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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549





                                   FORM 10-Q


              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1999


                       Commission file number: 000-21731




                     HIGHWOODS REALTY LIMITED PARTNERSHIP
            (Exact name of registrant as specified in its charter)




<TABLE>
<CAPTION>
            NORTH CAROLINA                     56-1864557
<S>                                     <C>
   (State or other jurisdiction of         (I.R.S. Employer
    incorporation or organization)      Identification Number)
</TABLE>

                3100 SMOKETREE COURT, SUITE 600, RALEIGH, N.C.
                    (Address of principal executive office)
                                     27604
                                  (Zip Code)


              Registrant's telephone number, including area code:
                                (919) 872-4924






                                ---------------
     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






                                ---------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                      HIGHWOODS REALTY LIMITED PARTNERSHIP


              QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1999


                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                     PAGE
PART I.        FINANCIAL INFORMATION                                                -----
<S>            <C>                                                                  <C>
  Item 1.      Financial Statements                                                   3
               Consolidated balance sheets of Highwoods Realty Limited
               Partnership as of March 31, 1999 and December 31, 1998                 4
               Consolidated statements of income of Highwoods Realty Limited
               Partnership for the three month periods ended March 31, 1999 and
               1998                                                                   5
               Consolidated statements of cash flows of Highwoods Realty Limited
               Partnership for the three month periods ended March 31, 1999 and
               1998                                                                   6
               Notes to consolidated financial statements of Highwoods Realty
               Limited Partnership                                                    8
  Item 2.      Management's Discussion and Analysis of Financial Condition and
               Results of Operations                                                 10
               Results of Operations                                                 10
               Liquidity and Capital Resources                                       11
               Year 2000                                                             13
               Funds From Operations and Cash Available for Distributions            16
               Disclosure Regarding Forward-Looking Statements                       17
               Property Information                                                  19
               Inflation                                                             28
  Item 3.      Quantitative and Qualitative Disclosures About Market Risk            29
  PART II.     OTHER INFORMATION
  Item 1.      Legal Proceedings                                                     31
  Item 2.      Changes in Securities and Use of Proceeds                             31
  Item 3.      Defaults Upon Senior Securities                                       31
  Item 4.      Submission of Matters to a Vote of Security Holders                   31
  Item 5.      Other Information                                                     31
  Item 6.      Exhibits and Reports on Form 8-K                                      31
</TABLE>

 

                                       2
<PAGE>

                        PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


     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" and (4) the Operating Partnership's common
partnership interests as "Common Units."

     The information furnished in the accompanying balance sheets, statements
of operations and statements of cash flows reflect all adjustments that are, in
our opinion, necessary for a fair presentation of the aforementioned financial
statements for the interim period.

     The aforementioned financial statements should be read in conjunction with
the notes to consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations and our 1998 Annual
Report on Form 10-K.


                                       3
<PAGE>

                      HIGHWOODS REALTY LIMITED PARTNERSHIP


                          CONSOLIDATED BALANCE SHEETS


                       (IN THOUSANDS EXCEPT UNIT AMOUNTS)


<TABLE>
<CAPTION>
                                                                           MARCH 31, 1999     DECEMBER 31, 1998
                                                                          ----------------   ------------------
                                                                             (UNAUDITED)
<S>                                                                       <C>                <C>
ASSETS
Real estate assets, at cost:
  Land and improvements ...............................................      $  485,792          $  538,814
  Buildings and tenant improvements ...................................       2,937,708           3,173,825
  Development in process ..............................................         223,545             189,465
  Land held for development ...........................................         154,020             150,622
  Furniture, fixtures and equipment ...................................           7,863               7,665
                                                                             ----------          ----------
                                                                              3,808,928           4,060,391
  Less -- accumulated depreciation ....................................        (201,401)           (168,508)
                                                                             ----------          ----------
  Net real estate assets ..............................................       3,607,527           3,891,883
Property held for sale ................................................         396,160             131,262
Cash and cash equivalents .............................................          37,900              30,696
Restricted cash .......................................................          11,668              24,263
Accounts receivable ...................................................          21,786              27,644
Advances to related parties ...........................................           3,166              10,420
Notes receivable ......................................................          19,208              12,865
Accrued straight line rents receivable ................................          30,016              27,194
Investment in unconsolidated affiliates ...............................          31,008              15,234
Other assets:
  Deferred leasing costs ..............................................          51,419              45,785
  Deferred financing costs ............................................          43,409              38,750
  Prepaid expenses and other ..........................................          15,139              15,162
                                                                             ----------          ----------
                                                                                109,967              99,697
  Less -- accumulated amortization ....................................         (26,986)            (23,458)
                                                                             ----------          ----------
                                                                                 82,981              76,239
                                                                             ----------          ----------
                                                                             $4,241,420          $4,247,700
                                                                             ==========          ==========
LIABILITIES AND PARTNERS' CAPITAL
Mortgages and notes payable ...........................................      $1,927,349          $1,906,216
Accounts payable, accrued expenses and other liabilities ..............         105,948             125,168
                                                                             ----------          ----------
  Total liabilities ...................................................       2,033,297           2,031,384
Redeemable operating partnership units:
  Class A Common Units outstanding, 8,586,222 at March 31, 1999 and
   10,111,978 at December 31, 1998 ....................................         202,291             260,383
  Class B Common Units outstanding, 291,756 at March 31, 1999 and
   291,756 at December 31, 1998 .......................................           6,873               7,513
  Series A Preferred Units outstanding, 125,000 at March 31, 1999 and
   December 31, 1998 ..................................................         121,809             121,809
  Series B Preferred Units outstanding, 6,900,000 at March 31, 1999 and
   December 31, 1998 ..................................................         166,346             166,346
  Series D Preferred Units outstanding, 400,000 at March 31, 1999 and
   December 31, 1998 ..................................................          96,842              96,842
Partners' capital:
  Class A Common Units:
   General partner Common Units outstanding, 697,252 at
    March 31, 1999 and 690,955 at December 31, 1998 ...................          16,140              15,634
   Limited partner Common Units outstanding, 60,441,704 at March 31,
    1999 and 58,292,597 at December 31, 1998 ..........................       1,597,822           1,547,789
                                                                             ----------          ----------
    Total partners' capital ...........................................       1,613,962           1,563,423
                                                                             ----------          ----------
                                                                             $4,241,420          $4,247,700
                                                                             ==========          ==========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<PAGE>

                      HIGHWOODS REALTY LIMITED PARTNERSHIP


                       CONSOLIDATED STATEMENTS OF INCOME


              (UNAUDITED AND IN THOUSANDS EXCEPT PER UNIT AMOUNTS)



<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                                  MARCH 31,
                                                                          -------------------------
                                                                              1999          1998
                                                                          -----------   -----------
<S>                                                                       <C>           <C>
REVENUE:
 Rental property ......................................................    $145,868      $100,331
 Equity in earnings of unconsolidated affiliates ......................         121            --
 Gain on disposition of assets ........................................         569            --
 Interest and other income ............................................       4,597         2,053
                                                                           --------      --------
                                                                            151,155       102,384
OPERATING EXPENSES:
 Rental property ......................................................    $ 45,292      $ 29,728
 Depreciation and amortization ........................................      28,074        17,113
 Interest expense:
   Contractual ........................................................      29,845        17,162
   Amortization of deferred financing costs ...........................         778           616
                                                                           --------      --------
                                                                             30,623        17,778
 General and administrative ...........................................       5,793         3,784
                                                                           --------      --------
   Income before extraordinary item ...................................      41,373        33,981
EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF DEBT ............          --           (46)
                                                                           --------      --------
 Net income ...........................................................      41,373        33,935
DIVIDENDS ON PREFERRED UNITS ..........................................      (8,145)       (6,145)
                                                                           --------      --------
 Net income available for Class A Common Units ........................      33,228        27,790
                                                                           ========      ========
NET INCOME PER COMMON UNIT -- BASIC:
 Income before extraordinary item .....................................    $   0.48      $   0.47
   Extraordinary item -- loss on early extinguishment of debt .........          --            --
                                                                           --------      --------
   Net income .........................................................        0.48          0.47
                                                                           ========      ========
NET INCOME PER COMMON UNIT -- DILUTED:
 Income before extraordinary item .....................................    $   0.48      $   0.47
   Extraordinary item -- loss on early extinguishment of debt .........          --            --
                                                                           ========      ========
   Net income .........................................................        0.48          0.47
                                                                           ========      ========
   WEIGHTED AVERAGE COMMON UNITS OUTSTANDING -- BASIC:
   Class A Common Units:
   General partner ....................................................         693           588
    Limited partners ..................................................      68,640        58,252
 Class B Common Units:
   Limited partners ...................................................         292           269
                                                                           --------      --------
 Total ................................................................      69,625        59,109
                                                                           ========      ========
   WEIGHTED AVERAGE COMMON UNITS OUTSTANDING -- DILUTED:
   Class A Common Units:
   General partner ....................................................         695           595
    Limited partners ..................................................      68,775        58,882
 Class B Common Units:
   Limited partners ...................................................         292           269
                                                                           --------      --------
 Total ................................................................      69,762        59,746
                                                                           ========      ========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>

                      HIGHWOODS REALTY LIMITED PARTNERSHIP


                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                          (UNAUDITED AND IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED MARCH 31,
                                                                        ----------------------------
                                                                            1999            1998
                                                                        ------------   -------------
<S>                                                                     <C>            <C>
OPERATING ACTIVITIES:
Net income ..........................................................    $   41,373     $   33,935
Adjustments to reconcile net income to net cash provided by operating
  activities:
  Depreciation and amortization .....................................        28,074         17,113
  Loss on early extinguishment of debt ..............................            --             46
  Gain on disposition of assets .....................................          (569)            --
  Changes in operating assets and liabilities .......................       (17,344)         3,410
                                                                         ----------     ----------
   Net cash provided by operating activities ........................        51,534         54,504
                                                                         ----------     ----------
INVESTING ACTIVITIES:
Additions to real estate assets .....................................      (122,847)      (311,408)
Proceeds from disposition of assets .................................       124,463             --
Cash from contributed net assets ....................................            --        (12,383)
Advances to subsidiaries ............................................         7,254             --
Cash paid in exchange for partnership net assets ....................        (1,008)            --
Other ...............................................................       (30,557)        (2,179)
                                                                         ----------     ----------
   Net cash used in investing activities ............................       (22,695)      (325,970)
                                                                         ----------     ----------
FINANCING ACTIVITIES:
Distributions paid ..................................................       (38,072)       (30,097)
Payment of preferred unit dividends .................................        (8,145)        (6,145)
Payment of prepayment penalties .....................................            --            (46)
Borrowings on mortgages and notes payable ...........................        16,885        287,188
Repayment of mortgages and notes payable ............................        (3,252)      (102,450)
Borrowings on revolving loans .......................................        81,500        247,000
Repayment on revolving loans ........................................       (74,000)      (240,500)
Net proceeds from contributed capital ...............................         8,108        137,763
Net (payment) receipt of deferred financing costs ...................        (4,659)         1,860
                                                                         ----------     ----------
   Net cash (used in) provided by financing activities ..............       (21,635)       294,573
                                                                         ----------     ----------
Net increase in cash and cash equivalents ...........................         7,204         23,107
Cash and cash equivalents at beginning of the period ................        30,696          8,816
                                                                         ----------     ----------
Cash and cash equivalents at end of the period ......................    $   37,900     $   31,923
                                                                         ==========     ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ..............................................    $   28,014     $   12,324
                                                                         ==========     ==========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 

                                       6
<PAGE>

                      HIGHWOODS REALTY LIMITED PARTNERSHIP


                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                          (UNAUDITED AND IN THOUSANDS)


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

     The following summarizes the net assets contributed by holders of Common
Units in the Operating Partnership or acquired subject to mortgage notes
payable:



<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED
                                                      MARCH 31,
                                                ----------------------
                                                   1999        1998
                                                ---------   ----------
<S>                                             <C>         <C>
ASSETS:
Rental property and equipment, net ..........    $2,241      $76,125
LIABILITIES:
Mortgages and notes payable assumed .........    $   --      $61,303
                                                 ------      -------
   Net assets ...............................    $2,241      $14,822
                                                 ======      =======
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       7
<PAGE>

                      HIGHWOODS REALTY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                MARCH 31, 1999
                                  (UNAUDITED)


1. BASIS OF PRESENTATION

     The Operating Partnership is a subsidiary of Highwoods Properties, Inc.
(the "Company"). At March 31, 1999, the Company owned 87% of the Common Units
of the Operating Partnership.

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

     The Operating Partnership's 125,000 Series A Preferred Units are senior to
the Class A and B Common Units and rank pari passu with the Series B and D
Preferred Units. The Series A Preferred Units have a liquidation preference of
$1,000 per unit. Distributions are payable on the Series A Preferred Units at
the rate of $86.25 per annum per unit.

     The Operating Partnership's 6,900,000 Series B Preferred Units are senior
to the Class A and B Common Units and rank pari passu with the Series A and D
Preferred Units. The Series B Preferred Units have a liquidation preference of
$25 per unit. Distributions are payable on the Series B Preferred Units at the
rate of $2.00 per annum per unit.

     The Operating Partnership's 400,000 Series D Preferred Units are senior to
the Class A and B Common Units and rank pari passu with the Series A and B
Preferred Units. The Series D Preferred Units have a liquidation preference of
$250 per unit. Distributions are payable on Series D Preferred Units at a rate
of $20.00 per annum per unit.

     The Class A Common Units are owned by the Company and by certain limited
partners of the Operating Partnership. The Class A Common Units owned by the
Company are classified as general partners' capital and limited partners'
capital. The Class B Common Units are owned by certain limited partners (not
the Company) and only differ from the Class A Common Units in that they are not
eligible for allocation of income and distributions. The Class B Common Units
will convert to Class A Common Units in 25% annual installments commencing one
year from the date of issuance. Prior to such conversion, such Class B Common
Units will not be redeemable for cash or shares of the Company's Common Stock.

     Generally one year after issuance, the Operating Partnership is obligated
to redeem each of the Class A Common Units not owned by the Company (the
"Redeemable Operating Partnership Units") at the request of the holder thereof
for cash, provided that the Company at its option may elect to acquire such
unit for one share of Common Stock or the cash value thereof. The Company's
Class A Common Units are not redeemable for cash. The Redeemable Operating
Partnership Units are classified outside of the permanent partners' capital in
the accompanying balance sheet at their fair market value (equal to the fair
market value of a share of Common Stock) at the balance sheet date.

     The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt.

     In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in fiscal years beginning after June 15, 1999. The
Statement will require 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 derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The fair market value of the Operating Partnership's
derivatives at March 31, 1999 is discussed in Item 2.


                                       8
<PAGE>

     The "Year 2000" issue is a general term used to describe the various
problems that may result from the improper processing of dates and calculations
involving years by many computers throughout the world as the Year 2000 is
approached and reached. We have reviewed the impact of Year 2000 issues and do
not expect Year 2000 issues to be material to our business, operations, or
financial condition. The Year 2000 issue is discussed more fully in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     The accompanying financial information has not been audited, but in the
opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of our financial position, results
of operations and cash flows have been made. For further information, refer to
the financial statements and notes thereto included in our 1998 Annual Report
on Form 10-K.


2. 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. Further, all operations are within the United States and no tenant
comprises more than 10% of consolidated revenues. The following table
summarizes the rental income, net operating income and assets for each
reportable segment for the quarter ended March 31, 1999 and 1998.


<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED MARCH 31,
                                                          -------------------------------
                                                               1999             1998
                                                          --------------   --------------
                                                                  (IN THOUSANDS)
<S>                                                       <C>              <C>
RENTAL INCOME:
Office segment ........................................     $  120,355       $   91,412
Industrial segment ....................................         13,054            8,919
Retail segment ........................................          7,568               --
Apartment segment .....................................          4,891               --
                                                            ----------       ----------
                                                            $  145,868       $  100,331
                                                            ==========       ==========
NET OPERATING INCOME:
Office segment net operating income ...................     $   81,909       $   63,225
Industrial segment net operating income ...............         10,943            7,378
Retail segment net operating income ...................          5,069               --
Apartment segment net operating income ................          2,655               --
                                                            ----------       ----------
                                                            $  100,576       $   70,603
Reconciliation to income before extraordinary item:
Equity in income of unconsolidated affiliates .........            121               --
Gain on disposition of assets .........................            569               --
Interest and other income .............................          4,597            2,053
Interest expense ......................................        (30,623)         (17,778)
General and administrative expenses ...................         (5,793)          (3,784)
Depreciation and amortization .........................        (28,074)         (17,113)
                                                            ----------       ----------
Income before extraordinary item ......................     $   41,373       $   33,981
                                                            ==========       ==========
TOTAL ASSETS:
Office segment ........................................     $3,196,262       $2,725,906
Industrial segment ....................................        490,452          304,175
Retail segment ........................................        256,869               --
Apartment segment .....................................        136,339               --
Corporate and other ...................................        161,498           87,295
                                                            ----------       ----------
Total Assets ..........................................     $4,241,420       $3,117,376
                                                            ==========       ==========
</TABLE>

                                       9
<PAGE>

3. JOINT VENTURE ACTIVITY

     JOINT VENTURE ACTIVITY. On March 15, 1999, we 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 million to a newly
created limited partnership (the "Joint Venture"). DLF contributed
approximately $55 million for a 77.19% interest in the Joint Venture, and the
Joint Venture borrowed approximately $71 million from third-party lenders. The
Operating Partnership retained the remaining 22.81% interest in the Joint
Venture, received net cash proceeds of approximately $124 million and are the
sole and exclusive manager and leasing agent of the Joint Venture's properties,
for which the Operating Partnership receives customary management fees and
leasing commissions. The Operating Partnership used the cash proceeds received
in the transaction to fund existing development activity either through direct
payments or repayment of borrowings under the Revolving Loan.


4. CONTINGENCIES

     LITIGATION

     On October 2, 1998, John Flake, a former stockholder of J.C. Nichols
Company, filed a putative class action lawsuit on behalf of himself and the
other former stockholders of J.C. Nichols in the United States District Court
for the District of Kansas against J.C. Nichols, certain of its former officers
and directors and the Company. The complaint alleges, among other things, that
in connection with the merger of J.C. Nichols and the Company (1) J.C. Nichols
and the named directors and officers of J.C. Nichols breached their fiduciary
duties to J.C. Nichols' stockholders, (2) J.C. Nichols and the named directors
and officers of J.C. Nichols breached their fiduciary duties to members of the
J.C. Nichols Company Employee Stock Ownership Trust, (3) all defendants
participated in the dissemination of a proxy statement containing materially
false and misleading statements and omissions of material facts in violation of
Section 14(a) of the Securities Exchange Act of 1934 and (4) the Company filed
a registration statement with the Securities and Exchange Commission containing
materially false and misleading statements and omissions of material facts in
violation of Sections 11 and 12(2) of the Securities Act of 1933. The
plaintiffs seek equitable relief and monetary damages. The Company believes
that the defendants have meritorious defenses to the plaintiffs' allegations.
The Company intends to vigorously defend this litigation and has filed a motion
to dismiss all claims asserted against the defendants. Due to the inherent
uncertainties of the litigation process and the judicial system, the Company is
not able to predict the outcome of this litigation. If this litigation is not
resolved in our favor, it could have a material adverse effect on the Operating
Partnership's business, financial condition and results of operations.

     In addition, the Operating Partnership is a party to a variety of legal
proceedings arising in the ordinary course of our business. The Operating
Partnership believes that it is adequately covered by insurance and
indemnification agreements. Accordingly, none of such proceedings are expected
to have a material adverse affect on the Operating Partnership's business,
financial condition and results of operations.


5. SUBSEQUENT EVENTS

     The Operating Partnership recently entered into agreements to sell
approximately 3.3 million rentable square feet of non-core office and
industrial properties and 49 acres of development land in the South Florida
area for gross proceeds of approximately $323.2 million. The South Florida
transaction is expected to close by June 1, 1999. The Operating Partnership
recently also entered into agreements to sell approximately 737,000 rentable
square feet of non-core and industrial properties and 10.5 acres of development
land in the Baltimore area for gross proceeds of approximately $82.2 million.
The Baltimore transaction is expected to close by June 30, 1999. Non-core
office and industrial properties generally include single buildings or business
parks that do not fit our long-term strategy. The Operating Partnership can
provide no assurance that all or parts of the transactions will be consummated.
Both transactions are subject to customary closing conditions, and the
Baltimore transaction is also subject to the completion of due diligence.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with all of the
financial statements appearing elsewhere in the report. The following
discussion is based primarily on the consolidated financial statements of the
Operating Partnership.


                                       10
<PAGE>

RESULTS OF OPERATIONS

     THREE MONTHS ENDED MARCH 31, 1999. Revenues from rental operations
increased $45.6 million, or 45%, from $100.3 million for the three months ended
March 31, 1998 to $145.9 million for the comparable period in 1999. The
increase is primarily a result of our acquisition of 9.6 million square feet of
majority owned office, industrial and retail properties and 2,325 apartment
units and the completion of 4.2 million square feet of development activity
during the last nine months of 1998 and the first three months of 1999. Our
in-service portfolio increased from 33.9 million square feet at March 31, 1998
to 43.6 million square feet at March 31, 1999. Same property revenues, which
are the revenues of the 471 in-service properties owned on January 1, 1998,
increased 4% for the three months ended March 31, 1999, compared to the same
three months of 1998.

     During the three months ended March 31, 1999, 373 leases representing 2.3
million square feet of office, industrial and retail space commenced at an
average rate per square foot which was 5% higher than the average rate per
square foot on the expired leases.

     Interest and other income increased $2.5 million, or 119%, from $2.1
million for the three months ended March 31, 1998 to $4.6 million for the
comparable period in 1999. The increase was a result of higher cash balances in
1999, and additional income generated from management fees, development fees
and leasing commissions. The Operating Partnership generated $313,000 in
auxiliary income (vending and parking) as a result of acquiring multifamily
communities in the merger with J.C. Nichols.

     Rental operating expenses increased $15.6 million, or 53%, from $29.7
million for the three months ended March 31, 1998 to $45.3 million for the
comparable period in 1999. The increase is a result of our addition of 13.8
million square feet of office, industrial and retail space and 2,325 apartment
units through a combination of acquisitions and developments during the last
nine months of 1998 and the first three months of 1999. Rental operating
expenses as a percentage of related revenues increased from 30% for the three
months ended March 31, 1998 to 31% for the comparable period in 1999.

     Depreciation and amortization for the three months ended March 31, 1999
and 1998 was $28.1 million and $17.1 million, respectively. The increase of
$11.0 million, or 64%, is due to an increase in depreciable assets over the
prior year. Interest expense increased $12.8 million, or 72%, from $17.8
million for the three months ended March 31, 1998 to $30.6 million for the
comparable period in 1999. The increase is attributable to the increase in the
outstanding debt for the entire quarter. Interest expense for the three months
ended March 31, 1999 and 1998 included $778,000 and $616,000, respectively, of
amortization of non-cash deferred financing costs and the costs related to the
Operating Partnership's interest rate hedge contracts. General and
administrative expenses increased from 3.8% of rental revenue for the three
months ended March 31, 1998 to 4.0% for the comparable period in 1999.

     Net income before extraordinary item equaled $41.4 million and $33.9
million for the three months ended March 31, 1999 and 1998, respectively. The
Operating Partnership recorded $8.1 million and $6.1 million in preferred unit
dividends for the three months ended March 31, 1999 and 1998, respectively.


LIQUIDITY AND CAPITAL RESOURCES

     STATEMENT OF CASH FLOWS. For the three months ended March 31, 1999, cash
provided by operating activities decreased by $3.0 million, or 6.0%, to $51.5
million, as compared to $54.5 million for the same period in 1998. The decrease
is primarily due to the payment of real estate taxes due in the first quarter
of 1999 offset by the increase in net income resulting from our property
acquisitions in 1998 and 1999. Cash used for investing activities decreased by
$303.3 million, to $22.7 million for the first three months of 1999, as
compared to $326.0 million for the same period in 1998. The decrease is due to
the decline in acquisition activity in the first three months of 1999. Cash
provided by financing activities decreased by $316.2 to $(21.6) million for the
first three months of 1998, as compared to $294.6 million for the same period
in 1998. Payments of distributions increased by $8.0 million to $38.1 million
for the first three months of 1999, as compared with $30.1 million for the same
period in 1998. The increase is due to the greater number of Common Units
outstanding and a 6% increase in the distribution rate. Payment of preferred
unit dividends increased by $2.0 million to $8.1 million for the first three
months of 1999, as compared to $6.1 million for the same period in 1998. The
increase is due to the issuance of Preferred Series D Units in the first
quarter of 1998.


                                       11
<PAGE>

     CAPITALIZATION. The Operating Partnership's total indebtedness at March
31, 1999 totaled $1.9 billion and was comprised of $622.9 million of secured
indebtedness with a weighted average interest rate of 7.7% and 1.3 billion of
unsecured indebtedness with a weighted average interest rate of 7.0%. Except as
stated below, all of the mortgage and notes payable outstanding at March 31,
1999 were either fixed rate obligations or variable rate obligations covered by
interest rate hedge contracts. A portion of our $600 million unsecured
revolving loan (the "Revolving Loan") and approximately $73 million in floating
rate notes payable assumed upon consummation of the merger with J.C. Nichols
were not covered by interest rate hedge contracts on March 31, 1999.

     To meet in part our long-term liquidity requirements, we borrow funds at a
combination of fixed and variable rates. Borrowings under our Revolving Loan
bear interest at variable rates. Our long-term debt, which consists of
long-term financings and the 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. We do not hold
or issue these derivative contracts for trading or speculative purposes.

     The following table sets forth information regarding our interest rate
hedge contracts as of March 31, 1999:



<TABLE>
<CAPTION>
                    NOTIONAL     MATURITY                                  FIXED        FAIR MARKET
TYPE OF HEDGE        AMOUNT        DATE      REFERENCE RATE                 RATE           VALUE
----------------   ----------   ----------   -----------------------   -------------   ------------
                               (DOLLARS IN THOUSANDS)
<S>                <C>          <C>          <C>                       <C>             <C>
 Treasury Lock      $100,000      10/1/99    10-Year Treasury          5.725%            $ (3,331)
 Treasury Lock        50,000      6/10/99    10-Year Treasury          5.276                  114
 Treasury Lock       100,000       7/1/99    10-Year Treasury          5.674               (3,166)
 Swap                100,000      10/1/99    3-Month LIBOR             4.970                   22
 Swap                 20,970      6/10/02    1-Month LIBOR + 0.75%     7.700               (1,333)
 Collar               80,000     10/15/01    1-Month LIBOR             5.40 - 6.25           (482)
</TABLE>

     We enter into swaps, collars and caps to limit our exposure to an increase
in variable interest rates, particularly with respect to amounts outstanding
under our Revolving Loan. 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.

     In addition, we are exposed to certain losses in the event of
nonperformance by the counterparties under the interest rate hedge contracts.
We expect the counterparties, which are major financial institutions, to
perform fully under these contracts. However, if the counterparties were to
default on their obligations under the interest rate hedge contracts, we could
be required to pay the full rates on our debt, even if such rates were in
excess of the rates in the contracts.

     CURRENT AND FUTURE CASH NEEDS. Historically, rental revenue has been the
principal source of funds to pay operating expenses, debt service, stockholder
distributions and capital expenditures, excluding nonrecurring capital
expenditures. In addition, construction management, maintenance, leasing and
management fees have provided sources of cash flow. We presently have no plans
for major capital improvements to the existing in-service properties, other
than normal recurring building improvements, tenant improvements and lease
commissions. We expect to meet our short-term liquidity requirements generally
through working capital and net cash provided by operating activities along
with the Revolving Loan.

     Our short-term (within the next 12 months) liquidity needs also include,
among other things, the funding of approximately $310 million of our existing
development activity. We expect to fund our short-term liquidity needs through
a combination of:

   o additional borrowings under our Revolving Loan (approximately $144
     million was available as of March 31, 1999);

     o the issuance of secured debt;

     o the selective disposition of non-core assets; and

                                       12
<PAGE>

   o the sale or contribution of some of our wholly owned properties to
     strategic joint ventures to be formed with selected partners interested in
     investing with us, which will have the net effect of generating additional
     capital through such sale or contributions.

     Because of certain financial covenants set forth in the Revolving Loan, we
intend to finance a significant portion of our short-term development expenses
through asset sales and joint ventures. Although we believe that we will be
able to fund our short-term development commitments, an inability to sell a
sufficient number of non-core assets or to enter into significant joint venture
arrangements of the type described above could adversely affect our liquidity.
See " -- Recent Developments."

     Our long-term liquidity needs generally include the funding of existing
and future development activity, selective asset acquisitions and the
retirement of mortgage debt, amounts outstanding under the Revolving Loan and
long-term unsecured debt. We remain committed to maintaining a flexible and
conservative 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 Revolving Loan. 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, together 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 Company's ability to make the expected distributions to
stockholders discussed below and satisfy other cash requirements may be
adversely affected.

     DISTRIBUTIONS TO STOCKHOLDERS. In order to qualify as a REIT for Federal
income tax purposes, the Company is required to make distributions to its
stockholders of at least 95% of REIT taxable income. The Company expects to use
its cash flow from operating activities for distributions to stockholders and
for payment of recurring, non-incremental revenue-generating expenditures. The
following factors will affect cash flows from operating activities and,
accordingly, influence the decisions of the Board of Directors regarding
distributions: (1) debt service requirements after taking into account the
repayment and restructuring of certain indebtedness; (2) scheduled increases in
base rents of existing leases; (3) changes in rents attributable to the renewal
of existing leases or replacement leases; (4) changes in occupancy rates at
existing properties and procurement of leases for newly acquired or developed
properties; and (5) operating expenses and capital replacement needs.


RECENT DEVELOPMENTS

     JOINT VENTURE ACTIVITY. On March 15, 1999, we closed a transaction with
Schweiz-Deutschland-USA Dreilander Betriligung Objekt-DLF 98/29-Walker Fink-KG
("DLF"), pursuant to which we sold or contributed certain office properties
valued at approximately $142 million to a newly created limited partnership
(the "Joint Venture"). DLF contributed approximately $55 million for a 77.19%
interest in the Joint Venture, and the Joint Venture borrowed approximately $71
million from third-party lenders. We retained the remaining 22.81% interest in
the Joint Venture, received cash proceeds of approximately $126 million and are
the sole and exclusive manager and leasing agent of the Joint Venture's
properties, for which we receive customary management fees and leasing
commissions. We used the cash proceeds received in the transaction to fund
existing development activity either through direct payments or repayment of
borrowings under the Revolving Loan.

     PENDING DISPOSITION ACTIVITY. We recently entered into agreements to sell
approximately 3.3 million rentable square feet of non-core office and
industrial properties and 49 acres of development land in the South Florida
area for gross proceeds of approximately $323.2 million. The South Florida
transaction is expected to close by June 1, 1999. We recently also entered into
agreements to sell approximately 737,000 rentable square feet of non-core and
industrial properties and 10.5 acres of development land in the Baltimore area
for gross


                                       13
<PAGE>

proceeds of approximately $82.2 million. The Baltimore transaction is expected
to close by June 30, 1999. Non-core office and industrial properties generally
include single buildings or business parks that do not fit our long-term
strategy. We can provide no assurance that all or parts of the transactions
will be consummated. Both transactions are subject to customary closing
conditions, and the Baltimore transaction is also subject to the completion of
due diligence.


YEAR 2000

     BACKGROUND. The Year 2000 compliance issue refers to the inability of
computer systems and computer software to correctly process any date after
1999. The date change to the new millennium may be a problem because some
computer hardware and software was designed to use only two digits to represent
a year. As a result, some systems may interpret 1/1/00 to be the year 1900. In
addition, some systems may not recognize that the Year 2000 is a leap year.
Both problems could result in system failure or miscalculations, which may
cause disruptions of operations.

     The Year 2000 issue, if not corrected, could result in the failure of the
information technology ("IT") systems that we use in our business operations,
such as computer programs related to property management, leasing, financial
reporting, employee benefits, asset management and energy management. In
addition, computerized systems and microprocessors are embedded in a variety of
products used in our operations and properties, such as HVAC controls, lights,
power generators, elevators, life safety systems, phones and security systems.

     APPROACH AND STATUS. Our Year 2000 compliance efforts are divided into two
areas -- "operations level" and "property level." Operations level includes
those information technology systems used in our corporate and division offices
to perform real estate, accounting and human resources functions. Property
level includes the non-information technology systems at our individual
properties. Our Y2K remediation plan at both the operations and property levels
has three phases:

     o assessment (inventory and testing of computer systems),

     o renovation (repairing and or replacing non-compliant systems), and

     o validation (testing of repaired or replaced systems).

     Our Information Technology Department is overseeing our operations level
compliance program. With respect to our operations level IT software, we have
completed all three phases of our Year 2000 remediation plan. As part of a
standardization of our technology infrastructure in 1998, computer software
that was not Year 2000 compliant was upgraded or replaced. These software
upgrades were off-the-shelf Year 2000 compliant packages. Additionally, we
successfully upgraded and tested a Year 2000 compliant version of our corporate
accounting and property management software in December 1998. With respect to
our operations level IT hardware, we have completed the assessment phase of our
remediation plan and are 90% complete (in terms of labor) with the renovation
and validation phases of the plan. We expect to complete the renovation and
validation phases with respect to our operations level hardware by the third
quarter of 1999.

     Our Chief Operating Officer is overseeing our property level compliance
program. We are near completing our inventory of all of our properties'
non-information technology systems. This assessment process is 100% complete.
As part of the inventory process, we requested appropriate vendors and
manufacturers to certify that their products are Year 2000 compliant. Most
indicated that their products are Year 2000 compliant. We are approximately 75%
complete (in terms of labor) with the renovation and validation phases of our
remediation plan at the property level. We expect to complete both phases in
the third quarter.

     With respect to Year 2000 issues relating to our customer base, we have
not sought representations from our tenants with respect to their Year 2000
readiness because no one tenant represents more than 3% of our annualized
rental revenue. With respect to suppliers and vendors, our material purchases
are generally from those in competitive fields where others will be able to
meet any of our needs unmet by suppliers or vendors with Year 2000
difficulties. (Although we have no reason to expect a significant interruption
of utility services for our properties, we have not received (nor sought)
written assurances from utility providers that Y2K issues will not cause an
interruption in service.)

     COSTS. To date, the costs directly associated with our Year 2000 efforts
have not been material, and we estimate our future costs to be immaterial as
well.


                                       14
<PAGE>

     RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE. We do not expect Year 2000
failures to have a material adverse effect on our results of operations or
liquidity because:

   o we do not rely on a small number of tenants for a significant portion of
     our rental revenue;

   o we stand ready to switch vendors or suppliers whose Year 2000 failures
     adversely affect their products or services; and

     o our remediation plan is expected to be complete prior to the Year 2000.

As a result, we do not expect to develop a contingency plan for Year 2000
   failures.

     Our assessment of the likely impact of Year 2000 issues on us, which is a
forward-looking statement, depends on numerous factors, such as the continued
provision of utility services, and we remain exposed to the risk of Year 2000
failures. See " -- Disclosure Regarding Forward-Looking Statements."

     Our disclosures and announcements concerning our Year 2000 programs are
intended to constitute "Year 2000 Readiness Disclosures" as defined in the
recently-enacted Year 2000 Information and Readiness Disclosure Act. The Act
provides added protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection from liability for certain types of Year 2000 disclosures made after
January 1, 1996, and before the date of enactment of the Act.

POSSIBLE ENVIRONMENTAL LIABILITIES

     In connection with owning or operating our properties, we may be liable
for certain costs due to possible environmental liabilities. Under various
laws, ordinances and regulations, such as the Comprehensive Environmental
Response Compensation and Liability Act, and common law, an owner or operator
of real estate is liable for the costs to remove or remediate certain hazardous
or toxic chemicals or substances on or in the property. Owners or operators are
also liable for certain other costs, including governmental fines and injuries
to persons and property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
the hazardous or toxic chemicals or substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal,
treatment or transportation of hazardous or toxic chemicals or substances may
also be liable for the same types of costs at a disposal, treatment or storage
facility, whether or not that person owns or operates that facility.

     Certain environmental laws also impose liability for releasing
asbestos-containing materials. Third parties may seek recovery from owners or
operators of real property for personal injuries associated with asbestos-
containing materials. A number of our properties have asbestos-containing
materials or material that we presume to be asbestos-containing materials. In
connection with owning and operating our properties, we may be liable for such
costs.

     In addition, it is not unusual for property owners to encounter on-site
contamination caused by off-site sources. The presence of hazardous or toxic
chemicals or substances at a site close to a property could require the
property owner to participate in remediation activities or could adversely
affect the value of the property. Contamination from adjacent properties has
migrated onto at least three of our properties; however, based on current
information, we do not believe that any significant remedial action is
necessary at these affected sites.

     As of the date hereof, we have obtained Phase I environmental assessments
(and, in certain instances, Phase II environmental assessments) on
substantially all of our in-service properties. These assessments have not
revealed, nor are we aware of, any environmental liability at our properties
that we believe would materially adversely affect our financial position,
operations or liquidity taken as a whole. This projection, however, could be
incorrect depending on certain factors. For example, material environmental
liabilities may have arisen after the assessments were performed or our
assessments may not have revealed all environmental liabilities or may have
underestimated the scope and severity of environmental conditions observed.
There may also be unknown


                                       15
<PAGE>

environmental liabilities at properties for which we have not obtained a Phase
I environmental assessment or have not yet obtained a Phase II environmental
assessment. In addition, we base our assumptions regarding environmental
conditions, including groundwater flow and the existence and source of
contamination, on readily available sampling data. We cannot guarantee that
such data is reliable in all cases. Moreover, we cannot provide any assurances
(1) that future laws, ordinances or regulations will not impose a material
environmental liability or (2) that tenants, the condition of land or
operations in the vicinity of our properties or unrelated third parties will
not affect the current environmental condition of our properties.

     Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. In their leases, we require these tenants to
comply with all applicable laws and to be responsible to us for any damages
resulting from their use of the property. We are not aware of any material
environmental problems resulting from tenants' use or generation of hazardous
or toxic chemicals or substances. We cannot provide any assurances, however,
that all tenants will comply with the terms of their leases or remain solvent.
If tenants do not comply or do not remain solvent, we may at some point be
responsible for contamination caused by such tenants.


IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in fiscal years beginning after June 15, 1999. The
Statement will require us 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 derivatives will either be offset against
the change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.


COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT

     Under the Americans with Disabilities Act (the "ADA"), all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers, and noncompliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although we believe that our properties are substantially in compliance with
these requirements, we may incur additional costs to comply with the ADA.
Although we believe that such costs will not have a material adverse effect on
us, if required changes involve a greater expenditure than we currently
anticipate, our results of operations, liquidity and capital resources could be
materially adversely affected.


FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTIONS

     We consider funds from operations ("FFO") to be a useful financial
performance measure of the operating performance of an equity REIT because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt
and to fund acquisitions and other capital expenditures. FFO does not represent
net income or cash flows from operating, investing or financing activities as
defined by Generally Accepted Accounting Principles ("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. FFO does not measure
whether cash flow is sufficient to fund all cash needs, including principal
amortization, capital improvements and distributions to stockholders. Further,
FFO as disclosed by other REITs may not be comparable to our calculation of
FFO, as described below. FFO and cash available for distributions should not be
considered as alternatives to net income as an indication of our performance or
to cash flows as a measure of liquidity.

     FFO means net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. In March 1995, the National
Association of Real Estate Investment Trusts ("NAREIT") issued a clarification
of the definition of FFO. The clarification provides that amortization of
deferred financing costs and depreciation of non-real estate assets are no
longer to be added back to net income in arriving at FFO. Cash available for
distribution is defined as funds from operations reduced


                                       16
<PAGE>

by non-revenue enhancing capital expenditures for building improvements and
tenant improvements and lease commissions related to second generation space.

     FFO and cash available for distribution for the three month periods ended
March 31, 1999 and 1998 are summarized in the following table (in thousands):



<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                               MARCH 31,
                                                                        ------------------------
                                                                            1999         1998
                                                                        -----------   ----------
<S>                                                                     <C>           <C>
       FUNDS FROM OPERATIONS:
       Income before extraordinary item .............................    $ 41,373      $ 33,981
       Add (deduct):
         Dividends to preferred unitholders..........................      (8,145)       (6,145)
         Gain on disposition of assets ..............................        (569)           --
         Depreciation and amortization ..............................      28,074        17,113
         Depreciation on unconsolidated affiliates ..................         477            --
                                                                         --------      --------
          FUNDS FROM OPERATIONS .....................................      61,210        44,949
       CASH AVAILABLE FOR DISTRIBUTION:
       Add (deduct):
         Rental income from straight-line rents .....................      (3,985)       (3,116)
         Amortization of deferred financing costs ...................         778           616
         Non-incremental revenue generating capital expenditures (1):
          Building improvements paid ................................      (1,518)       (1,019)
          Second generation tenant improvements paid ................      (6,009)       (2,436)
          Second generation lease commissions paid ..................      (3,531)       (1,726)
                                                                         --------      --------
            CASH AVAILABLE FOR DISTRIBUTION .........................    $ 46,945      $ 37,268
                                                                         ========      ========
       Weighted average Common Units outstanding -- basic ...........      69,625        59,109
                                                                         ========      ========
       Weighted average Common Units outstanding -- diluted .........      69,762        59,746
                                                                         ========      ========
       DIVIDEND PAYOUT RATIO -- DILUTED:
         Funds from operations ......................................        61.5%         67.8%
                                                                         ========      ========
         Cash available for distribution ............................        80.2%         81.8%
                                                                         ========      ========
</TABLE>

----------
(1) Amounts represent cash expenditures.


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     Some of the information in this Quarterly Report on Form 10-Q may contain
forward-looking statements. Such statements include, in particular, statements
about our plans, strategies and prospects under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." 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:

     o our markets could suffer unexpected increases in development of office,
industrial and retail properties;

     o the financial condition of our tenants could deteriorate;

     o the costs of our development projects could exceed our original
     estimates;

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

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

     o we may have incorrectly assessed the environmental condition of our
   properties;

                                       17
<PAGE>

     o an unexpected increase in interest rates would increase our debt service
     costs;

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

     o we could lose key executive officers; and

     o our southeastern markets may suffer an unexpected decline in economic
     growth or increase in unemployment rates.

     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.


                                       18
<PAGE>

PROPERTY INFORMATION

     The following table sets forth certain information with respect to our
majority owned in-service and development properties (excluding apartment
units) as of March 31, 1999 and 1998:



<TABLE>
<CAPTION>
                                  RENTABLE       NUMBER OF     PERCENT LEASED/
MARCH 31, 1999                  SQUARE FEET     PROPERTIES       PRE-LEASED
----------------------------   -------------   ------------   ----------------
<S>                            <C>             <C>            <C>
IN-SERVICE:
 Office ....................    30,032,000          443               94%
 Industrial ................    11,883,000          184               91%
 Retail ....................     1,661,000           18               91%
                                ----------          ---               --
  Total ....................    43,576,000          645               93%
                                ==========          ===               ==
REDEVELOPMENT:
 Office ....................       207,000            4               49%
 Industrial ................       194,000            4                1%
                                ----------          ---               --
  Total ....................       401,000            8               26%
                                ==========          ===               ==
DEVELOPMENT:
 COMPLETED -- NOT STABILIZED
 Office ....................     1,564,000           15               79%
 Industrial ................       777,000            6               87%
 Retail ....................            --           --               --
                                ----------          ---               --
  Total ....................     2,341,000           21               82%
                                ==========          ===               ==
IN PROCESS
 Office ....................     3,764,000           30               64%
 Industrial ................       131,000            1               50%
 Retail ....................       200,000            2               65%
                                ----------          ---               --
  Total ....................     4,095,000           33               63%
                                ==========          ===               ==
TOTAL:
 Office ....................    35,567,000          492
 Industrial ................    12,985,000          195
 Retail ....................     1,861,000           20
                                ----------          ---
  Total ....................    50,413,000          707
                                ==========          ===
 
MARCH 31, 1998
-----------------------------
IN-SERVICE:
 Office ....................    26,501,000          382               94%
 Industrial ................     7,429,000          148               90%
 Retail ....................            --           --               --
                                ----------          ---               --
  Total ....................    33,930,000          530               93%
                                ==========          ===               ==
REDEVELOPMENT
 Office ....................        N/A             N/A             N/A
 Industrial ................        N/A             N/A             N/A
                                ----------          ---             ----
  Total ....................        N/A             N/A             N/A
                                ==========          ===             ====
DEVELOPMENT:
 COMPLETED -- NOT STABILIZED
 Office ....................        N/A             N/A             N/A
 Industrial ................        N/A             N/A             N/A
 Retail ....................        N/A             N/A             N/A
                                ----------          ---             ----
  Total ....................        N/A             N/A             N/A
                                ==========          ===             ====
IN PROCESS
 Office ....................     3,182,000           27               53%
 Industrial ................       396,000            5               25%
 Retail ....................            --           --               --
                                ----------          ---             ----
  Total ....................     3,578,000           32               50%
                                ==========          ===             ====
TOTAL:
 Office ....................    29,683,000          409
 Industrial ................     7,825,000          153
 Retail ....................            --           --
                                ----------          ---
  Total ....................    37,508,000          562
                                ==========          ===
</TABLE>


                                       19
<PAGE>

     The following table sets forth certain information with respect to our
properties under development as of March 31, 1999 (dollars in thousands):



<TABLE>
<CAPTION>
                                                        RENTABLE
                                                         SQUARE     ESTIMATED
               NAME                     LOCATION          FEET        COSTS
--------------------------------- ------------------- ------------ -----------
<S>                               <C>                 <C>          <C>
              IN-PROCESS
OFFICE:
Highwoods Center II @
  Tradeport                       Atlanta                 53,000    $  4,825
Peachtree Corner                  Atlanta                109,000       9,238
Highwoods I                       Baltimore              125,000      15,300
Mallard Creek V                   Charlotte              118,000      12,262
Parkway Plaza 14                  Charlotte               90,000       7,690
Lakefront Plaza I                 Hampton Roads           77,000       7,477
Belfort Park C1                   Jacksonville            54,000       4,830
Belfort Park C2                   Jacksonville            31,000       2,730
Valencia Place                    Kansas City            241,000      34,020
Southwind Building D              Memphis                 64,000       6,800
Caterpillar Financial Center      Nashville              313,000      54,000
Lakeview Ridge III                Nashville              131,000      13,100
Westwood South                    Nashville              125,000      13,530
C N A Maitland III                Orlando                 78,000       9,885
Capital Plaza                     Orlando                303,000      53,000
Concourse Center One              Piedmont Triad          86,000       8,400
3737 Glenwood Ave.                Research Triangle      107,000      16,700
4101 Research Commons             Research Triangle       73,000       9,311
Capital One Bldg 1                Richmond               126,000      14,795
Capital One Bldg 2                Richmond                44,000       5,125
Capital One Bldg 3                Richmond               126,000      14,380
Highwoods Common                  Richmond                49,000       4,840
Stony Point II                    Richmond               136,000      13,881
Sportsline USA                    South Florida           80,000      10,000
Intermedia Building 1             Tampa                  200,000      27,040
Intermedia Building 2             Tampa                   30,000       4,056
Intermedia Building 3             Tampa                  170,000      22,984
Intermedia Building 4             Tampa                  200,000      29,219
Intermedia Building 5             Tampa                  200,000      29,219
Lakepoint II                      Tampa                  225,000      34,106
                                                         -------    --------
In-Process Office Total or
  Weighted Average                                     3,764,000    $492,743
                                                       =========    ========
INDUSTRIAL:
Newpoint II                       Atlanta                131,000       5,167
                                                       ---------    --------
In-Process Industrial Total or
  Weighted Average                                       131,000    $  5,167
                                                       =========    ========
RETAIL:
Seville Square                    Kansas City            119,000      32,100
Valencia Place                    Kansas City             81,000      14,362
                                                       ---------    --------
In-Process Retail Total or
  Weighted Average                                       200,000    $ 46,462
                                                       =========    ========
Total or Weighted Average of all
  In-Process Development
  Projects                                             4,095,000    $544,372
                                                       =========    ========



<CAPTION>
                                    COST AT     PRE-LEASING     ESTIMATED      ESTIMATED
               NAME                 3/31/99    PERCENTAGE(1)   COMPLETION   STABILIZATION(2)
--------------------------------- ----------- --------------- ------------ -----------------
<S>                               <C>         <C>             <C>          <C>
              IN-PROCESS
OFFICE:
Highwoods Center II @
  Tradeport                        $    994          57%         3Q 99           4Q 99
Peachtree Corner                      3,042          --          3Q 99           3Q 00
Highwoods I                           8,048          --          2Q 99           4Q 99
Mallard Creek V                       5,948          --          4Q 99           4Q 00
Parkway Plaza 14                      3,236          58          2Q 99           1Q 00
Lakefront Plaza I                     5,122          31          2Q 99           1Q 00
Belfort Park C1                       1,579          --          3Q 99           2Q 00
Belfort Park C2                       1,130          --          3Q 99           2Q 00
Valencia Place                       16,879          41          1Q 00           4Q 00
Southwind Building D                  3,869          56          2Q 99           4Q 99
Caterpillar Financial Center         16,743          79          1Q 00           2Q 00
Lakeview Ridge III                    8,523          88          2Q 99           2Q 99
Westwood South                        8,068          79          3Q 99           1Q 00
C N A Maitland III                    5,648         100          3Q 99           3Q 99
Capital Plaza                        15,721          30          1Q 00           4Q 01
Concourse Center One                  4,817          32          2Q 99           1Q 00
3737 Glenwood Ave.                    8,903          56          3Q 99           1Q 00
4101 Research Commons                 3,919          35          3Q 99           2Q 00
Capital One Bldg 1                    8,647         100          2Q 99           2Q 99
Capital One Bldg 2                    3,064         100          3Q 99           3Q 99
Capital One Bldg 3                    4,401         100          4Q 99           4Q 99
Highwoods Common                      3,902         100          2Q 99           2Q 99
Stony Point II                        9,148          52          2Q 99           4Q 99
Sportsline USA                        3,153         100          3Q 99           3Q 99
Intermedia Building 1                 1,298         100          1Q 00           1Q 00
Intermedia Building 2                   123         100          1Q 00           1Q 00
Intermedia Building 3                 1,674         100          1Q 00           1Q 00
Intermedia Building 4                    --         100          2Q 00           2Q 00
Intermedia Building 5                    --         100          3Q 01           3Q 01
Lakepoint II                          8,334          52          4Q 99           4Q 99
                                   --------         ---
In-Process Office Total or
  Weighted Average                 $165,933          64%
                                   ========         ===
INDUSTRIAL:
Newpoint II                           2,964          50%         2Q 99           2Q 00
                                   --------         ---
In-Process Industrial Total or
  Weighted Average                 $  2,964          50%
                                   ========         ===
RETAIL:
Seville Square                       26,913          75%         2Q 99           4Q 99
Valencia Place                        3,876          50          1Q 00           4Q 00
                                   --------         ---
In-Process Retail Total or
  Weighted Average                 $ 30,789          65%
                                   ========         ===
Total or Weighted Average of all
  In-Process Development
  Projects                         $199,686          63%
                                   ========         ===
</TABLE>

----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
    earlier of the first date such project is at least 95% occupied or one
    year from the date of completion.


                                       20
<PAGE>


<TABLE>
<CAPTION>
                                                          RENTABLE
                                                           SQUARE     ESTIMATED
                NAME                      LOCATION          FEET        COSTS
----------------------------------- ------------------- ------------ -----------
<S>                                 <C>                 <C>          <C>
     COMPLETED -- NOT STABILIZED
OFFICE:
Ridgefield III                      Asheville              57,000    $  5,500
10 Glenlakes                        Atlanta               254,000      35,100
Highwoods Center I @ Tradeport      Atlanta                45,000       3,717
Parkway Plaza 11                    Charlotte              32,000       2,600
Parkway Plaza 12                    Charlotte              22,000       1,800
Patewood VI                         Greenville            107,000      11,400
Highwoods Centre                    Hampton Roads         103,000       9,925
Cool Springs I                      Nashville             153,000      16,800
Highwoods Centre                    Research Triangle      76,000       8,300
Overlook                            Research Triangle      97,000      10,500
Red Oak                             Research Triangle      65,000       6,000
Situs II                            Research Triangle      59,000       6,300
Eastshore II                        Richmond               76,000       7,842
Highwoods Square                    South Florida          93,000      12,500
Interstate Corporate Center         Tampa                 325,000      19,100
                                                          -------    --------
Completed -- Not Stabilized Office
  Total or Weighted Average                             1,564,000    $157,384
                                                        =========    ========
INDUSTRIAL:
Bluegrass Lakes I                   Atlanta               112,000       4,700
Tradeport 1                         Atlanta                87,000       3,100
Tradeport 2                         Atlanta                87,000       3,100
Air Park South Warehouse II         Piedmont Triad        136,000       4,200
Air Park South Warehouse VI         Piedmont Triad        189,000       8,000
HIW Distribution Center             Richmond              166,000       5,764
                                                        ---------    --------
Completed -- Not Stabilized
  Industrial Total or Weighted
  Average                                                 777,000    $ 28,864
                                                        ---------    --------
Total or Weighted Average of all
  Completed -- Not Stabilized
  Development Projects                                  2,341,000    $186,248
                                                        =========    ========
Total or Weighted Average of all
  Development Projects                                  6,436,000    $730,620
                                                        =========    ========



<CAPTION>
                                      COST AT     PRE-LEASING     ESTIMATED      ESTIMATED
                NAME                  3/31/99    PERCENTAGE(1)   COMPLETION   STABILIZATION(2)
----------------------------------- ----------- --------------- ------------ -----------------
<S>                                 <C>         <C>             <C>          <C>
     COMPLETED -- NOT STABILIZED
OFFICE:
Ridgefield III                      $  5,046           44%         3Q 98           4Q 99
10 Glenlakes                          27,469           77          1Q 99           4Q 99
Highwoods Center I @ Tradeport         2,776          100          1Q 99           2Q 99
Parkway Plaza 11                       2,212           66          1Q 99           3Q 99
Parkway Plaza 12                       1,401           61          1Q 99           4Q 99
Patewood VI                           11,882           92          3Q 98           2Q 99
Highwoods Centre                       8,103           60          4Q 98           4Q 99
Cool Springs I                        15,076           66          3Q 98           3Q 99
Highwoods Centre                       8,313          100          4Q 98           3Q 99
Overlook                               9,509           91          4Q 98           2Q 99
Red Oak                                4,767           80          4Q 98           2Q 99
Situs II                               5,986           83          3Q 98           2Q 99
Eastshore II                           6,275          100          1Q 99           2Q 99
Highwoods Square                       8,842           47          1Q 99           4Q 99
Interstate Corporate Center           16,527           90          1Q 99           2Q 99
                                    --------          ---
Completed -- Not Stabilized Office
  Total or Weighted Average         $134,184           79%
                                    ========          ===
INDUSTRIAL:
Bluegrass Lakes I                      3,856          100%         1Q 99           2Q 99
Tradeport 1                            2,605           87          3Q 98           2Q 99
Tradeport 2                            2,587           96          3Q 98           2Q 99
Air Park South Warehouse II            3,216          100          4Q 98           3Q 99
Air Park South Warehouse VI            6,784          100          1Q 99           2Q 99
HIW Distribution Center                5,831           46          1Q 99           4Q 99
                                    --------          ---
Completed -- Not Stabilized
  Industrial Total or Weighted
  Average                           $ 24,879           87%
                                    --------          ---
Total or Weighted Average of all
  Completed -- Not Stabilized
  Development Projects              $159,063           82%
                                    ========          ===
Total or Weighted Average of all
  Development Projects              $358,749           70%
                                    ========          ===
</TABLE>

----------
(1) Includes the effect of letters of intent.

(2) We generally consider a development project to be stabilized upon the
    earlier of the first date such project is at least 95% occupied or one
    year from the date of completion.


                                       21
<PAGE>


<TABLE>
<CAPTION>
                                             RENTABLE
                                              SQUARE            ESTIMATED            PRE-LEASING
                                               FEET               COSTS             PERCENTAGE(1)
DEVELOPMENT ANALYSIS                       -----------   -----------------------   --------------
                                                          (DOLLARS IN THOUSANDS)
<S>                                        <C>           <C>                       <C>
SUMMARY BY ESTIMATED STABILIZATION DATE:
 Second Quarter 1999 ...................    1,555,000            $116,494                 93%
 Third Quarter 1999 ....................      599,000              56,910                 89
 Fourth Quarter 1999 ...................    1,543,000             191,981                 57
 First Quarter 2000 ....................      885,000             107,877                 75
 Second Quarter 2000 ...................      802,000             105,257                 67
 Third Quarter 2000 ....................      109,000               9,238                  0
 Fourth Quarter 2000 ...................      440,000              60,644                 32
 Third Quarter 2001 ....................      200,000              29,219                100
 Fourth Quarter 2001 ...................      303,000              53,000                 30
                                            ---------            --------                ---
   Total or Weighted Average ...........    6,436,000            $730,620                 70%
                                            =========            ========                ===
SUMMARY BY MARKET:
 Asheville .............................       57,000               5,500                 44%
 Atlanta ...............................      878,000              68,947                 69
 Baltimore .............................      125,000              15,300                  0
 Charlotte .............................      262,000              24,352                 33
 Greenville ............................      107,000              11,400                 92
 Hampton Roads .........................      180,000              17,402                 48
 Jacksonville ..........................       85,000               7,560                  0
 Kansas City ...........................      441,000              80,482                 52
 Memphis ...............................       64,000               6,800                 56
 Nashville .............................      722,000              97,430                 78
 Orlando ...............................      381,000              62,885                 44
 Piedmont Triad ........................      411,000              20,600                 86
 Research Triangle .....................      477,000              57,111                 74
 Richmond ..............................      723,000              66,627                 79
 South Florida .........................      173,000              22,500                 72
 Tampa .................................    1,350,000             165,724                 90
                                            ---------            --------                ---
   Total or Weighted Average ...........    6,436,000            $730,620                 70%
                                            =========            ========                ===
   Build-to-Suit .......................    1,254,000            $166,703                100%
   Multi-tenant ........................    5,182,000             563,917                 63
                                            ---------            --------                ---
   Total or Weighted Average ...........    6,436,000            $730,620                 70%
                                            =========            ========                ===
</TABLE>


<TABLE>
<CAPTION>
                                            RENTABLE
                                          SQUARE FEET     ESTIMATED COSTS     PRE-LEASING(1)
                                         -------------   -----------------   ---------------
PER PROPERTY TYPE:
<S>                                      <C>             <C>                 <C>
 Office Weighted Average .............       118,400          $14,447              68%
 Industrial Weighted Average .........       129,714            4,862              81
 Retail Weighted Average .............       100,000           23,231              65
                                           ---------          -------              --
 Total Weighted Average ..............       119,400          $13,378              70%
                                           =========          =======              ==
</TABLE>

----------
(1) Includes the effect of letters of intent.

                                       22
<PAGE>

     The following table sets forth certain information with respect to our
properties under redevelopment as of March 31, 1999 (dollars in thousands):




<TABLE>
<CAPTION>
                                             RENTABLE                                                      ESTIMATED
                                              SQUARE    ESTIMATED   COST AT   PRE-LEASING    ESTIMATED   STABILIZATION
            NAME                LOCATION       FEET        COST     3/31/99       (1)       COMPLETION        (2)
--------------------------- --------------- ---------- ----------- --------- ------------- ------------ --------------
<S>                         <C>             <C>        <C>         <C>       <C>           <C>          <C>
OFFICE:
Highwoods Park B            South Florida     27,000     $ 2,296    $ 1,834        99%        1Q 00         3Q 00
Highwoods Park C            South Florida     77,000       6,667      5,347        47         1Q 00         3Q 00
Highwoods Park E            South Florida     78,000       6,782      5,248        50         1Q 00         3Q 00
Highwoods Park F            South Florida     25,000       2,394      1,730        --         1Q 00         3Q 00
                                              ------     -------    -------        --
Total or Weighted Average                    207,000      18,139     14,159        49
                                             =======     =======    =======        ==
INDUSTRIAL:
Highwoods Park G            South Florida     66,000       4,241      2,578         1%        1Q 00         3Q 00
Highwoods Park H1           South Florida     20,000       1,426        771        --         1Q 00         3Q 00
Highwoods Park H2           South Florida     36,000       3,022      2,385        --         1Q 00         3Q 00
Highwoods Park J            South Florida     72,000       4,501      2,725        --         1Q 00         3Q 00
                                             -------     -------    -------        --
Total or Weighted Average                    194,000      13,190      8,459        --
                                             =======     =======    =======        ==
Grand Total                                  401,000      31,329     22,618        26%
                                             =======     =======    =======        ==
</TABLE>

----------
(1) Includes the effect of letters of intent.

(2) We generally consider a development project to be stabilized upon the
    earlier of the first date such project is at least 95% occupied or one
    year from the date of completion.


                                       23
<PAGE>

     The following tables set forth certain information about leasing
activities at our majority-owned in-service properties (excluding apartment
units) for the three months ended March 31, 1999, December 31, September 30 and
June 30, 1998:



<TABLE>
<CAPTION>
                                                                      OFFICE LEASING STATISTICS
                                                                         THREE MONTHS ENDED
                                         -----------------------------------------------------------------------------------
                                             3/31/99         12/31/98          9/30/98           6/30/98          AVERAGE
                                         --------------   --------------   ---------------   --------------   --------------
<S>                                      <C>              <C>              <C>               <C>              <C>
NET EFFECTIVE RENTS RELATED TO
  RE-LEASED SPACE:
Number of lease transactions (signed
  leases)                                         276              308               326              285              299
Rentable square footage leased              1,406,170        1,291,297         1,645,913        1,099,805        1,360,796
Average per rentable square foot over
  the lease term:
   Base rent                               $   14.84        $   16.54        $    16.18        $   15.53        $   15.77
   Tenant improvements                         ( 0.84)          ( 0.85)           ( 0.71)          ( 1.00)          ( 0.85)
   Leasing commissions                         ( 0.42)          ( 0.38)           ( 0.42)          ( 0.27)          ( 0.37)
   Rent concessions                             0.00             0.00              0.00            ( 0.03)          ( 0.01)
                                           ----------       ----------       -----------       ----------       ----------
   Effective rent                              13.58            15.31             15.05            14.23            14.54
   Expense stop(1)                             ( 3.55)          ( 3.96)           ( 4.45)          ( 4.22)          ( 4.05)
                                           ----------       ----------       -----------       ----------       ----------
   Equivalent effective net rent           $   10.03        $   11.35        $    10.60        $   10.01        $   10.49
                                           ==========       ==========       ===========       ==========       ==========
Average term in years                               5                4                 5                5                5
                                           ==========       ==========       ===========       ==========       ==========
CAPITAL EXPENDITURES RELATED TO
  RE-LEASED SPACE:
Tenant Improvements:
  Total dollars committed under
   signed leases                           $6,848,279       $4,886,517       $ 6,754,100       $5,849,409       $6,084,576
  Rentable square feet                      1,406,170        1,291,297         1,645,913        1,099,805        1,360,796
                                           ----------       ----------       -----------       ----------       ----------
  Per rentable square foot                 $    4.87        $    3.78        $     4.10        $    5.32        $    4.47
                                           ==========       ==========       ===========       ==========       ==========
Leasing Commissions:
  Total dollars committed under
   signed leases                           $3,047,978       $2,005,094       $ 3,694,473       $1,356,002       $2,525,887
  Rentable square feet                      1,406,170        1,291,297         1,645,913        1,099,805        1,360,796
                                           ----------       ----------       -----------       ----------       ----------
  Per rentable square foot                 $    2.17        $    1.55        $     2.24        $    1.23        $    1.86
                                           ==========       ==========       ===========       ==========       ==========
Total:
  Total dollars committed under
   signed leases                           $9,896,257       $6,891,611       $10,448,573       $7,205,411       $8,610,463
  Rentable square feet                      1,406,170        1,291,297         1,645,913        1,099,805        1,360,796
                                           ----------       ----------       -----------       ----------       ----------
  Per rentable square foot                 $    7.04        $    5.34        $     6.35        $    6.55        $    6.33
                                           ==========       ==========       ===========       ==========       ==========
RENTAL RATE TRENDS:
Average final rate with expense pass
  throughs                                 $   14.28        $   13.57        $    14.51        $   13.91        $   14.07
Average first year cash rental rate        $   15.01        $   14.47        $    15.43        $   14.87        $   14.95
                                           ----------       ----------       -----------       ----------       ----------
Percentage increase                              5.11%            6.63%             6.34%            6.90%            6.24%
                                           ==========       ==========       ===========       ==========       ==========
</TABLE>

----------
(1) "Expense stop" represents operating expenses (generally including taxes,
    utilities, routine building expense and common area maintainance) for
    which we will not be reimbursed by our tenants.


                                       24
<PAGE>


<TABLE>
<CAPTION>
                                                                         INDUSTRIAL LEASING STATISTICS
                                                                               THREE MONTHS ENDED
                                                   --------------------------------------------------------------------------
                                                       3/31/99        12/31/98        9/30/98        6/30/98        AVERAGE
                                                   --------------   ------------   ------------   ------------   ------------
<S>                                                <C>              <C>            <C>            <C>            <C>
NET EFFECTIVE RENTS RELATED TO RE-LEASED
  SPACE:
Number of lease transactions (signed leases)                 72             44             56             41             53
Rentable square footage leased                          837,616        582,758        314,549        194,014        482,234
Average per rentable square foot over the lease
  term:
   Base rent                                         $    5.12        $  4.71        $  6.59        $  6.99        $  5.85
   Tenant improvements                                    (0.22)         (0.20)         (0.23)         (0.29)         (0.24)
   Leasing commissions                                    (0.10)         (0.09)         (0.09)         (0.19)         (0.12)
   Rent concessions                                       0.00           0.00           0.00           0.00           0.00
                                                     ----------       --------       --------       --------       --------
   Effective rent                                         4.80           4.42           6.27           6.51           5.50
   Expense stop(1)                                        (0.28)         (0.25)         (0.44)         (0.52)         (0.37)
                                                     ----------       --------       --------       --------       --------
   Equivalent effective net rent                     $    4.52        $  4.17        $  5.83        $  5.99        $  5.13
                                                     ==========       ========       ========       ========       ========
  Average term in years                                       4              3              4              3              3
                                                     ==========       ========       ========       ========       ========
CAPITAL EXPENDITURES RELATED TO RE-LEASED
  SPACE:
TENANT IMPROVEMENTS:
  Total dollars committed under signed leases        $  821,654       $712,108       $248,359       $239,348       $505,367
  Rentable square feet                                  837,616        582,758        314,549        194,014        482,234
                                                     ----------       --------       --------       --------       --------
  Per rentable square foot                           $    0.98        $  1.22        $  0.79        $  1.23        $  1.05
                                                     ==========       ========       ========       ========       ========
LEASING COMMISSIONS:
  Total dollars committed under signed leases        $  315,101       $173,017       $ 99,574       $130,243       $179,484
  Rentable square feet                                  837,616        582,758        314,549        194,014        482,234
                                                     ----------       --------       --------       --------       --------
  Per rentable square foot                           $    0.38        $  0.30        $  0.32        $  0.67        $  0.37
                                                     ==========       ========       ========       ========       ========
Total:
  Total dollars committed under signed leases        $1,136,755       $885,125       $347,933       $369,591       $684,851
  Rentable square feet                                  837,616        582,758        314,549        194,014        482,234
                                                     ----------       --------       --------       --------       --------
  Per rentable square foot                           $    1.36        $  1.52        $  1.11        $  1.90        $  1.42
                                                     ==========       ========       ========       ========       ========
RENTAL RATE TRENDS:
Average final rate with expense pass throughs        $    4.91        $  4.62        $  5.40        $  6.09        $  5.26
Average first year cash rental rate                  $    4.91        $  4.72        $  5.54        $  6.50        $  5.42
                                                     ----------       --------       --------       --------       --------
Percentage increase                                        0.00%          2.16%          2.59%          6.73%          3.04%
                                                     ==========       ========       ========       ========       ========
</TABLE>

----------
(1) "Expense stop" represents operating expenses (generally including taxes,
    utilities, routine building expense and common area maintainance) for
    which we will not be reimbursed by our tenants.


                                       25
<PAGE>


<TABLE>
<CAPTION>
                                                                        RETAIL LEASING STATISTICS
                                                                            THREE MONTHS ENDED
                                                         --------------------------------------------------------
                                                            3/31/99       12/31/98        9/30/98       AVERAGE
                                                         ------------   ------------   ------------   -----------
<S>                                                      <C>            <C>            <C>            <C>
NET EFFECTIVE RENTS RELATED TO RE-LEASED SPACE:
Number of lease transactions (signed leases)                     25             15             11            17
Rentable square footage leased                               62,638         29,706         37,258        43,201
Average per rentable square foot over the lease term:
   Base rent                                               $ 15.37        $ 16.34        $ 13.59       $ 15.10
   Tenant improvements                                       ( 0.45)        ( 1.66)        ( 0.14)       ( 0.75)
   Leasing commissions                                       ( 0.39)        ( 0.76)        ( 0.44)       ( 0.53)
   Rent concessions                                           0.00           0.00           0.00          0.00
                                                           --------       --------       --------      --------
   Effective rent                                            14.53          13.92          13.01         13.82
   Expense stop                                              ( 0.27)        ( 1.79)        ( 0.09)       ( 0.72)
                                                           --------       --------       --------      --------
   Equivalent effective net rent                           $ 14.26        $ 12.13        $ 12.92       $ 13.10
                                                           --------       --------       --------      --------
 Average term in years                                            6              5              6             6
                                                           ========       ========       ========      ========
CAPITAL EXPENDITURES RELATED TO RE-LEASED SPACE:
TENANT IMPROVEMENTS:
 Total dollars committed under signed leases               $248,531       $319,620       $ 21,000      $196,384
 Rentable square feet                                        62,638         29,706         37,258        43,201
                                                           --------       --------       --------      --------
 Per rentable square foot                                  $  3.97        $ 10.76        $  0.56       $  4.55
                                                           ========       ========       ========      ========
LEASING COMMISSIONS:
 Total dollars committed under signed leases               $153,872       $123,047       $ 99,268      $125,396
 Rentable square feet                                        62,638         29,706         37,258        43,201
                                                           --------       --------       --------      --------
 Per rentable square foot                                  $  2.46        $  4.14        $  2.66       $  2.90
                                                           ========       ========       ========      ========
TOTAL:
 Total dollars committed under signed leases               $402,403       $442,667       $120,268      $321,779
 Rentable square feet                                        62,638         29,706         37,258        43,201
                                                           --------       --------       --------      --------
 Per rentable square foot                                  $  6.42        $ 14.90        $  3.23       $  7.45
                                                           ========       ========       ========      ========
RENTAL RATE TRENDS:
Average final rate with expense pass throughs              $ 10.92        $ 15.91        $  8.55       $ 11.79
Average first year cash rental rate                        $ 16.22        $ 18.16        $ 10.53       $ 14.97
                                                           --------       --------       --------      --------
Percentage increase                                           48.53%         14.14%         23.16%        26.94%
                                                           ========       ========       ========      ========
</TABLE>

----------
(1) "Expense stop" represents operating expenses (generally including taxes,
    utilities, routine building expense and common area maintainance) for
    which we will not be reimbursed by our tenants.

(2) The operating partnership did not own any retail property during the
  quarter ended 6/30/98.

                                       26
<PAGE>

     The following tables set forth scheduled lease expirations for executed
leases at our majority owned in-service properties (excluding apartment units)
as of March 31, 1999 assuming no tenant exercises renewal options.


OFFICE PROPERTIES:



<TABLE>
<CAPTION>
                                                                                             AVERAGE
                                                                         ANNUAL RENTS         ANNUAL       PERCENTAGE OF
                                     TOTAL          PERCENTAGE OF            UNDER         RENTAL RATE     LEASED RENTS
       YEAR OF                      RENTABLE    LEASED SQUARE FOOTAGE      EXPIRING         PER SQUARE      REPRESENTED
        LEASE         NUMBER OF   SQUARE FEET       REPRESENTED BY        LEASES (1)         FOOT FOR       BY EXPIRING
     EXPIRATION         LEASES      EXPIRING       EXPIRING LEASES      (IN THOUSANDS)   EXPIRATIONS (1)      LEASES
-------------------- ----------- ------------- ----------------------- ---------------- ----------------- --------------
<S>                  <C>         <C>           <C>                     <C>              <C>               <C>
 Remainder of 1999        955      3,288,450             11.6%             $ 51,652         $  15.71            11.4%
        2000              897      4,098,481             14.4                65,965            16.09            14.6
        2001              850      4,463,076             15.7                71,864            16.10            15.8
        2002              671      4,159,527             14.6                67,013            16.11            14.8
        2003              587      3,978,439             14.0                64,482            16.21            14.3
        2004              209      2,145,807              7.5                33,410            15.57             7.4
        2005               92      1,349,324              4.7                20,673            15.32             4.6
        2006               49      1,267,839              4.5                19,872            15.67             4.4
        2007               31        870,058              3.1                14,321            16.46             3.2
        2008               54      1,707,657              6.0                24,240            14.19             5.4
      Thereafter           55      1,103,252              3.9                18,311            16.60             4.1
                          ---      ---------            -----              --------         --------           -----
  Total of average      4,450     28,431,910            100.0%             $451,803         $  15.89           100.0%
                        =====     ==========            =====              ========         ========           =====
</TABLE>

INDUSTRIAL PROPERTIES:



<TABLE>
<CAPTION>
                                                                                            AVERAGE
                                                                                             ANNUAL       PERCENTAGE OF
                                    TOTAL          PERCENTAGE OF        ANNUAL RENTS      RENTAL RATE     LEASED RENTS
                                   RENTABLE    LEASED SQUARE FOOTAGE   UNDER EXPIRING      PER SQUARE      REPRESENTED
   YEAR OF LEASE     NUMBER OF   SQUARE FEET       REPRESENTED BY        LEASES (1)         FOOT FOR       BY EXPIRING
     EXPIRATION        LEASES      EXPIRING       EXPIRING LEASES      (IN THOUSANDS)   EXPIRATIONS (1)      LEASES
------------------- ----------- ------------- ----------------------- ---------------- ----------------- --------------
<S>                 <C>         <C>           <C>                     <C>              <C>               <C>
Remainder of 1999       203       1,820,161             17.0%              $ 9,150          $  5.03            17.7%
        2000            172       2,157,591             20.1                10,681             4.95            20.6
        2001            159       1,998,739             18.6                 8,986             4.50            17.4
        2002             83       1,267,253             11.8                 5,929             4.68            11.5
        2003             57         772,642              7.2                 4,124             5.34             8.0
        2004             23       1,369,816             12.8                 5,275             3.85            10.2
        2005             11         187,833              1.8                 1,210             6.44             2.3
        2006              5         224,099              2.1                 1,110             4.95             2.1
        2007              4         489,125              4.6                 1,726             3.53             3.3
        2008              8         376,536              3.5                 3,245             8.62             6.3
     Thereafter           3          58,876              0.5                   335             5.69             0.6
                        ---       ---------            -----               -------          -------           -----
 Total or average       728      10,722,671            100.0%              $51,771          $  4.83           100.0%
                        ===      ==========            =====               =======          =======           =====
</TABLE>

----------
(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.

                                       27
<PAGE>

RETAIL PROPERTIES:



<TABLE>
<CAPTION>
                                                                                             AVERAGE
                                                                         ANNUAL RENTS         ANNUAL       PERCENTAGE OF
                                     TOTAL          PERCENTAGE OF            UNDER         RENTAL RATE     LEASED RENTS
       YEAR OF                      RENTABLE    LEASED SQUARE FOOTAGE      EXPIRING         PER SQUARE      REPRESENTED
        LEASE         NUMBER OF   SQUARE FEET       REPRESENTED BY        LEASES (1)         FOOT FOR       BY EXPIRING
     EXPIRATION         LEASES      EXPIRING       EXPIRING LEASES      (IN THOUSANDS)   EXPIRATIONS (1)      LEASES
-------------------- ----------- ------------- ----------------------- ---------------- ----------------- --------------
<S>                  <C>         <C>           <C>                     <C>              <C>               <C>
 Remainder of 1999        87         320,973             15.7%              $ 3,060         $  9.53             12.0%
        2000              72         238,381             11.7                 2,940           12.33             11.5
        2001              61         235,825             11.5                 3,209           13.61             12.5
        2002              41         162,767              8.0                 2,161           13.28              8.4
        2003              47         210,935             10.3                 3,214           15.24             12.6
        2004              19         168,129              8.2                 1,260            7.49              4.9
        2005              13          64,999              3.2                 1,294           19.91              5.1
        2006              12         109,066              5.3                 1,172           10.75              4.6
        2007               8          63,125              3.1                   946           14.99              3.7
        2008              14         105,765              5.2                 2,223           21.02              8.7
      Thereafter          23         366,156             17.8                 4,118           11.25             16.0
                          --         -------            -----               -------         -------            -----
  Total or average       397       2,046,121            100.0%              $25,597         $ 12.51            100.0%
                         ===       =========            =====               =======         =======            =====
</TABLE>

TOTAL:



<TABLE>
<CAPTION>
                                                                                                    PERCENTAGE OF
                                          TOTAL            PERCENTAGE OF          ANNUAL RENTS      LEASED RENTS
                                         RENTABLE      LEASED SQUARE FOOTAGE     UNDER EXPIRING      REPRESENTED
    YEAR OF LEASE        NUMBER OF     SQUARE FEET         REPRESENTED BY          LEASES (1)        BY EXPIRING
      EXPIRATION           LEASES        EXPIRING         EXPIRING LEASES        (IN THOUSANDS)        LEASES
---------------------   -----------   -------------   -----------------------   ----------------   --------------
<S>                     <C>           <C>             <C>                       <C>                <C>
  Remainder of 1999        1,245        5,429,584               13.2%               $ 63,862             12.1%
         2000              1,141        6,494,453               15.8                  79,586             15.0
         2001              1,070        6,697,640               16.2                  84,059             15.9
         2002                795        5,589,547               13.6                  75,103             14.2
         2003                691        4,962,016               12.0                  71,820             13.6
         2004                251        3,683,752                8.9                  39,945              7.5
         2005                116        1,602,156                3.9                  23,177              4.4
         2006                 66        1,601,004                3.9                  22,154              4.2
         2007                 43        1,422,308                3.5                  16,993              3.2
         2008                 76        2,189,958                5.3                  29,708              5.6
      Thereafter              81        1,528,284                3.7                  22,764              4.3
                           -----        ---------              -----                --------            -----
   Total or average        5,575       41,200,702              100.0%               $529,171            100.0%
                           =====       ==========              =====                ========            =====
</TABLE>

----------
(1) Includes operating expense pass throughs and excludes the effect of future
contractual rent increases.


INFLATION

     Historically inflation has not had a significant impact on our operations
because of the relatively low inflation rate in our geographic areas of
operation. Most of the leases require the tenants to pay their pro rata share
of increased incremental operating expenses, including common area maintenance,
real estate taxes and insurance, thereby reducing our exposure to increases in
operating expenses resulting from inflation. In addition, many of the leases
are for terms of less than seven years, which may enable us to replace existing
leases with new leases at a higher base rent if rents on the existing leases
are below the market rate.


                                       28
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     THE EFFECTS OF POTENTIAL CHANGES IN INTEREST RATES AND EQUITY PRICES 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 OR EQUITY MARKETS. 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 RESULTS OF OPERATIONS --
LIQUIDITY AND CAPITAL RESOURCES" FOR A DESCRIPTION OF OUR ACCOUNTING POLICIES
AND OTHER INFORMATION RELATED TO THESE FINANCIAL INSTRUMENTS.


INTEREST RATE RISK

     To meet in part our long-term liquidity requirements, we borrow funds at a
combination of fixed and variable rates. Borrowings under the Revolving Loan
bear interest at variable rates. Our long-term debt, which consists of
long-term financings and the 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. We do not hold
or issue these derivative contracts for trading or speculative purposes.

     CERTAIN VARIABLE RATE DEBT. As of March 31, 1999, the Operating
Partnership had approximately $241.3 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 March 31, 2000, our interest expense would be
increased or decreased approximately $2.4 million. In addition, as of March 31,
1999, we had $80 million of additional variable rate debt outstanding that was
protected by an interest rate collar that effectively keeps the interest rate
within a range of 85 basis points. We do not believe that a 100 basis point
increase or decrease in interest rates would materially affect our interest
expense with respect to this $80 million of debt.

     INTEREST RATE HEDGE CONTRACTS. For a discussion of our interest rate hedge
contracts in effect at March 31, 1999, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- CAPITALIZATION." If interest rates increase by 100 basis
points, the aggregate fair market value of these interest rate hedge contracts
as of March 31, 1999 would increase by approximately $21.1 million. If interest
rates decrease by 100 basis points, the aggregate fair market value of these
interest rate hedge contracts as of March 31, 1999 would decrease by
approximately $23.1 million.

     In addition, we are exposed to certain losses in the event of
nonperformance by the counterparties under the hedge contracts. We expect the
counterparties, which are major financial institutions, to perform fully under
these contracts. However, if the counterparties were to default on their
obligations under the interest rate hedge contracts, we could be required to
pay the full rates on our debt, even if such rates were in excess of the rates
in the contracts.


EQUITY PRICE RISK

     On August 28, 1997, we entered into a purchase agreement with UBS AG,
London Branch ("UB-LB") involving the sale of 1.8 million shares of Common
Stock and a related forward contract providing for certain purchase price
adjustments. The forward contract (as amended) generally provides that if the
market price (defined as the weighted average closing price of the Common Stock
for the period beginning March 31, 1999 and ending when UB-LB has sold all of
the shares issued under the forward contract) is less than a certain amount,
which we refer to as the "Forward Price," we must pay UB-LB the difference
times 1.8 million. (Similarly, if the Market Price of a share of Common Stock
is above the Forward Price, UB-LB must pay us the difference in shares of
Common Stock.)


                                       29
<PAGE>

   On February 28, 1999, the Company and UB-LB amended the forward contract.
     Pursuant to the amendment:

     o UB-LB applied $12.8 million in Company collateral to "buy down" the
     Forward Price by approximately $7.10 (at March 31, 1999, the forward price
     was approximately $25.12);

     o We issued 161,924 shares of Common Stock to UB-LB as an interim
     settlement payment; and

     o UB-LB agreed not to sell any of the shares that we had issued to it
     until not later than March 31, 1999.

     If the weighted average closing price of one share of Common Stock during
the period during which UB-LB sells the shares is 10% lower or higher than on
March 31, 1999, our cost of settling the forward contract would increase or
decrease by approximately $5 million, payable in cash or shares of Common
Stock. The Company has retained the option of repurchasing any of UB-LB's
remaining shares for cash prior to their distribution by UB-LB.


                                       30
<PAGE>

                          PART II -- OTHER INFORMATION

Item 1. Legal Proceedings
      On October 2, 1998, John Flake, a former stockholder of J.C. Nichols,
      filed a putative class action lawsuit on behalf of himself and the other
      former stockholders of J.C. Nichols in the United States District Court
      for the District of Kansas against J.C. Nichols, certain of its former
      officers and directors and the Company. The complaint alleges, among
      other things, that in connection with the merger of J.C. Nichols and the
      Company (1) J.C. Nichols and the named directors and officers of J.C.
      Nichols breached their fiduciary duties to J.C. Nichols' stockholders,
      (2) J.C. Nichols and the named directors and officers of J.C. Nichols
      breached their fiduciary duties to members of the J.C. Nichols Company
      Employee Stock Ownership Trust, (3) all defendants participated in the
      dissemination of a proxy statement containing materially false and
      misleading statements and omissions of material facts in violation of
      Section 14(a) of the Securities Exchange Act of 1934 and (4) the Company
      filed a registration statement with the SEC containing materially false
      and misleading statements and omissions of material facts in violation of
      Sections 11 and 12(2) of the Securities Act of 1933. The plaintiffs seek
      equitable relief and monetary damages. We believe that the defendants
      have meritorious defenses to the Plaintiffs' allegations. We intend to
      vigorously defend this litigation and have filed a motion to dismiss all
      claims asserted against the defendants. Due to the inherent uncertainties
      of the litigation process and the judicial system, we are not able to
      predict the outcome of this litigation. If this litigation is not
      resolved in our favor, it could have a material adverse effect on our
      business, financial condition and results of operations.

Item 2. Changes in Securities and Use of Proceeds
      (c) In connection with the acquisition of real estate, the Operating
          Partnership frequently issues Common Units to sellers of real estate
          in reliance on exemptions from registration under the Securities Act.
          During the quarter ended March 31, 1999, the Operating Partnership
          issued 96,188 Common Units in offerings exempt from the registration
          requirements of the Securities Act. The Operating Partnership
          exercised reasonable care to assure that each of the offerees of
          Common Units during the quarter ended March 31, 1999 were "accredited
          investors" under Rule 501 of the Securities Act and that the
          investors were not purchasing the Common Units with a view to their
          distribution. Specifically, the Operating Partnership relies on the
          exemptions provided by Section 4(2) of the Securities Act or Rule 506
          of the rules promulgated by the Commission under the Securities Act.

Item 3. Defaults Upon Senior Securities -- NA

Item 4. Submission of Matters to a Vote of Security Holders -- NA

Item 5. Other Information -- NA

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits



<TABLE>
<CAPTION>
 EXHIBIT NO.  DESCRIPTION
------------- -------------------------------------------------------------------------------------
<S>           <C>
       10.1   Purchase and Sale Agreement dated March 22, 1999, by and among Highwoods/Florida
              Holdings, L.P. and America's Capital Partners, LLC, as amended by First Amendment to
              Purchase and Sale Agreement Agreement dated April 21, 1999.
       10.2   Purchase and Sale Agreement dated March 22, 1999, by and among Highwoods/Florida
              Holdings, L.P. and America's Capital Partners, LLC, as amended by First Amendment to
              Purchase and Sale Agreement Agreement dated April 21, 1999.
        27    Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K -- None

                                       31
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements 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.


                                        HIGHWOODS REALTY LIMITED PARTNERSHIP


                                        By: Highwoods Properties, Inc., its
                                           general partner
                                           By:


                         /s/          RONALD P. GIBSON
                                      ----------------------------------------
                               RONALD P. GIBSON

                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                         /s/          CARMAN J. LIUZZO
                                      ----------------------------------------
                               CARMAN J. LIUZZO

                            CHIEF FINANCIAL OFFICER
                         (PRINCIPAL ACCOUNTING OFFICER)

Date: May 17, 1999

                                       32