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

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

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

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

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

•	Consolidated Financial Statements;

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

•	Item 4 - Controls and Procedures; and

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

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(1)	Accrued capital expenditures included in accounts payable, accrued expenses and other liabilities at June 30, 2020 and 2019 were $49.1 million and $64.3 million, respectively.

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(1)	Accrued capital expenditures included in accounts payable, accrued expenses and other liabilities at June 30, 2020 and 2019 were $49.1 million and $64.3 million, respectively.

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Description of Business

 

Highwoods Properties, Inc. (the “Company”) is a fully integrated real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). At June 30, 2020, we owned or had an interest in 28.1 million rentable square feet of in-service properties, 1.2 million rentable square feet of office properties under development and approximately 225 acres of development land.

 

The Company is the sole general partner of the Operating Partnership. At June 30, 2020, the Company owned all of the Preferred Units and 103.5 million, or 97.3%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.8 million Common Units. During the six months ended June 30, 2020, the Company issued 118,592 Common Units to acquire real estate assets.

 

Basis of Presentation

 

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The Company’s Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership’s Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. We consolidate joint venture investments, such as interests in partnerships and limited liability companies, when we control the major operating and financial policies of the investment through majority ownership, in our capacity as a general partner or managing member or through some other contractual right. We also consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. At June 30, 2020, we have involvement with, and are the primary beneficiary in, an entity that we concluded to be a variable interest entity (see Note 3). All intercompany transactions and accounts have been eliminated.

 

The unaudited interim consolidated financial statements and accompanying unaudited consolidated financial information, in the opinion of management, contain all adjustments (including normal recurring accruals) necessary for a fair presentation of our financial position, results of operations and cash flows. We have condensed or omitted certain notes and other information from the interim Consolidated Financial Statements presented in this Quarterly Report as permitted by SEC rules and regulations. These Consolidated Financial Statements should be read in conjunction with our 2019 Annual Report on Form 10-K.

 

Use of Estimates

 

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

Insurance

 

We are primarily self-insured for health care claims for participating employees. We have stop-loss coverage to limit our exposure to significant claims on a per claim and annual aggregate basis. We determine our liabilities for claims, including incurred but not reported losses, based on all relevant information, including actuarial estimates of claim liabilities. At June 30, 2020, a reserve of $0.5 million was recorded to cover estimated reported and unreported claims.

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Recently Issued Accounting Standards

 

The Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) that changes certain disclosure requirements for fair value measurements. We adopted the ASU as of January 1, 2020 with no material effect on our Notes to Consolidated Financial Statements.

The FASB issued an ASU that provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The ASU can be applied from March 12, 2020 through December 31, 2022. We are in the process of evaluating this ASU; however, we currently expect to avail ourselves of such optional expedients and exceptions should our modified contracts meet the required criteria.

Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, lessors may provide rent deferrals and other lease concessions to lessees. In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows us, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We have elected the practical expedient and will not apply lease modification accounting on a lease by lease basis where applicable. As a result, $5.0 million of deferred rent is included in accounts receivable on our Consolidated Balance Sheets at June 30, 2020.

2.	Leases

We generally lease our office properties to lessees in exchange for fixed monthly payments that cover rent, property taxes, insurance and certain cost recoveries, primarily common area maintenance. Office properties owned by us that are under lease are primarily located in Atlanta, Charlotte, Nashville, Orlando, Pittsburgh, Raleigh, Richmond and Tampa and are leased to a wide variety of lessees across many industries. Our leases are operating leases and mostly range from three to 10 years. We recognized rental and other revenues related to operating lease payments of $181.1 million and $180.7 million during the three months ended June 30, 2020 and 2019, respectively, and $370.7 million and $350.1 million during the six months ended June 30, 2020 and 2019, respectively. Included in these amounts are variable lease payments of $13.4 million and $16.4 million during the three months ended June 30, 2020 and 2019, respectively, and $29.8 million and $31.9 million during the six months ended June 30, 2020 and 2019, respectively.

 

We and The Bromley Companies formed a joint venture (the “Midtown One joint venture”) to construct Midtown One, a 150,000 square foot, multi-customer office building located in the mixed-use Midtown Tampa project in Tampa’s Westshore submarket. Midtown One has an anticipated total investment of $71.3 million. Construction of Midtown One began in the third quarter of 2019 with a scheduled completion date in the second quarter of 2021. At closing, we agreed to contribute cash of $20.0 million, which has been fully funded, in exchange for an 80.0% interest in the Midtown One joint venture and The Bromley Companies contributed land valued at $5.0 million in exchange for the remaining 20.0% interest. We also committed to provide a $46.3 million interest-only secured construction loan to the Midtown One joint venture that is scheduled to mature on the second anniversary of completion. The loan bears interest at LIBOR plus 250 basis points. As of June 30, 2020, $6.7 million under the loan has been funded.

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We determined that we have a variable interest in the Midtown One joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and an equity holder and The Bromley Companies as an equity holder. The Midtown One joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investment provided by us and The Bromley Companies is not sufficient to finance its planned investments and operations. We, as majority owner and managing member and through our control rights as set forth in the joint venture’s governance documents, were determined to be the primary beneficiary as we have both the power to direct the activities that most significantly affect the entity (primarily lease rates, property operations and capital expenditures) and significant economic exposure through our equity investment and loan commitment. As such, the Midtown One joint venture is consolidated and all intercompany transactions and accounts are eliminated. The following table sets forth the assets and liabilities of the Midtown One joint venture included on our Consolidated Balance Sheets:

	June 30, 2020
Development in-process	$	34,462
Accounts payable, accrued expenses and other liabilities	$	2,377

The assets of the Midtown One joint venture can be used only to settle obligations of the joint venture and its creditors have no recourse to our wholly owned assets.

 

Acquisitions

 

During the second quarter of 2020, we acquired development land in Raleigh for a purchase price, including capitalized acquisition costs, of $2.3 million.

During the first quarter of 2020, we acquired development land in Nashville for a purchase price of $6.2 million, which consisted of the issuance of 118,592 Common Units and capitalized acquisition costs.

Dispositions

During the second quarter of 2020, we sold land in Atlanta for a sale price of $2.8 million and recorded a loss on disposition of property of $0.1 million. During the second quarter of 2020, we also recognized $0.4 million of gain related to the satisfaction of a performance obligation as part of a 2016 land sale.

During the first quarter of 2020, we sold 41 buildings and land in Greensboro and Memphis for an aggregate sale price of $338.4 million (before closing credits to buyer of $3.8 million) and recorded aggregate gains on disposition of property of $153.1 million.

Impairments

During the second quarter of 2020, we recorded an impairment of real estate assets of $1.8 million, which resulted from a change in market-based inputs and our assumptions about the use of the assets.

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The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:

 

	June 30, 2020				December 31, 2019
Assets:
Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets)	$	373,075			$	377,472
Less accumulated amortization	(151,170		)		(146,125		)
	$	221,905			$	231,347
Liabilities (in accounts payable, accrued expenses and other liabilities):
Acquisition-related below market lease liabilities	$	65,039			$	65,971
Less accumulated amortization	(36,164		)		(34,014		)
	$	28,875			$	31,957

 

The following table sets forth amortization of intangible assets and below market lease liabilities:

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization)	$	8,566			$	8,759			$	17,364			$	19,074
Amortization of lease incentives (in rental and other revenues)	$	429			$	460			$	919			$	3,308
Amortization of acquisition-related intangible assets (in rental and other revenues)	$	321			$	343			$	609			$	700
Amortization of acquisition-related intangible assets (in rental property and other expenses)	$	138			$	139			$	277			$	276
Amortization of acquisition-related below market lease liabilities (in rental and other revenues)	$	(1,517	)		$	(1,763	)		$	(3,083	)		$	(3,416	)

The following table sets forth scheduled future amortization of intangible assets and below market lease liabilities:

 

		Amortization of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization)				Amortization of Lease Incentives (in Rental and Other Revenues)				Amortization of Acquisition-Related Intangible Assets (in Rental and Other Revenues)				Amortization of Acquisition-Related Intangible Assets (in Rental Property and Other Expenses)				Amortization of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues)
July 1 through December 31, 2020		$	18,951			$	831			$	529			$	233			$	(2,874	)
2021		33,989				1,415				767				—				(5,013		)
2022		29,787				1,204				601				—				(3,982		)
2023		26,329				1,121				447				—				(3,607		)
2024		23,306				975				373				—				(2,939		)
Thereafter		74,561				4,325				2,161				—				(10,460		)
		$	206,923			$	9,871			$	4,878			$	233			$	(28,875	)
Weighted average remaining amortization periods as of June 30, 2020 (in years)		8.4				9.1				9.5				0.5				8.7

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The following table sets forth our mortgages and notes payable:

 

	June 30, 2020				December 31, 2019
Secured indebtedness	$	94,336			$	95,303
Unsecured indebtedness	2,255,277				2,461,425
Less-unamortized debt issuance costs	(11,951		)		(13,018		)
Total mortgages and notes payable, net	$	2,337,662			$	2,543,710

 

At June 30, 2020, our secured mortgage loan was collateralized by real estate assets with an undepreciated book value of $147.4 million.

 

Our $600.0 million unsecured revolving credit facility is scheduled to mature in January 2022 and includes an accordion feature that allows for an additional $400.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. The interest rate at our current credit ratings is LIBOR plus 100 basis points and the annual facility fee is 20 basis points. There was $14.0 million outstanding under our revolving credit facility at June 30, 2020. There were no amounts outstanding under our revolving credit facility at July 21, 2020. At both June 30, 2020 and July 21, 2020, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility at June 30, 2020 and July 21, 2020 was $585.9 million and $599.9 million, respectively.

 

We are currently in compliance with financial covenants with respect to our consolidated debt.

 

We have considered our short-term liquidity needs within one year from July 28, 2020 (the date of issuance of the quarterly financial statements) and the adequacy of our estimated cash flows from operating activities and other available financing sources to meet these needs. In particular, we have considered our scheduled debt maturities during such one-year period, including the $300.0 million principal amount of unsecured notes due June 15, 2021. We have concluded it is probable we will meet these short-term liquidity requirements through a combination of the following:

 

•	available cash and cash equivalents;

 

•	cash flows from operating activities;

 

•	issuance of debt securities by the Operating Partnership;

 

•	issuance of secured debt;

 

•	bank term loans;

 

•	borrowings under our revolving credit facility;

 

•	issuance of equity securities by the Company or the Operating Partnership; and

•	the disposition of non-core assets.

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7.	Derivative Financial Instruments

The counterparties under our swaps are major financial institutions. The swap agreements contain a provision whereby if we default on certain of our indebtedness and which default results in repayment of such indebtedness being, or becoming capable of being, accelerated by the lender, then we could also be declared in default on our swaps.

Our interest rate swaps have been designated as and are being accounted for as cash flow hedges with changes in fair value recorded in other comprehensive income/(loss) each reporting period. We have no collateral requirements related to our interest rate swaps.

 

Amounts reported in accumulated other comprehensive income/(loss) related to derivatives will be reclassified to interest expense as interest payments are made on our debt. During the period from July 1, 2020 through June 30, 2021, we estimate that $0.5 million will be reclassified as a net increase to interest expense.

The following table sets forth the fair value of our derivatives:

 

	June 30, 2020				December 31, 2019
Derivatives:
Derivatives designated as cash flow hedges in accounts payable, accrued expenses and other liabilities:
Interest rate swaps	$	1,237			$	154

 

The following table sets forth the effect of our cash flow hedges on accumulated other comprehensive income/(loss) and interest expense:

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Derivatives Designated as Cash Flow Hedges:
Amount of unrealized losses recognized in accumulated other comprehensive income/(loss) on derivatives:
Interest rate swaps	$	(103	)		$	(646	)		$	(1,236	)		$	(2,550	)
Amount of (gains)/losses reclassified out of accumulated other comprehensive income/(loss) into interest expense:
Interest rate swaps	$	75			$	(360	)		$	3			$	(875	)

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8.	Noncontrolling Interests

Noncontrolling Interests in Consolidated Affiliates

 

At June 30, 2020, our noncontrolling interests in consolidated affiliates relate to our joint venture partners’ 50.0% interest in office properties in Richmond and 20.0% interest in an office development property in Tampa. Our joint venture partners are unrelated third parties.

Noncontrolling Interests in the Operating Partnership

The following table sets forth the Company’s noncontrolling interests in the Operating Partnership:

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Beginning noncontrolling interests in the Operating Partnership	$	100,674			$	127,976			$	133,216			$	105,960
Adjustment of noncontrolling interests in the Operating Partnership to fair value	5,776				(14,722		)		(36,525		)		8,532
Issuances of Common Units	—				—				6,163				—
Conversions of Common Units to Common Stock	—				(222		)		—				(353		)
Net income attributable to noncontrolling interests in the Operating Partnership	1,017				1,044				5,977				1,237
Distributions to noncontrolling interests in the Operating Partnership	(1,364		)		(1,298		)		(2,728		)		(2,598		)
Total noncontrolling interests in the Operating Partnership	$	106,103			$	112,778			$	106,103			$	112,778

The following table sets forth net income available for common stockholders and transfers from the Company’s noncontrolling interests in the Operating Partnership:

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Net income available for common stockholders	$	37,028			$	39,422			$	222,501			$	46,677
Increase in additional paid in capital from conversions of Common Units to Common Stock	—				222				—				353
Issuances of Common Units	—				—				(6,163		)		—
Change from net income available for common stockholders and transfers from noncontrolling interests	$	37,028			$	39,644			$	216,338			$	47,030

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9.	Disclosure About Fair Value of Financial Instruments

The following summarizes the levels of inputs that we use to measure fair value.

 

Level 1.  Quoted prices in active markets for identical assets or liabilities.

Our Level 1 asset is our investment in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 liability is our non-qualified deferred compensation obligation. The Company’s Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Our Level 2 assets include the fair value of our mortgages and notes receivable. Our Level 2 liabilities include the fair value of our mortgages and notes payable and interest rate swaps.

The fair value of mortgages and notes receivable and mortgages and notes payable is estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of interest rate swaps are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are considered in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Our Level 3 assets include any real estate assets recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which are valued using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or the terms of definitive sales contracts. Significant increases or decreases in any valuation inputs in isolation would result in a significantly lower or higher fair value measurement.

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The following table sets forth our assets and liabilities and the Company’s noncontrolling interests in the Operating Partnership that are measured or disclosed at fair value within the fair value hierarchy:

						Level 1				Level 2				Level 3
		Total				Quoted Prices in Active Markets for Identical Assets or Liabilities				Significant Observable Inputs				Significant Unobservable Inputs
Fair Value at June 30, 2020:
Assets:
Mortgages and notes receivable, at fair value (1)		$	1,440			$	—			$	1,440			$	—
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)		2,111				2,111				—				—
Impaired real estate assets		2,053				—				—				2,053
Total Assets		$	5,604			$	2,111			$	1,440			$	2,053
Noncontrolling Interests in the Operating Partnership		$	106,103			$	106,103			$	—			$	—
Liabilities:
Mortgages and notes payable, net, at fair value (1)		$	2,421,024			$	—			$	2,421,024			$	—
Interest rate swaps (in accounts payable, accrued expenses and other liabilities)		1,237				—				1,237				—
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)		2,111				2,111				—				—
Total Liabilities		$	2,424,372			$	2,111			$	2,422,261			$	—

Fair Value at December 31, 2019:
Assets:
Mortgages and notes receivable, at fair value (1)		$	1,501			$	—			$	1,501			$	—
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets)		2,345				2,345				—				—
Total Assets		$	3,846			$	2,345			$	1,501			$	—
Noncontrolling Interests in the Operating Partnership		$	133,216			$	133,216			$	—			$	—
Liabilities:
Mortgages and notes payable, net, at fair value (1)		$	2,615,776			$	—			$	2,615,776			$	—
Interest rate swaps (in accounts payable, accrued expenses and other liabilities)		154				—				154				—
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities)		2,345				2,345				—				—
Total Liabilities		$	2,618,275			$	2,345			$	2,615,930			$	—

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(1)    Amounts are not recorded at fair value on our Consolidated Balance Sheets at June 30, 2020 and December 31, 2019.

 

The Level 3 impaired real estate assets measured at a fair value of $2.1 million in the second quarter of 2020 include a non-core office building. The impairment resulted from a change in our assumptions about the use of the assets and was calculated using brokers’ opinions of value, letters of intent and comparable sales as observable inputs were not available.

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10.	Share-Based Payments

 

During the six months ended June 30, 2020, the Company granted 83,116 shares of time-based restricted stock and 66,188 shares of total return-based restricted stock with weighted average grant date fair values per share of $44.88 and $38.31, respectively. We recorded share-based compensation expense of $1.2 million and $0.9 million during the three months ended June 30, 2020 and 2019, respectively, and $3.7 million and $5.5 million during the six months ended June 30, 2020 and 2019, respectively. At June 30, 2020, there was $7.7 million of total unrecognized share-based compensation costs, which will be recognized over a weighted average remaining contractual term of 2.2 years.

11.	Accumulated Other Comprehensive Income/(Loss)

 

The following table sets forth the components of accumulated other comprehensive income/(loss):

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Cash flow hedges:
Beginning balance	$	(1,676	)		$	7,494			$	(471	)		$	9,913
Unrealized losses on cash flow hedges	(103		)		(646		)		(1,236		)		(2,550		)
Amortization of cash flow hedges (1)	75				(360		)		3				(875		)
Total accumulated other comprehensive income/(loss)	$	(1,704	)		$	6,488			$	(1,704	)		$	6,488

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(1)    Amounts reclassified out of accumulated other comprehensive income/(loss) into interest expense.

12.	Real Estate and Other Assets Held For Sale

The following table sets forth the assets held for sale at June 30, 2020 and December 31, 2019, which are considered non-core:

 

	June 30, 2020				December 31, 2019
Assets:
Land	$	—			$	4,815
Buildings and tenant improvements	—				29,581
Less-accumulated depreciation	—				(16,775		)
Net real estate assets	—				17,621
Accrued straight-line rents receivable	—				2,073
Deferred leasing costs, net	—				1,096
Real estate and other assets, net, held for sale	$	—			$	20,790

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13.	Earnings Per Share and Per Unit

The following table sets forth the computation of basic and diluted earnings per share of the Company:

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Earnings per Common Share - basic:
Numerator:
Net income	$	38,956			$	41,394			$	230,296			$	49,780
Net (income) attributable to noncontrolling interests in the Operating Partnership	(1,017		)		(1,044		)		(5,977		)		(1,237		)
Net (income) attributable to noncontrolling interests in consolidated affiliates	(289		)		(306		)		(574		)		(622		)
Dividends on Preferred Stock	(622		)		(622		)		(1,244		)		(1,244		)
Net income available for common stockholders	$	37,028			$	39,422			$	222,501			$	46,677
Denominator:
Denominator for basic earnings per Common Share – weighted average shares (1)	103,886				103,693				103,849				103,647
Net income available for common stockholders	$	0.36			$	0.38			$	2.14			$	0.45
Earnings per Common Share - diluted:
Numerator:
Net income	$	38,956			$	41,394			$	230,296			$	49,780
Net (income) attributable to noncontrolling interests in consolidated affiliates	(289		)		(306		)		(574		)		(622		)
Dividends on Preferred Stock	(622		)		(622		)		(1,244		)		(1,244		)
Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership	$	38,045			$	40,466			$	228,478			$	47,914
Denominator:
Denominator for basic earnings per Common Share – weighted average shares (1)	103,886				103,693				103,849				103,647
Add:
Stock options using the treasury method	2				19				13				20
Noncontrolling interests Common Units	2,842				2,733				2,819				2,735
Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions	106,730				106,445				106,681				106,402
Net income available for common stockholders	$	0.36			$	0.38			$	2.14			$	0.45

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(1)	Includes all unvested restricted stock where dividends on such restricted stock are non-forfeitable.

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The following table sets forth the computation of basic and diluted earnings per unit of the Operating Partnership:

 

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Earnings per Common Unit - basic:
Numerator:
Net income	$	38,956			$	41,394			$	230,296			$	49,780
Net (income) attributable to noncontrolling interests in consolidated affiliates	(289		)		(306		)		(574		)		(622		)
Distributions on Preferred Units	(622		)		(622		)		(1,244		)		(1,244		)
Net income available for common unitholders	$	38,045			$	40,466			$	228,478			$	47,914
Denominator:
Denominator for basic earnings per Common Unit – weighted average units (1)	106,319				106,017				106,259				105,973
Net income available for common unitholders	$	0.36			$	0.38			$	2.15			$	0.45
Earnings per Common Unit - diluted:
Numerator:
Net income	$	38,956			$	41,394			$	230,296			$	49,780
Net (income) attributable to noncontrolling interests in consolidated affiliates	(289		)		(306		)		(574		)		(622		)
Distributions on Preferred Units	(622		)		(622		)		(1,244		)		(1,244		)
Net income available for common unitholders	$	38,045			$	40,466			$	228,478			$	47,914
Denominator:
Denominator for basic earnings per Common Unit – weighted average units (1)	106,319				106,017				106,259				105,973
Add:
Stock options using the treasury method	2				19				13				20
Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions	106,321				106,036				106,272				105,993
Net income available for common unitholders	$	0.36			$	0.38			$	2.15			$	0.45

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(1)	Includes all unvested restricted stock where distributions on such restricted stock are non-forfeitable.

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14.	Segment Information

 

The following tables summarize the rental and other revenues and net operating income, the primary industry property-level performance metric used by our chief operating decision maker and which is defined as rental and other revenues less rental property and other expenses, for each of our reportable segments. Our segment information for the three and six months ended June 30, 2019 has been retrospectively revised from previously reported amounts to reflect a change in our reportable segments as a result of recent dispositions.

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Rental and Other Revenues:
Office:
Atlanta	$	36,537			$	37,692			$	74,496			$	73,995
Charlotte	9,010				—				17,943				—
Nashville	34,622				33,109				69,119				64,508
Orlando	12,304				12,995				25,326				26,927
Pittsburgh	14,676				14,994				29,624				30,309
Raleigh	31,202				30,673				63,755				59,770
Richmond	11,834				12,341				24,094				24,627
Tampa	25,358				23,497				50,602				39,068
Total Office Segment	175,543				165,301				354,959				319,204
Other	7,610				18,769				20,994				37,229
Total Rental and Other Revenues	$	183,153			$	184,070			$	375,953			$	356,433

Net Operating Income:
Office:
Atlanta	$	23,901			$	24,819			$	49,084			$	48,242
Charlotte	7,123				—				14,325				—
Nashville	25,132				24,208				49,885				46,526
Orlando	7,750				8,007				15,755				16,563
Pittsburgh	9,350				8,895				18,020				18,029
Raleigh	23,997				22,438				47,633				43,297
Richmond	8,508				8,610				17,199				17,162
Tampa	17,663				14,291				34,196				21,376
Total Office Segment	123,424				111,268				246,097				211,195
Other	4,610				12,244				12,535				24,129
Total Net Operating Income	128,034				123,512				258,632				235,324
Reconciliation to net income:
Depreciation and amortization	(59,461		)		(59,460		)		(120,611		)		(128,664		)
Impairments of real estate assets	(1,778		)		(531		)		(1,778		)		(531		)
General and administrative expenses	(10,084		)		(9,560		)		(21,014		)		(21,941		)
Interest expense	(19,840		)		(20,356		)		(41,117		)		(39,095		)
Other income/(loss)	588				321				657				(3,445		)
Gains on disposition of property	318				6,703				153,385				6,703
Equity in earnings of unconsolidated affiliates	1,179				765				2,142				1,429
Net income	$	38,956			$	41,394			$	230,296			$	49,780

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15.	Contingencies

Since early March 2020, efforts to slow the spread of the COVID-19 virus have had a significant impact on the U.S. economy. We continue to follow the policies described in Notes 1 and 2 to our Consolidated Financial Statements contained in our 2019 Annual Report on Form 10-K, including those related to impairments of real estate assets and investments in unconsolidated affiliates, leases and estimates of credit losses on operating lease receivables. While the results of our current analyses did not result in any material adjustments to amounts as of June 30, 2020 and during the three and six months ended June 30, 2020, circumstances related to the COVID-19 pandemic may result in recording impairments, lease modifications and credit losses in future periods.

16.	Subsequent Events

On July 1, 2020, we sold two buildings in Memphis for an aggregate sale price of $23.3 million and expect to record aggregate gains on disposition of property of $9.3 million.

On July 28, 2020, the Company declared a cash dividend of $0.48 per share of Common Stock, which is payable on September 9, 2020 to stockholders of record as of August 17, 2020.

See also Note 15 for information regarding the potential impact of the COVID-19 pandemic in future periods. The severity and duration of the COVID-19 pandemic and the resulting economic recession and the future demand for office space over the long-term are difficult to predict and could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

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•	the financial condition of our customers could deteriorate or further worsen;

•	our assumptions regarding potential losses related to customer financial difficulties due to the COVID-19 pandemic could prove incorrect;

•	counterparties under our debt instruments, particularly our revolving credit facility, may attempt to avoid their obligations thereunder, which, if successful, would reduce our available liquidity;

•	we may not be able to lease or re-lease second generation space, defined as previously occupied space that becomes available for lease, quickly or on as favorable terms as old leases;

•	we may not be able to lease newly constructed buildings as quickly or on as favorable terms as originally anticipated;

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

•	development activity in our existing markets could result in an excessive supply relative to customer demand;

•	our markets may suffer declines in economic and/or office employment growth;

•	unanticipated increases in interest rates could increase our debt service costs;

•	unanticipated increases in operating expenses could negatively impact our operating results;

•	we may not be able to meet our liquidity requirements or obtain capital on favorable terms to fund our working capital needs and growth initiatives or repay or refinance outstanding debt upon maturity; and

•	the Company could lose key executive officers.

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•	owning high-quality, differentiated office buildings in the BBDs of our core markets;

•	improving the operating results of our properties through concentrated leasing, asset management, cost control and customer service efforts;

•	developing and acquiring office buildings in BBDs that improve the overall quality of our portfolio and generate attractive returns over the long term for our stockholders;

•	disposing of properties no longer considered to be core assets primarily due to location, age, quality and/or overall strategic fit; and

•	maintaining a balance sheet with ample liquidity to meet our funding needs and growth prospects.

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(1)	Weighted average per rentable square foot on an annual basis over the lease term.

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•	cash flow from operating activities;

•	bank term loans and borrowings under our revolving credit facility;

•	the issuance of unsecured debt;

•	the issuance of secured debt;

•	the issuance of equity securities by the Company or the Operating Partnership; and

•	the disposition of non-core assets.

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(1)	Includes deferred lease commissions which are classified in deferred leasing costs on our Consolidated Balance Sheets.

(2)	Recorded on our Consolidated Balance Sheets in land and buildings and tenant improvements, not development in-process.

(3)	We own an 80.0% interest in this consolidated joint venture.

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•	Net income/(loss) computed in accordance with GAAP;

•	Less net income attributable to noncontrolling interests in consolidated affiliates;

•	Plus depreciation and amortization of depreciable operating properties;

•	Less gains, or plus losses, from sales of depreciable operating properties, plus impairments on depreciable operating properties and excluding items that are classified as extraordinary items under GAAP;

•	Plus or minus our share of adjustments, including depreciation and amortization of depreciable operating properties, for unconsolidated joint venture investments (to reflect funds from operations on the same basis); and

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•	Plus or minus adjustments for depreciation and amortization and gains/(losses) on sales of depreciable operating properties, plus impairments on depreciable operating properties, and noncontrolling interests in consolidated affiliates related to discontinued operations.

(1)	Includes assumed conversion of all potentially dilutive Common Stock equivalents.

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•	a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or customer action;

•	the reduced economic activity could severely impact our customers’ businesses, financial condition and liquidity and may cause one or more of our customers to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

•	the reduced economic activity could result in a prolonged and severe recession, which could negatively impact our prospects for leasing additional space and/or renewing leases with existing customers;

•

difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations, including funding our development pipeline, or address maturing liabilities on a timely basis, and may also affect our customers’ ability to fund their business operations and meet their obligations to us;

•

the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our revolving credit facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our revolving credit facility and pay dividends, among other things;

•	weaker economic conditions due to the pandemic could require us to recognize future impairment losses;

•	a deterioration in our or our customers’ ability to operate in affected areas or delays in the supply of products or services to us or our customers from vendors that are needed for our or our customers’ operations could adversely affect our operations and those of our customers;

•	potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, could materially and negatively impact the future demand for office space over the long-term; and

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•	the potential negative impact on the health of our employees, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

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