontTriad    |      |                  |                        |  | 167          |  | 668                                       |                        |      |                                                  |      | 331                    |   |       | 167   |                         | 999    |                     | 1,166  |                                     | 262   |  | 1984      |  | 5-40 yrs.
|University Commercial Center-Warehouse 1      |  | PiedmontTriad    |      |                  |                        |  | 203          |  | 812                                       |                        |      |                                                  |      | 18                     |   |       | 203   |                         | 830    |                     | 1,033  |                                     | 183   |  | 1983      |  | 5-40 yrs.
|University Commercial Center-Warehouse 2      |  | PiedmontTriad    |      |                  |                        |  | 196          |  | 786                                       |                        |      |                                                  |      | 42                     |   |       | 196   |                         | 828    |                     | 1,024  |                                     | 184   |  | 1983      |  | 5-40 yrs.
|US Airways                                    |  | PiedmontTriad    |      |                  | (2)                    |  | 2,625        |  | 15,069                                    |                        |      |                                                  |      | (36                    | ) |       | 2,625 |                         | 15,033 |                     | 17,658 |                                     | 2,307 |  | 1970-1987 |  | 5-40 yrs.
|Westpoint Business Park Land                  |  | PiedmontTriad    |      |                  |                        |  | 861          |  |                                           |                        | 103  |                                                  |      |                        |   |       | 964   |                         |        |                     | 964    |                                     |       |  | N/A       |  | 5-40 yrs.
|Westpoint Business Park-BMF                   |  | PiedmontTriad    |      |                  |                        |  | 795          |  | 3,181                                     |                        |      |                                                  |      | 4                      |   |       | 795   |                         | 3,185  |                     | 3,980  |                                     | 707   |  | 1986      |  | 5-40 yrs.
|Westpoint Business Park-Fairchild             |  | PiedmontTriad    |      |                  |                        |  | 640          |  | 2,577                                     |                        | (640 | )                                                |      | (2,577                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1990      |  | 5-40 yrs.
|Westpoint Business Park-Luwabahnson           |  | PiedmontTriad    |      |                  |                        |  | 346          |  | 1,384                                     |                        |      |                                                  |      | 1                      |   |       | 346   |                         | 1,385  |                     | 1,731  |                                     | 308   |  | 1990      |  | 5-40 yrs.
|Westpoint Business Park-Wp 3&4                |  | PiedmontTriad    |      |                  |                        |  | 171          |  | 687                                       |                        | (171 | )                                                |      | (687                   | ) |       |       |                         |        |                     |        |                                     |       |  | 1988      |  | 5-40 yrs.
|Westpoint Business Park-Wp 5                  |  | PiedmontTriad    |      |                  |                        |  | 377          |  | 1,609                                     |                        | (377 | )                                                |      | (1,609                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1988      |  | 5-40 yrs.
|Westpoint Business Park-Wp 12                 |  | PiedmontTriad    |      |                  |                        |  | 499          |  | 2,031                                     |                        | (499 | )                                                |      | (2,031                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1988      |  | 5-40 yrs.
|Westpoint Business Park-Wp 11                 |  | PiedmontTriad    |      |                  |                        |  | 393          |  | 1,570                                     |                        | (393 | )                                                |      | (1,570                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1988      |  | 5-40 yrs.
|Westpoint Business Park-Wp 13                 |  | PiedmontTriad    |      |                  |                        |  | 297          |  | 1,214                                     |                        |      |                                                  |      | 202                    |   |       | 297   |                         | 1,416  |                     | 1,713  |                                     | 400   |  | 1988      |  | 5-40 yrs.
|                                              |  |                  |      |                  |                        |  |              |  |                                           |                        |      |                                                 
|Research Triangle, NC                         |  |                  |      |                  |                        |  |              |  |                                           |                        |      |                                                  |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |           |  |          
|3600 Glenwood Avenue                          |  | ResearchTriangle |      |                  |                        |  |              |  | 10,994                                    |                        |      |                                                  |      |                        |   |       |       |                         | 10,994 |                     | 10,994 |                                     | 1,867 |  | 1986      |  | 5-40 yrs.
|3737 Glenwood Avenue                          |  | ResearchTriangle |      |                  |                        |  |              |  |                                           |                        |      |                                                  |      | 18,335                 |   |       |       |                         | 18,335 |                     | 18,335 |                                     | 2,642 |  | 1999      |  | 5-40 yrs.
|4101 Research Commons                         |  | ResearchTriangle |      |                  |                        |  | 854          |  | 9,038                                     |                        |      |                                                  |      | 399                    |   |       | 854   |                         | 9,437  |                     | 10,291 |                                     | 109   |  | 1999      |  | 5-40 yrs.
|4201 Research Commons                         |  | ResearchTriangle |      |                  |                        |  | 862          |  | 5,496                                     |                        |      |                                                  |      | 2,650                  |   |       | 862   |                         | 8,146  |                     | 9,008  |                                     | 201   |  | 1991      |  | 5-40 yrs.
|4301 Research Commons                         |  | ResearchTriangle |      |                  |                        |  | 1,034        |  | 8,928                                     |                        |      |                                                  |      | 805                    |   |       | 1,034 |                         | 9,733  |                     | 10,767 |                                     | 178   |  | 1989      |  | 5-40 yrs.
|4401 Research Commons                         |  | ResearchTriangle |      |                  |                        |  | 1,249        |  | 9,387                                     |                        |      |                                                  |      | 6,133                  |   |       | 1,249 |                         | 15,520 |                     | 16,769 |                                     | 6,672 |  | 1987      |  | 5-40 yrs.
|4501 Research Commons                         |  | ResearchTriangle |      |                  |                        |  | 632          |  | 5,647                                     |                        |      |                                                  |      | 215                    |   |       | 632   |                         | 5,862  |                     | 6,494  |                                     | 158   |  | 1985      |  | 5-40 yrs.
|4300 Six Forks Road                           |  | ResearchTriangle |      |                  |                        |  |              |  | 15,595                                    |                        |      |                                                  |      | 4,274                  |   |       |       |                         | 19,869 |                     | 19,869 |                                     | 2,866 |  | 1995      |  | 5-40 yrs.
|4800 North Park                               |  | ResearchTriangle |      |                  |                        |  | 2,678        |  | 17,630                                    |                        |      |                                                  |      | 1,614                  |   |       | 2,678 |                         | 19,244 |                     | 21,922 |                                     | 5,053 |  | 1985      |  | 5-40 yrs.
|4900 North Park                               |  | ResearchTriangle |      | 1,135            |                        |  | 770          |  | 1,983                                     |                        |      |                                                  |      | 751                    |   |       | 770   |                         | 2,734  |                     | 3,504  |                                     | 743   |  | 1984      |  | 5-40 yrs.
|5000 North Park                               |  | ResearchTriangle |      |                  | (2)                    |  | 1,010        |  | 4,612                                     |                        |      |                                                  |      | 2,694                  |   |       | 1,010 |                         | 7,306  |                     | 8,316  |                                     | 2,296 |  | 1980      |  | 5-40 yrs.
|3645 Trust Drive - One North Commerce Center  |  | ResearchTriangle |      |                  |                        |  | 789          |  | 2,954                                     |                        |      |                                                  |      | 915                    |   |       | 789   |                         | 3,869  |                     | 4,658  |                                     | 791   |  | 1984      |  | 5-40 yrs.
|5200 Greens Dairy-One North Commerce Center   |  | ResearchTriangle |      |                  |                        |  | 169          |  | 961                                       |                        |      |                                                  |      | 236                    |   |       | 169   |                         | 1,197  |                     | 1,366  |                                     | 249   |  | 1984      |  | 5-40 yrs.
|5220 Greens Dairy-One North Commerce Center   |  | ResearchTriangle |      |                  |                        |  | 382          |  | 2,168                                     |                        |      |                                                  |      | 521                    |   |       | 382   |                         | 2,689  |                     | 3,071  |                                     | 625   |  | 1984      |  | 5-40 yrs.
|Phase I - One North Commerce Center           |  | ResearchTriangle |      |                  |                        |  | 768          |  | 4,463                                     |                        |      |                                                  |      | 1,542                  |   |       | 768   |                         | 6,005  |                     | 6,773  |                                     | 1,407 |  | 1981      |  | 5-40 yrs.
|W Building - One North Commerce Center        |  | ResearchTriangle |      |                  |                        |  | 1,163        |  | 6,815                                     |                        |      |                                                  |      | 1,942                  |   |       | 1,163 |                         | 8,757  |                     | 9,920  |                                     | 2,345 |  | 1983      |  | 5-40 yrs.
|801 Corporate Center                          |  | ResearchTriangle |      |                  |                        |  | 828          |  |                                           |                        |      |                                                  |      | 9,300                  |   |       | 828   |                         | 9,300  |                     | 10,128 |                                     | 252   |  | 2002      |  | 5-40 yrs.
|Aspen Building                                |  | ResearchTriangle |      |                  |                        |  | 560          |  | 2,088                                     |                        | (560 | )                                                |      | (2,088                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1980      |  | 5-40 yrs.
|Blue Ridge I                                  |  | ResearchTriangle |      |                  | (1)                    |  | 722          |  | 4,606                                     |                        |      |                                                  |      | 1,143                  |   |       | 722   |                         | 5,749  |                     | 6,471  |                                     | 1,806 |  | 1982      |  | 5-40 yrs.
|Blue Ridge II                                 |  | ResearchTriangle |      |                  | (1)                    |  | 462          |  | 1,410                                     |                        |      |                                                  |      | 280                    |   |       | 462   |                         | 1,690  |                     | 2,152  |                                     | 762   |  | 1988      |  | 5-40 yrs.
|Cape Fear                                     |  | ResearchTriangle |      |                  |                        |  | 131          |  | 1,630                                     |                        |      |                                                  |      | 1,093                  |   |       | 131   |                         | 2,723  |                     | 2,854  |                                     | 1,863 |  | 1979      |  | 5-40 yrs.
|Catawba                                       |  | ResearchTriangle |      |                  |                        |  | 125          |  | 1,635                                     |                        |      |                                                  |      | 1,020                  |   |       | 125   |                         | 2,655  |                     | 2,780  |                                     | 1,342 |  | 1980      |  | 5-40 yrs.
|Cedar East                                    |  | ResearchTriangle |      |                  |                        |  | 563          |  | 2,491                                     |                        | (563 | )                                                |      | (2,491                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1981      |  | 5-40 yrs.
|Cedar West                                    |  | ResearchTriangle |      |                  |                        |  | 563          |  | 2,475                                     |                        | (563 | )                                                |      | (2,475                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1981      |  | 5-40 yrs.
|CentreGreen One - Weston                      |  | ResearchTriangle |      |                  | (4)                    |  | 1,648        |  |                                           |                        |      |                                                  |      | 9,432                  |   |       | 1,648 |                         | 9,432  |                     | 11,080 |                                     | 1,559 |  | 2000      |  | 5-40 yrs.
|CentreGreen Two - Weston                      |  | ResearchTriangle |      |                  | (4)                    |  | 1,667        |  |                                           |                        |      |                                                  |      | 9,545                  |   |       | 1,667 |                         | 9,545  |                     | 11,212 |                                     | 915   |  | 2001      |  | 5-40 yrs.
|CentreGreen Three Land - Weston               |  | ResearchTriangle |      |                  |                        |  | 1,956        |  |                                           |                        |      |                                                  |      |                        |   |       | 1,956 |                         |        |                     | 1,956  |                                     |       |  | N/A       |  | N/A      
|CentreGreen Four                              |  | ResearchTriangle |      |                  | (4)                    |  | 1,698        |  |                                           |                        |      |                                                  |      | 12,165                 |   |       | 1,698 |                         | 12,165 |                     | 13,863 |                                     | 250   |  | 2002      |  | 5-40 yrs.
|CentreGreen Five Land - Weston                |  | ResearchTriangle |      |                  |                        |  | 3,162        |  |                                           |                        |      |                                                  |      |                        |   |       | 3,162 |                         |        |                     | 3,162  |                                     |       |  | N/A       |  | N/A      
|Concourse                                     |  | ResearchTriangle |      |                  | (3)                    |  | 1,596        |  | 11,383                                    |                        |      |                                                  |      | 1,101                  |   |       | 1,596 |                         | 12,484 |                     | 14,080 |                                     | 366   |  | 1986      |  | 5-40 yrs.
|Cottonwood                                    |  | ResearchTriangle |      |                  |                        |  | 609          |  | 3,244                                     |                        |      |                                                  |      | 172                    |   |       | 609   |                         | 3,416  |                     | 4,025  |                                     | 805   |  | 1983      |  | 5-40 yrs.
|Creekstone Crossings                          |  | ResearchTriangle |      |                  |                        |  | 728          |  | 3,841                                     |                        |      |                                                  |      | 364                    |   |       | 728   |                         | 4,205  |                     | 4,933  |                                     | 1,079 |  | 1990      |  | 5-40 yrs.
|Cypress                                       |  | ResearchTriangle |      |                  |                        |  | 567          |  | 1,729                                     |                        | (567 | )                                                |      | (1,729                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1980      |  | 5-40 yrs.
|Day Tract Residential                         |  | ResearchTriangle |      |                  |                        |  | 7,668        |  |                                           |                        | 4    |                                                  |      |                        |   |       | 7,672 |                         |        |                     | 7,672  |                                     |       |  | N/A       |  | N/A      
|Dogwood                                       |  | ResearchTriangle |      |                  |                        |  | 766          |  | 2,769                                     |                        |      |                                                  |      | 616                    |   |       | 766   |                         | 3,385  |                     | 4,151  |                                     | 697   |  | 1983      |  | 5-40 yrs.
|EPA                                           |  | ResearchTriangle |      |                  |                        |  | 2,601        |  |                                           |                        |      |                                                  |      | 1,652                  |   |       | 2,601 |                         | 1,652  |                     | 4,253  |                                     | 9     |  | 2003      |  | 5-40 yrs.



---

##### Table of Contents

|                                   |  |                  |      |                  |                        |  |              |  |                                           |                        |                                                 |      |                        |        |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|---------------------------------- |  | ---------------- | ---- | ---------------- | ---------------------- |  | ------------ |  | ----------------------------------------- | ---------------------- | ----------------------------------------------- | ---- | ---------------------- | ------ | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | ---- |  | ---------
|Description                        |  | City             |      | 2003Encumberance |                        |  | Initial Cost |  | Cost CapitalizedSubsequent to Acquisition |                        | Gross Amount atWhich Carried at Close of Period |      | Building &Improvements |        | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                                   |  |                  | Land |                  | Building &Improvements |  | Land         |  |                                           | Building &Improvements |                                                 | Land |                        |        |       |       |                        
|GlenLake Land                      |  | ResearchTriangle |      |                  |                        |  | 5,335        |  |                                           |                        |                                                 |      |                        |        |       | 5,335 |                         |        |                     | 5,335  |                                     |       |  | N/A  |  | N/A      
|GlenLake Bldg I                    |  | ResearchTriangle |      |                  | (4)                    |  | 915          |  |                                           |                        |                                                 |      |                        | 21,278 |       | 915   |                         | 21,278 |                     | 22,193 |                                     | 856   |  | 2002 |  | 5-40 yrs.
|Global Software                    |  | ResearchTriangle |      |                  | (2)                    |  | 465          |  |                                           |                        |                                                 |      |                        | 7,282  |       | 465   |                         | 7,282  |                     | 7,747  |                                     | 2,376 |  | 1996 |  | 5-40 yrs.
|Hawthorn                           |  | ResearchTriangle |      |                  |                        |  | 904          |  | 3,769                                     |                        |                                                 |      |                        | 802    |       | 904   |                         | 4,571  |                     | 5,475  |                                     | 2,663 |  | 1987 |  | 5-40 yrs.
|Healthsource                       |  | ResearchTriangle |      |                  |                        |  | 1,304        |  |                                           |                        |                                                 |      |                        | 12,322 |       | 1,304 |                         | 12,322 |                     | 13,626 |                                     | 2,867 |  | 1996 |  | 5-40 yrs.
|Highwoods Centre-Weston            |  | ResearchTriangle |      |                  | (1)                    |  | 531          |  |                                           |                        |                                                 |      |                        | 7,207  |       | 531   |                         | 7,207  |                     | 7,738  |                                     | 1,376 |  | 1998 |  | 5-40 yrs.
|Highwoods Office Center North Land |  | ResearchTriangle |      |                  |                        |  | 355          |  | 49                                        |                        | 2                                               |      |                        |        |       | 357   |                         | 49     |                     | 406    |                                     | 20    |  | N/A  |  | N/A      
|Highwoods Office Center South Land |  | ResearchTriangle |      |                  |                        |  | 2,411        |  |                                           |                        | 12                                              |      |                        |        |       | 2,423 |                         |        |                     | 2,423  |                                     |       |  | N/A  |  | N/A      
|Highwoods Tower One                |  | ResearchTriangle |      |                  | (2)                    |  | 203          |  | 16,744                                    |                        |                                                 |      |                        | 1,311  |       | 203   |                         | 18,055 |                     | 18,258 |                                     | 6,114 |  | 1991 |  | 5-40 yrs.
|Highwoods Tower Two                |  | ResearchTriangle |      |                  |                        |  | 365          |  |                                           |                        |                                                 |      |                        | 24,306 |       | 365   |                         | 24,306 |                     | 24,671 |                                     | 2,219 |  | 2001 |  | 5-40 yrs.
|Holiday Inn Reservations Center    |  | ResearchTriangle |      |                  |                        |  | 867          |  | 2,727                                     |                        |                                                 |      |                        | 144    |       | 867   |                         | 2,871  |                     | 3,738  |                                     | 725   |  | 1984 |  | 5-40 yrs.
|Inveresk Land Parcel 2             |  | ResearchTriangle |      |                  |                        |  | 657          |  |                                           |                        |                                                 |      |                        |        |       | 657   |                         |        |                     | 657    |                                     |       |  | N/A  |  | N/A      
|Inveresk Land Parcel 3             |  | ResearchTriangle |      |                  |                        |  | 548          |  |                                           |                        |                                                 |      |                        |        |       | 548   |                         |        |                     | 548    |                                     |       |  | N/A  |  | N/A      
|Ironwood                           |  | ResearchTriangle |      |                  |                        |  | 319          |  | 1,337                                     |                        |                                                 |      |                        | 365    |       | 319   |                         | 1,702  |                     | 2,021  |                                     | 514   |  | 1978 |  | 5-40 yrs.
|Kaiser                             |  | ResearchTriangle |      |                  |                        |  | 133          |  | 3,576                                     |                        |                                                 |      |                        | 975    |       | 133   |                         | 4,551  |                     | 4,684  |                                     | 2,275 |  | 1988 |  | 5-40 yrs.
|Lake Plaza East                    |  | ResearchTriangle |      |                  | (3)                    |  | 890          |  | 3,424                                     |                        |                                                 |      |                        | 524    |       | 890   |                         | 3,948  |                     | 4,838  |                                     | 96    |  | 1984 |  | 5-40 yrs.
|Laurel                             |  | ResearchTriangle |      |                  |                        |  | 884          |  | 2,517                                     |                        |                                                 |      |                        | 819    |       | 884   |                         | 3,336  |                     | 4,220  |                                     | 909   |  | 1982 |  | 5-40 yrs.
|Leatherwood                        |  | ResearchTriangle |      |                  |                        |  | 213          |  | 891                                       |                        |                                                 |      |                        | 887    |       | 213   |                         | 1,778  |                     | 1,991  |                                     | 645   |  | 1979 |  | 5-40 yrs.
|Maplewood                          |  | ResearchTriangle |      |                  | (1)                    |  | 149          |  |                                           |                        |                                                 |      |                        | 3,629  |       | 149   |                         | 3,629  |                     | 3,778  |                                     | 467   |  | N/A  |  | 5-40 yrs.
|Northpark - Wake Forest            |  | ResearchTriangle |      |                  |                        |  | 498          |  |                                           |                        |                                                 |      |                        | 4,021  |       | 498   |                         | 4,021  |                     | 4,519  |                                     | 1,085 |  | 1997 |  | 5-40 yrs.
|Northpark Land - Wake Forest       |  | ResearchTriangle |      |                  |                        |  | 1,586        |  |                                           |                        | 11                                              |      |                        |        |       | 1,597 |                         |        |                     | 1,597  |                                     |       |  | N/A  |  | N/A      
|Overlook                           |  | ResearchTriangle |      |                  |                        |  | 398          |  |                                           |                        |                                                 |      |                        | 10,832 |       | 398   |                         | 10,832 |                     | 11,230 |                                     | 2,487 |  | 1999 |  | 5-40 yrs.
|Pamlico                            |  | ResearchTriangle |      |                  |                        |  | 289          |  |                                           |                        |                                                 |      |                        | 11,181 |       | 289   |                         | 11,181 |                     | 11,470 |                                     | 4,760 |  | 1980 |  | 5-40 yrs.
|ParkWest - OneWeston               |  | ResearchTriangle |      |                  |                        |  | 378          |  |                                           |                        |                                                 |      |                        | 4,023  |       | 378   |                         | 4,023  |                     | 4,401  |                                     | 467   |  | 2001 |  | 5-40 yrs.
|ParkWest - TwoWeston               |  | ResearchTriangle |      |                  |                        |  | 491          |  |                                           |                        |                                                 |      |                        | 3,388  |       | 491   |                         | 3,388  |                     | 3,879  |                                     | 453   |  | 2001 |  | 5-40 yrs.
|ParkWest Three - Land - Weston     |  | ResearchTriangle |      |                  |                        |  | 834          |  |                                           |                        | 29                                              |      |                        |        |       | 863   |                         |        |                     | 863    |                                     |       |  | N/A  |  | N/A      
|Progress Center Renovation         |  | ResearchTriangle |      |                  |                        |  |              |  |                                           |                        |                                                 |      |                        | 359    |       |       |                         | 359    |                     | 359    |                                     | 14    |  | 2003 |  | 5-40 yrs.
|Pulse Athletic Club at Highwoods   |  | ResearchTriangle |      |                  |                        |  | 142          |  |                                           |                        |                                                 |      |                        | 3,042  |       | 142   |                         | 3,042  |                     | 3,184  |                                     | 1,019 |  | 1998 |  | 5-40 yrs.
|Raleigh Corp Center Lot D          |  | ResearchTriangle |      |                  |                        |  | 1,211        |  |                                           |                        |                                                 |      |                        |        |       | 1,211 |                         |        |                     | 1,211  |                                     |       |  | N/A  |  | N/A      
|Red Oak                            |  | ResearchTriangle |      |                  |                        |  | 389          |  |                                           |                        |                                                 |      |                        | 6,630  |       | 389   |                         | 6,630  |                     | 7,019  |                                     | 1,498 |  | 1999 |  | 5-40 yrs.
|Rexwoods Center I                  |  | ResearchTriangle |      |                  | (5)                    |  | 878          |  | 3,730                                     |                        |                                                 |      |                        | 436    |       | 878   |                         | 4,166  |                     | 5,044  |                                     | 1,527 |  | 1990 |  | 5-40 yrs.
|Rexwoods Center II                 |  | ResearchTriangle |      |                  |                        |  | 362          |  | 1,818                                     |                        |                                                 |      |                        | 87     |       | 362   |                         | 1,905  |                     | 2,267  |                                     | 548   |  | 1993 |  | 5-40 yrs.
|Rexwoods Center III                |  | ResearchTriangle |      |                  |                        |  | 919          |  | 2,816                                     |                        |                                                 |      |                        | 545    |       | 919   |                         | 3,361  |                     | 4,280  |                                     | 960   |  | 1992 |  | 5-40 yrs.
|Rexwoods Center IV                 |  | ResearchTriangle |      |                  | (5)                    |  | 586          |  |                                           |                        |                                                 |      |                        | 3,404  |       | 586   |                         | 3,404  |                     | 3,990  |                                     | 925   |  | 1995 |  | 5-40 yrs.
|Rexwoods Center V                  |  | ResearchTriangle |      |                  | (2)                    |  | 1,301        |  |                                           |                        |                                                 |      |                        | 6,201  |       | 1,301 |                         | 6,201  |                     | 7,502  |                                     | 1,681 |  | 1998 |  | 5-40 yrs.
|Riverbirch                         |  | ResearchTriangle |      |                  | (2)                    |  | 469          |  | 4,038                                     |                        |                                                 |      |                        | 1,324  |       | 469   |                         | 5,362  |                     | 5,831  |                                     | 2,030 |  | 1987 |  | 5-40 yrs.
|Situs I                            |  | ResearchTriangle |      |                  |                        |  | 764          |  | 4,390                                     |                        |                                                 |      |                        | 445    |       | 764   |                         | 4,835  |                     | 5,599  |                                     | 192   |  | 1996 |  | 5-40 yrs.
|Situs II                           |  | ResearchTriangle |      |                  |                        |  | 920          |  | 5,108                                     |                        |                                                 |      |                        | 341    |       | 920   |                         | 5,449  |                     | 6,369  |                                     | 183   |  | 1998 |  | 5-40 yrs.
|Situs III                          |  | ResearchTriangle |      |                  | (3)                    |  | 590          |  | 3,671                                     |                        |                                                 |      |                        | 155    |       | 590   |                         | 3,826  |                     | 4,416  |                                     | 142   |  | 2000 |  | 5-40 yrs.
|Six Forks Center I                 |  | ResearchTriangle |      |                  |                        |  | 666          |  | 2,665                                     |                        |                                                 |      |                        | 850    |       | 666   |                         | 3,515  |                     | 4,181  |                                     | 908   |  | 1982 |  | 5-40 yrs.
|Six Forks Center II                |  | ResearchTriangle |      |                  |                        |  | 1,086        |  | 4,533                                     |                        |                                                 |      |                        | 1,082  |       | 1,086 |                         | 5,615  |                     | 6,701  |                                     | 1,344 |  | 1983 |  | 5-40 yrs.
|Six Forks Center III               |  | ResearchTriangle |      |                  | (2)                    |  | 862          |  | 4,411                                     |                        |                                                 |      |                        | 796    |       | 862   |                         | 5,207  |                     | 6,069  |                                     | 1,424 |  | 1987 |  | 5-40 yrs.
|Smoketree Tower                    |  | ResearchTriangle |      |                  |                        |  | 2,353        |  | 11,743                                    |                        |                                                 |      |                        | 2,656  |       | 2,353 |                         | 14,399 |                     | 16,752 |                                     | 4,229 |  | 1984 |  | 5-40 yrs.
|South Square I                     |  | ResearchTriangle |      |                  |                        |  | 606          |  | 3,814                                     |                        |                                                 |      |                        | 1,529  |       | 606   |                         | 5,343  |                     | 5,949  |                                     | 1,432 |  | 1988 |  | 5-40 yrs.
|South Square II                    |  | ResearchTriangle |      |                  |                        |  | 525          |  | 4,699                                     |                        |                                                 |      |                        | 558    |       | 525   |                         | 5,257  |                     | 5,782  |                                     | 1,394 |  | 1989 |  | 5-40 yrs.
|Sycamore                           |  | ResearchTriangle |      |                  | (2)                    |  | 255          |  |                                           |                        |                                                 |      |                        | 5,265  |       | 255   |                         | 5,265  |                     | 5,520  |                                     | 1,131 |  | 1997 |  | 5-40 yrs.
|WESPEC Tract 1                     |  | ResearchTriangle |      |                  |                        |  | 1,529        |  |                                           |                        | 32                                              |      |                        |        |       | 1,561 |                         |        |                     | 1,561  |                                     |       |  | N/A  |  | N/A      
|WESPEC Tract 2E                    |  | ResearchTriangle |      |                  |                        |  | 754          |  |                                           |                        | 28                                              |      |                        |        |       | 782   |                         |        |                     | 782    |                                     |       |  | N/A  |  | N/A      
|WESPEC - Tract 3                   |  | ResearchTriangle |      |                  |                        |  | 2,537        |  |                                           |                        | 135                                             |      |                        |        |       | 2,672 |                         |        |                     | 2,672  |                                     |       |  | N/A  |  | N/A      
|Weston - Land                      |  | ResearchTriangle |      |                  |                        |  | 522          |  |                                           |                        | 26                                              |      |                        |        |       | 548   |                         |        |                     | 548    |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 2B          |  | ResearchTriangle |      |                  |                        |  | 1,112        |  |                                           |                        | 32                                              |      |                        |        |       | 1,144 |                         |        |                     | 1,144  |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 5A          |  | ResearchTriangle |      |                  |                        |  | 1,448        |  |                                           |                        | 29                                              |      |                        |        |       | 1,477 |                         |        |                     | 1,477  |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 5B          |  | ResearchTriangle |      |                  |                        |  | 2,403        |  |                                           |                        | 31                                              |      |                        |        |       | 2,434 |                         |        |                     | 2,434  |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 5C          |  | ResearchTriangle |      |                  |                        |  | 2,543        |  |                                           |                        | 174                                             |      |                        |        |       | 2,717 |                         |        |                     | 2,717  |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6A          |  | ResearchTriangle |      |                  |                        |  | 1,453        |  |                                           |                        | 76                                              |      |                        |        |       | 1,529 |                         |        |                     | 1,529  |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6A2         |  | ResearchTriangle |      |                  |                        |  | 2,088        |  |                                           |                        | (2,088                                          | )    |                        |        |       |       |                         |        |                     |        |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6B          |  | ResearchTriangle |      |                  |                        |  | 2,251        |  |                                           |                        | 117                                             |      |                        |        |       | 2,368 |                         |        |                     | 2,368  |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 6C          |  | ResearchTriangle |      |                  |                        |  | 478          |  |                                           |                        | 97                                              |      |                        |        |       | 575   |                         |        |                     | 575    |                                     |       |  | N/A  |  | N/A      
|Weston Commons Tract - 8A          |  | ResearchTriangle |      |                  |                        |  | 2,342        |  |                                           |                        | 2,782                                           |      |                        |        |       | 5,124 |                         |        |                     | 5,124  |                                     |       |  | N/A  |  | N/A      
|Weston Oaks Court                  |  | ResearchTriangle |      |                  |                        |  | 1,831        |  |                                           |                        | 153                                             |      |                        |        |       | 1,984 |                         |        |                     | 1,984  |                                     |       |  | N/A  |  | N/A      
|Willow Oak                         |  | ResearchTriangle |      |                  | (2)                    |  | 458          |  |                                           |                        |                                                 |      |                        | 6,369  |       | 458   |                         | 6,369  |                     | 6,827  |                                     | 2,313 |  | 1995 |  | 5-40 yrs.
|Other Property                     |  | ResearchTriangle |      |                  |                        |  | 47           |  | 10,521                                    |                        |                                                 |      |                        |        |       | 47    |                         | 10,521 |                     | 10,568 |                                     | 6,375 |  | N/A  |  | N/A      



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##### Table of Contents

|                              |  |              |      |                  |                        |  |              |  |                                            |                        |        |                                                  |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|----------------------------- |  | ------------ | ---- | ---------------- | ---------------------- |  | ------------ |  | ------------------------------------------ | ---------------------- | ------ | ------------------------------------------------ | ---- | ---------------------- | - | ----- | ----- | ----------------------- | ------ | ------------------- | ------ | ----------------------------------- | ----- |  | ---- |  | ---------
|Description                   |  | City         |      | 2003Encumberance |                        |  | Initial Cost |  | Cost Capitalized Subsequent to Acquisition |                        |        | Gross Amount at Which Carried at Close of Period |      | Building &Improvements |   | Total |       | AccumulatedDepreciation |        | Date ofConstruction |        | Life onWhichDepreciationis Computed
|                              |  |              | Land |                  | Building &Improvements |  | Land         |  |                                            | Building &Improvements |        |                                                  | Land |                        |   |       |       |                        
|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     |      |                  |                        |  | 1,160        |  |                                            |                        |        |                                                  |      |                        |   |       | 1,160 |                         |        |                     | 1,160  |                                     |       |  | N/A  |  | N/A      
|East Shore IV                 |  | Richmond     |      |                  |                        |  | 1,445        |  |                                            |                        | (1,438 | )                                                |      |                        |   |       | 7     |                         |        |                     | 7      |                                     |       |  | N/A  |  | N/A      
|Grove Park I                  |  | Richmond     |      |                  |                        |  | 713          |  |                                            |                        |        |                                                  |      | 5,750                  |   |       | 713   |                         | 5,750  |                     | 6,463  |                                     | 1,504 |  | 1997 |  | 5-40 yrs.
|Grove Park Building E         |  | Richmond     |      |                  |                        |  | 111          |  |                                            |                        |        |                                                  |      |                        |   |       | 111   |                         |        |                     | 111    |                                     |       |  | N/A  |  | N/A      
|Grove Park Building H         |  | Richmond     |      |                  |                        |  | 111          |  |                                            |                        |        |                                                  |      |                        |   |       | 111   |                         |        |                     | 111    |                                     |       |  | N/A  |  | N/A      
|Grove Park Building I         |  | Richmond     |      |                  |                        |  | 126          |  |                                            |                        |        |                                                  |      |                        |   |       | 126   |                         |        |                     | 126    |                                     |       |  | N/A  |  | N/A      
|Grove Park Building 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                                      |                        |        |                                                  |      | 550                    |   |       | 1,086 |                         | 4,895  |                     | 5,981  |                                     | 1,084 |  | 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          |  |                                            |                        |        |                                                  |      | 4,300                  |   |       | 521   |                         | 4,300  |                     | 4,821  |                                     | 1,032 |  | 1999 |  | 5-40 yrs.
|Highwoods Five                |  | Richmond     |      |                  |                        |  | 806          |  |                                            |                        |        |                                                  |      | 6,004                  |   |       | 806   |                         | 6,004  |                     | 6,810  |                                     | 1,577 |  | 1998 |  | 5-40 yrs.
|Highwoods One                 |  | Richmond     |      |                  | (2)                    |  | 1,846        |  |                                            |                        |        |                                                  |      | 10,471                 |   |       | 1,846 |                         | 10,471 |                     | 12,317 |                                     | 3,004 |  | 1996 |  | 5-40 yrs.
|Highwoods Plaza               |  | Richmond     |      |                  |                        |  | 909          |  |                                            |                        |        |                                                  |      | 5,810                  |   |       | 909   |                         | 5,810  |                     | 6,719  |                                     | 460   |  | 2000 |  | 5-40 yrs.
|Highwoods Two                 |  | Richmond     |      |                  | (4)                    |  | 786          |  |                                            |                        |        |                                                  |      | 6,375                  |   |       | 786   |                         | 6,375  |                     | 7,161  |                                     | 1,290 |  | 1997 |  | 5-40 yrs.
|Innsbrook Centre              |  | Richmond     |      |                  |                        |  | 914          |  | 6,768                                      |                        | (914   | )                                                |      | (6,768                 | ) |       |       |                         |        |                     |        |                                     |       |  | 1989 |  | 5-40 yrs.
|Innslake Center               |  | Richmond     |      |                  | (1)                    |  | 844          |  |                                            |                        |        |                                                  |      | 6,560                  |   |       | 844   |                         | 6,560  |                     | 7,404  |                                     | 559   |  | 2001 |  | 5-40 yrs.
|Liberty Mutual                |  | Richmond     |      | 2,837            |                        |  | 1,205        |  | 4,825                                      |                        |        |                                                  |      | 740                    |   |       | 1,205 |                         | 5,565  |                     | 6,770  |                                     | 1,147 |  | 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                                      |                        |        |                                                  |      | 1,013                  |   |       | 2,163 |                         | 9,672  |                     | 11,835 |                                     | 2,065 |  | 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     |      |                  |                        |  | 2,790        |  |                                            |                        | 25     |                                                  |      |                        |   |       | 2,815 |                         |        |                     | 2,815  |                                     |       |  | N/A  |  | N/A      
|Stony Point I                 |  | Richmond     |      |                  |                        |  | 1,384        |  | 11,630                                     |                        |        |                                                  |      | 1,506                  |   |       | 1,384 |                         | 13,136 |                     | 14,520 |                                     | 2,603 |  | 1990 |  | 5-40 yrs.
|Stony Point II                |  | Richmond     |      |                  |                        |  | 2,224        |  |                                            |                        |        |                                                  |      | 12,776                 |   |       | 2,224 |                         | 12,776 |                     | 15,000 |                                     | 2,426 |  | 1999 |  | 5-40 yrs.
|Stony Point III               |  | Richmond     |      |                  |                        |  | 1,190        |  |                                            |                        |        |                                                  |      | 10,243                 |   |       | 1,190 |                         | 10,243 |                     | 11,433 |                                     | 1,046 |  | 2002 |  | 5-40 yrs.
|Technology Park 1             |  | Richmond     |      |                  |                        |  | 541          |  | 2,166                                      |                        |        |                                                  |      | 414                    |   |       | 541   |                         | 2,580  |                     | 3,121  |                                     | 650   |  | 1991 |  | 5-40 yrs.
|Technology Park 2             |  | Richmond     |      |                  |                        |  | 264          |  | 1,058                                      |                        |        |                                                  |      | 84                     |   |       | 264   |                         | 1,142  |                     | 1,406  |                                     | 268   |  | 1991 |  | 5-40 yrs.
|Vantage Place A               |  | Richmond     |      |                  | (4)                    |  | 203          |  | 811                                        |                        |        |                                                  |      | 189                    |   |       | 203   |                         | 1,000  |                     | 1,203  |                                     | 287   |  | 1987 |  | 5-40 yrs.
|Vantage Place B               |  | Richmond     |      |                  | (4)                    |  | 233          |  | 931                                        |                        |        |                                                  |      | 168                    |   |       | 233   |                         | 1,099  |                     | 1,332  |                                     | 233   |  | 1988 |  | 5-40 yrs.
|Vantage Place C               |  | Richmond     |      |                  | (4)                    |  | 235          |  | 940                                        |                        |        |                                                  |      | 201                    |   |       | 235   |                         | 1,141  |                     | 1,376  |                                     | 333   |  | 1987 |  | 5-40 yrs.
|Vantage Place D               |  | Richmond     |      |                  | (4)                    |  | 218          |  | 873                                        |                        |        |                                                  |      | 232                    |   |       | 218   |                         | 1,105  |                     | 1,323  |                                     | 369   |  | 1988 |  | 5-40 yrs.
|Vantage Pointe                |  | Richmond     |      |                  | (4)                    |  | 1,089        |  | 4,500                                      |                        |        |                                                  |      | 758                    |   |       | 1,089 |                         | 5,258  |                     | 6,347  |                                     | 1,362 |  | 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                                      |                        |        |                                                  |      | 875                    |   |       | 585   |                         | 3,222  |                     | 3,807  |                                     | 992   |  | 1988 |  | 5-40 yrs.
|West Shore I                  |  | Richmond     |      |                  | (1)                    |  | 358          |  | 1,431                                      |                        |        |                                                  |      | 88                     |   |       | 358   |                         | 1,519  |                     | 1,877  |                                     | 332   |  | 1995 |  | 5-40 yrs.
|West Shore II                 |  | Richmond     |      |                  | (1)                    |  | 545          |  | 2,181                                      |                        |        |                                                  |      | 179                    |   |       | 545   |                         | 2,360  |                     | 2,905  |                                     | 471   |  | 1995 |  | 5-40 yrs.
|West Shore III                |  | Richmond     |      |                  | (1)                    |  | 961          |  |                                            |                        |        |                                                  |      | 4,680                  |   |       | 961   |                         | 4,680  |                     | 5,641  |                                     | 1,089 |  | 1997 |  | 5-40 yrs.
|                              |  |              |      |                  |                        |  |              |  |                                            |                        |        |                                                 
|South Florida                 |  |              |      |                  |                        |  |              |  |                                            |                        |        |                                                  |      |                        |   |       |       |                         |        |                     |        |                                     |       |  |      |  |          
|The 1800 Eller Drive Building |  | SouthFlorida |      |                  |                        |  |              |  | 9,823                                      |                        |        |                                                  |      | 837                    |   |       |       |                         | 10,660 |                     | 10,660 |                                     | 2,035 |  | 1983 |  | 5-40 yrs.



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##### Table of Contents

|                                 |  |       |      |                  |                        |  |              |  |                                         |                        |         |                                                  |      |                        |   |       |         |                         |           |                     |           |                                     |         |  |      |  |          
|-------------------------------- |  | ----- | ---- | ---------------- | ---------------------- |  | ------------ |  | --------------------------------------- | ---------------------- | ------- | ------------------------------------------------ | ---- | ---------------------- | - | ----- | ------- | ----------------------- | --------- | ------------------- | --------- | ----------------------------------- | ------- |  | ---- |  | ---------
|Description                      |  | City  |      | 2003Encumberance |                        |  | Initial Cost |  | Cost CapitalizedSubsequent toAcquistion |                        |         | Gross Amount at Which Carried at Close of Period |      | Building &Improvements |   | Total |         | AccumulatedDepreciation |           | Date ofConstruction |           | Life onWhichDepreciationis Computed
|                                 |  |       | Land |                  | Building &Improvements |  | Land         |  |                                         | Building &Improvements |         |                                                  | Land |                        |   |       |         |                        
|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)                    |  | 1,560        |  | 8,877                                   |                        |         |                                                  |      | 1,351                  |   |       | 1,560   |                         | 10,228    |                     | 11,788    |                                     | 231     |  | 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                                   |                        |         |                                                  |      | (5                     | ) |       | 447     |                         | 4,820     |                     | 5,267     |                                     | 716     |  | 1982 |  | 5-40 yrs.
|Bay Vista Gardens II             |  | Tampa |      |                  |                        |  | 1,328        |  | 7,101                                   |                        | 134     |                                                  |      | 332                    |   |       | 1,462   |                         | 7,433     |                     | 8,895     |                                     | 1,403   |  | 1997 |  | 5-40 yrs.
|Bay Vista Office Building        |  | Tampa |      |                  |                        |  | 935          |  | 4,512                                   |                        |         |                                                  |      | 789                    |   |       | 935     |                         | 5,301     |                     | 6,236     |                                     | 1,037   |  | 1982 |  | 5-40 yrs.
|Bay Vista Retail                 |  | Tampa |      |                  |                        |  | 283          |  | 1,178                                   |                        |         |                                                  |      | 137                    |   |       | 283     |                         | 1,315     |                     | 1,598     |                                     | 236     |  | 1987 |  | 5-40 yrs.
|Bayshore                         |  | Tampa |      |                  | (3)                    |  | 1,460        |  | 9,249                                   |                        |         |                                                  |      | 1,164                  |   |       | 1,460   |                         | 10,413    |                     | 11,873    |                                     | 163     |  | 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                                  |                        |         |                                                  |      | (70                    | ) |       | 3,172   |                         | 12,694    |                     | 15,866    |                                     | 4,187   |  | 1982 |  | 5-40 yrs.
|Cypress Center III               |  | Tampa |      |                  |                        |  | 1,190        |  | 7,601                                   |                        |         |                                                  |      | 648                    |   |       | 1,190   |                         | 8,249     |                     | 9,439     |                                     | 921     |  | 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                                  |                        |         |                                                  |      | 1,045                  |   |       | 1,211   |                         | 12,522    |                     | 13,733    |                                     | 3,378   |  | 1985 |  | 5-40 yrs.
|Cypress West                     |  | Tampa |      | 1,943            |                        |  | 615          |  | 5,098                                   |                        |         |                                                  |      | 924                    |   |       | 615     |                         | 6,022     |                     | 6,637     |                                     | 1,176   |  | 1985 |  | 5-40 yrs.
|Feathersound Corporate Center II |  | Tampa |      | 2,108            |                        |  | 800          |  | 7,442                                   |                        |         |                                                  |      | 829                    |   |       | 800     |                         | 8,271     |                     | 9,071     |                                     | 1,568   |  | 1986 |  | 5-40 yrs.
|Firemans Fund Building           |  | Tampa |      |                  | (4)                    |  | 500          |  | 4,193                                   |                        |         |                                                  |      | 47                     |   |       | 500     |                         | 4,240     |                     | 4,740     |                                     | 693     |  | 1982 |  | 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                                   |                        |         |                                                  |      | 1,286                  |   |       |         |                         | 7,525     |                     | 7,525     |                                     | 1,102   |  | 1980 |  | 5-40 yrs.
|LakePointe I                     |  | Tampa |      |                  | (9)                    |  | 2,000        |  | 15,848                                  |                        |         |                                                  |      | 12,059                 |   |       | 2,000   |                         | 27,907    |                     | 29,907    |                                     | 4,161   |  | 1999 |  | 5-40 yrs.
|LakePointe II                    |  | Tampa |      |                  | (9)                    |  | 2,100        |  |                                         |                        |         |                                                  |      | 32,863                 |   |       | 2,100   |                         | 32,863    |                     | 34,963    |                                     | 5,242   |  | 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                                   |                        |         |                                                  |      | 367                    |   |       | 601     |                         | 4,004     |                     | 4,605     |                                     | 687     |  | 1986 |  | 5-40 yrs.
|Northside Square Office/Retail   |  | Tampa |      |                  |                        |  | 800          |  | 2,836                                   |                        |         |                                                  |      | 155                    |   |       | 800     |                         | 2,991     |                     | 3,791     |                                     | 499     |  | 1986 |  | 5-40 yrs.
|One Harbour Place                |  | Tampa |      |                  | (5)                    |  | 2,016        |  | 25,252                                  |                        |         |                                                  |      | 1,180                  |   |       | 2,016   |                         | 26,432    |                     | 28,448    |                                     | 2,530   |  | 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                                   |                        |         |                                                  |      | 644                    |   |       | 744     |                         | 4,866     |                     | 5,610     |                                     | 1,013   |  | 1985 |  | 5-40 yrs.
|Registry II                      |  | Tampa |      |                  |                        |  | 908          |  | 5,155                                   |                        |         |                                                  |      | 608                    |   |       | 908     |                         | 5,763     |                     | 6,671     |                                     | 1,208   |  | 1987 |  | 5-40 yrs.
|Registry Square                  |  | Tampa |      |                  |                        |  | 344          |  | 1,954                                   |                        |         |                                                  |      | 178                    |   |       | 344     |                         | 2,132     |                     | 2,476     |                                     | 429     |  | 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                                   |                        |         |                                                  |      | 156                    |   |       | 342     |                         | 2,094     |                     | 2,436     |                                     | 456     |  | 1984 |  | 5-40 yrs.
|Sabal Business Center III        |  | Tampa |      |                  |                        |  | 290          |  | 1,645                                   |                        |         |                                                  |      | 48                     |   |       | 290     |                         | 1,693     |                     | 1,983     |                                     | 333     |  | 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                                   |                        |         |                                                  |      | 262                    |   |       | 1,026   |                         | 6,084     |                     | 7,110     |                                     | 1,170   |  | 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                                   |                        |         |                                                  |      | 697                    |   |       | 572     |                         | 3,943     |                     | 4,515     |                                     | 730     |  | 1986 |  | 5-40 yrs.
|Sabal Park Plaza                 |  | Tampa |      |                  |                        |  | 611          |  | 3,465                                   |                        |         |                                                  |      | 410                    |   |       | 611     |                         | 3,875     |                     | 4,486     |                                     | 1,007   |  | 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                                  |                        |         |                                                  |      | 1,883                  |   |       | 1,450   |                         | 16,344    |                     | 17,794    |                                     | 2,356   |  | 1984 |  | 5-40 yrs.
|Summit Office Building           |  | Tampa |      |                  |                        |  | 579          |  | 2,749                                   |                        | (579    | )                                                |      | (2,749                 | ) |       |         |                         |           |                     |           |                                     |         |  | 1988 |  | 5-40 yrs.
|Tower Place                      |  | Tampa |      |                  | (3)                    |  | 2,280        |  | 15,911                                  |                        |         |                                                  |      | 2,262                  |   |       | 2,280   |                         | 18,173    |                     | 20,453    |                                     | 561     |  | 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.
|                                 |  |       |      |                  |                        |  | 669,484      |  | 1,952,134                               |                        | (55,157 | )                                                |      | 997,959                |   |       | 614,327 |                         | 2,950,093 |                     | 3,564,420 |                                     | 534,204 |  |      |  |          

---

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



---

##### Table of Contents

|(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.
|---- | ---------------------------------------------



---

##### Table of Contents

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               |  | 3,551,942    |   |  | 3,598,037 |   |  | 3,421,383 |  
|Additions                                  |  |              |   |  |           |   |  |           |  
|Acquisitions, Development and Improvements |  | 241,169      |   |  | 209,900   |   |  | 334,929   |  
|Cost of real estate sold and retired       |  | (228,691     | ) |  | (255,995  | ) |  | (158,275  | )
|                                           |  |              |   |  |           |   |  |           |  
|Balance at close of year (a)               |  | 3,564,420    |   |  | 3,551,942 |   |  | 3,598,037 |  
|                                           |  |              |   |  |           |   |  |           |  
|Accumulated Depreciation                   |  |              |   |  |           |   |  |           |  
|Balance at beginning of year               |  | 461,843      |   |  | 379,947   |   |  | 282,803   |  
|Depreciation expense                       |  | 111,337      |   |  | 113,933   |   |  | 105,504   |  
|Real estate sold                           |  | (38,976      | ) |  | (32,037   | ) |  | (8,360    | )
|                                           |  |              |   |  |           |   |  |           |  
|Balance at close of year (b)               |  | 534,204      |   |  | 461,843   |   |  | 379,947   |  
|                                           |  |              |   |  |           |   |  |           |  

---

|(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                                              |  | 3,564,420 |   |  | 3,551,942 |   |  | 3,598,037 |  
|Construction in progress exclusive of land included in schedule III |  | 6,899     |   |  | 6,420     |   |  | 100,606   |  
|Furniture, fixtures and equipment                                   |  | 21,813    |   |  | 20,960    |   |  | 19,392    |  
|Property held for sale                                              |  | (76,130   | ) |  | (162,919  | ) |  | (156,490  | )
|Reclassification adjustment for discontinued operations             |  |           |   |  | 455       |   |  | 6,656     |  
|                                                                    |  |           |   |  |           |   |  |           |  
|Total real estate assets at cost                                    |  | 3,517,002 |   |  | 3,416,858 |   |  | 3,568,201 |  
|                                                                    |  |           |   |  |           |   |  |           |  

---

|(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                                       |  | 534,204 |   |  | 461,843 |   |  | 379,947 |  
|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                               |  | 537,713 |   |  | 455,556 |   |  | 377,860 |  
|                                                             |  |         |   |  |         |   |  |         |