Investments in and Advances to Affiliates

Unconsolidated Affiliates

We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over their operating and financial policies.

The following table sets forth our ownership in unconsolidated affiliates at December 31, 2013:



Joint Venture	Location of Properties	Ownership Interest
Concourse Center Associates, LLC	Greensboro, NC	50.0%
Plaza Colonnade, LLC	Kansas City, MO	50.0%
Lofts at Weston, LLC	Raleigh, NC	50.0%
Board of Trade Investment Company	Kansas City, MO	49.0%
Highwoods DLF 97/26 DLF 99/32, LP	Orlando, FL	42.9%
Highwoods KC Glenridge Office, LLC	Atlanta, GA	40.0%
Highwoods KC Glenridge Land, LLC	Atlanta, GA	39.9%
Kessinger/Hunter, LLC	Kansas City, MO	26.5%
Highwoods DLF Forum, LLC	Raleigh, NC	25.0%
Highwoods DLF 98/29, LLC	Atlanta, GA; Orlando, FL	22.8%
4600 Madison Associates, LP (1)	Kansas City, MO	12.5%

__________


(1)	During 2013, the Company contributed its 12.5% interest in the 4600 Madison Associates, LP joint venture to the Operating Partnership.

The following table sets forth the combined summarized balance sheets of our unconsolidated affiliates:



	December 31,
	2013		2012
Balance Sheets: (1)
Assets:
Real estate assets, net	$	228,497	$	491,180
All other assets, net	66,196		113,734
Total Assets	$	294,693	$	604,914
Liabilities and Partners’ or Shareholders’ Equity:
Mortgages and notes payable (2)	$	189,432	$	370,393
All other liabilities	11,338		24,507
Partners’ or shareholders’ equity	93,923		210,014
Total Liabilities and Partners’ or Shareholders’ Equity	$	294,693	$	604,914
Our share of historical partners’ or shareholders’ equity	$	29,099	$	63,847
Net excess of cost of investments over the net book value of underlying net assets (3)	802		2,953
Carrying value of investments in and advances to unconsolidated affiliates	$	29,901	$	66,800
Our share of unconsolidated non-recourse mortgage debt (2)	$	64,424	$	137,261

__________

4. Investments in and Advances to Affiliates – Continued


(1)	For the year ended December 31, 2013, as a result of acquiring our joint venture partner's 60.0% interest in 2013, we consolidated a joint venture previously accounted for under the equity method of accounting.


(2)	Our share of scheduled future principal payments, including amortization, due on mortgages and notes payable at December 31, 2013 is as follows:



2014	$	11,011
2015	992
2016	1,062
2017	27,082
2018	19,397
Thereafter	4,880
	$	64,424

All of this joint venture debt is non-recourse to us except in the case of customary exceptions pertaining to such matters as misuse of funds, environmental conditions, material misrepresentations and voluntary or uncontested involuntary bankruptcy events.


(3)	This amount represents the aggregate difference between our historical cost basis and the basis reflected at the joint venture level, which is depreciated over the life of the related asset.

The following table sets forth the summarized income statements of the Company's unconsolidated affiliates:



	Year Ended December 31,
	2013			2012		2011
Income Statements: (1)
Rental and other revenues	$	82,168		$	101,233	$	100,958
Expenses:
Rental property and other expenses	41,284			47,762		44,584
Depreciation and amortization	20,928			25,253		26,430
Impairments of real estate assets	20,077			7,180		—
Interest expense	14,994			20,953		23,762
Total expenses	97,283			101,148		94,776
Income/(loss) before disposition of properties	(15,115		)	85		6,182
Gains on disposition of properties	20,501			11,184		—
Net income	$	5,386		$	11,269	$	6,182
The Company's share of:
Depreciation and amortization	$	6,796		$	7,736	$	8,388
Impairments of real estate assets	$	4,507		$	1,002	$	—
Interest expense	$	5,422		$	7,368	$	8,163
Gains on disposition of properties	$	3,616		$	1,120	$	—
Net income	$	1,099		$	3,304	$	2,429

The Company's share of net income	$	1,099		$	3,304	$	2,429
Adjustments for management and other fees	1,165			1,731		2,449
Equity in earnings of unconsolidated affiliates	$	2,264		$	5,035	$	4,878

__________


(1)	For the year ended December 31, 2013, as a result of acquiring our joint venture partner's 60.0% interest in 2013, we consolidated a joint venture previously accounted for under the equity method of accounting.

4. Investments in and Advances to Affiliates – Continued

The following table sets forth the summarized income statements of the Operating Partnership's unconsolidated affiliates:



	Year Ended December 31,
	2013			2012		2011
Income Statements: (1)
Rental and other revenues	$	79,049		$	97,225	$	96,771
Expenses:
Rental property and other expenses	39,424			45,391		42,052
Depreciation and amortization	19,994			24,007		25,184
Impairments of real estate assets	20,077			7,180		—
Interest expense	14,511			20,296		23,062
Total expenses	94,006			96,874		90,298
Income/(loss) before disposition of properties	(14,957		)	351		6,473
Gains on disposition of properties	20,501			11,184		—
Net income	$	5,544		$	11,535	$	6,473
The Operating Partnership's share of:
Depreciation and amortization	$	6,679		$	7,580	$	8,232
Impairments of real estate assets	$	4,507		$	1,002	$	—
Interest expense	$	5,362		$	7,286	$	8,075
Gains on disposition of properties	$	3,616		$	1,120	$	—
Net income	$	1,119		$	3,337	$	2,585

The Operating Partnership's share of net income	$	1,119		$	3,337	$	2,585
Adjustments for management and other fees	1,094			1,758		2,354
Equity in earnings of unconsolidated affiliates	$	2,213		$	5,095	$	4,939

__________


(1)	For the year ended December 31, 2013, as a result of acquiring our joint venture partner's 60.0% interest in 2013, we consolidated a joint venture previously accounted for under the equity method of accounting.

4. Investments in and Advances to Affiliates – Continued

The following summarizes additional information related to certain of our unconsolidated affiliates:

- HIW-KC Orlando, LLC

See Note 2 for a description of our acquisition of our partner's 60.0% equity interest in this joint venture during 2013.

- Lofts at Weston, LLC ("Weston Lofts")

During 2011, we and Ravin Partners, LLC (“Ravin”) formed Weston Lofts, in which we have a 50.0% ownership interest. We contributed 15.0 acres of land at an agreed upon value of $2.4 million to this joint venture, and Ravin contributed $1.2 million in cash and agreed to guarantee the joint venture's development loan. The joint venture then distributed $1.2 million to us and we recorded a gain of $0.3 million on this transaction. Ravin manages and operates this joint venture, which constructed 215 residential units at a total cost of $25.9 million. Ravin was the developer, manager and leasing agent and received customary fees from the joint venture. During 2013, Weston Lofts sold the 215 residential units to an unrelated third party for gross proceeds of $38.3 million and recorded a gain of $12.2 million. As a result, we received aggregate net distributions of $9.4 million and recorded our share of the gain of $3.2 million, which is net of $1.7 million in taxes incurred by our taxable REIT subsidiary, in equity in earnings of unconsolidated affiliates. Our share of the gain was less than 50.0% due to Ravin's preferred return as the developer.

- Highwoods DLF 97/26 DLF 99/32, LP (“DLF II”)

See Note 2 for a description of our acquisition of two office properties in Atlanta, GA from DLF II during 2013.

During 2013, DLF II sold an office property to an unrelated third party for a sale price of $10.1 million (after $0.3 million in closing credits to buyer for free rent) and recorded a gain on disposition of property of less than $0.1 million. As our cost basis was different from the basis reflected at the joint venture level, we recorded $0.4 million of gain through equity in earnings of unconsolidated affiliates.

During 2012, DLF II obtained a $50.0 million, three-year secured mortgage loan from a third party lender, bearing a fixed interest rate of 3.5% on $39.1 million of the loan and a floating interest rate of LIBOR plus 250 basis points on $10.9 million of the loan, which was used by the joint venture to repay a secured loan at maturity to a third party lender. During 2013, this loan was assumed by us in connection with the acquisition discussed in Note 2.

- Kessinger/Hunter, LLC

Kessinger/Hunter, LLC, which is managed by our joint venture partner, provides leasing services, among other things, to certain office properties that we wholly own in Kansas City, MO in exchange for customary fees from us. Kessinger/Hunter, LLC received $0.2 million, $1.1 million and $2.1 million from us for these services in 2013, 2012 and 2011, respectively.

- Highwoods DLF Forum, LLC (“Forum”)

During 2013, Forum obtained a $71.7 million, five-year secured mortgage loan from a third party lender, bearing a floating interest rate of LIBOR plus 190 basis points, which was used by the joint venture to repay a secured loan at maturity to a third party lender. This loan is scheduled to mature in November 2018.

- Highwoods DLF 98/29, LLC (“DLF I”)

At the formation of this joint venture in 1999, our partner contributed excess cash to the venture that was distributed to us under the joint venture agreements. We are required to repay this excess cash to our partner over time, as discussed in Note 9.

During 2013, DLF I sold an office property to an unrelated third party for a sale price of $5.9 million (after $0.1 million in closing credits to buyer for free rent) and recorded a gain on disposition of discontinued operations of less than $0.1 million. We recorded less than $0.1 million as our share of this gain through equity in earnings of unconsolidated affiliates.

4. Investments in and Advances to Affiliates – Continued

During 2013, DLF I recorded impairments of real estate assets of $20.1 million on office properties in Orlando, FL, Atlanta, GA and Charlotte, NC. We recorded $4.5 million as our share of these impairment charges through equity in earnings of unconsolidated affiliates. These impairments were due to a change in the assumed timing of future dispositions and/or leasing assumptions, which reduced the future expected cash flows from the impaired properties.

During 2012, DLF I sold two office properties to third parties for $15.5 million and recorded gains on disposition of property of $4.9 million. We recorded $1.1 million as our proportionate share of these gains through equity in earnings of unconsolidated affiliates.

During 2012, we recorded $1.0 million as our share of impairments of real estate assets on two office properties in DLF I, due to a decline in projected occupancy and a change in the assumed holding period of those assets, which reduced the expected future cash flows from the properties.

During 2011, we provided a $38.3 million interest-only secured loan to DLF I that was initially scheduled to mature in March 2012. During 2012, the outstanding balance of the loan was repaid as a result of our acquisition of an office property from the joint venture and through application of the net proceeds from the joint venture's sale of two office properties to third parties as noted above. We recorded $0.9 million and $1.3 million of interest income from this loan in interest and other income during the years ended December 31, 2012 and 2011, respectively.

- HIW Development B, LLC

During 2011, our joint venture partner exercised its option to acquire our 10.0% equity interest in the HIW Development B, LLC joint venture, which had recently completed construction of a build-to-suit office property in Charlotte, NC. As a result, we received gross proceeds of $4.8 million and recorded a gain on disposition of investment in unconsolidated affiliate related to this merchant build project of $2.3 million.

- Other Activities

We receive development, management and leasing fees for services provided to certain of our joint ventures. These fees are recognized in income to the extent of our respective joint venture partner's interest. During the years ended December 31, 2013, 2012 and 2011, we recognized $2.9 million, $2.4 million and $3.1 million, respectively, of development, management and leasing fees from our unconsolidated joint ventures. At December 31, 2013 and 2012, we had receivables of $0.5 million and $0.9 million, respectively, related to these fees in accounts receivable.

Consolidated Affiliates

The following summarizes our consolidated affiliates:

- Highwoods-Markel Associates, LLC (“Markel”)

We have a 50.0% ownership interest in Markel. We are the manager and leasing agent for Markel's properties, which are located in Richmond, VA in exchange for customary management and leasing fees. We consolidate Markel since we are the general partner and control the major operating and financial policies of the joint venture. As controlling partner, we have an obligation to cause this property-owning entity to distribute proceeds of liquidation to the noncontrolling interest partner in these partially owned properties only if the net proceeds received by the entity from the sale of Markel's assets warrant a distribution as determined by the governing agreement. We estimate the value of noncontrolling interest distributions would have been $33.4 million had the entity been liquidated at December 31, 2013. This estimated settlement value is based on the fair value of the underlying properties which is based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates and costs to operate each property. If the entity's underlying assets are worth less than the underlying liabilities on the date of such liquidation, we would have no obligation to remit any consideration to the noncontrolling interest holder.

4. Investments in and Advances to Affiliates – Continued

- SF-HIW Harborview Plaza, LP (“Harborview”)

We have a 20.0% interest in Harborview. We are the manager and leasing agent for Harborview's property in Tampa, FL and receive customary management and leasing fees. As further described in Note 8, we account for this joint venture as a financing obligation since our partner has the right to put its 80.0% equity interest back to us during the one-year period commencing September 11, 2014.

During 2012, we provided a three-year, $20.8 million interest-only secured loan to Harborview that is scheduled to mature in September 2015, which the joint venture used to repay a secured loan at maturity to a third party lender. This new loan bears interest at LIBOR plus 500 basis points, subject to a LIBOR floor of 0.5%. Because Harborview is a consolidated joint venture, this loan and related interest income and expense are eliminated in consolidatio