<SUBMISSION>
<ACCESSION-NUMBER>0000950168-00-001894
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20000630
<FILING-DATE>20000814
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>HIGHWOODS PROPERTIES INC
<CIK>0000921082
<ASSIGNED-SIC>6798
<IRS-NUMBER>561871668
<STATE-OF-INCORPORATION>MD
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-13100
<FILM-NUMBER>699757
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>3100 SMOKETREE CT
<STREET2>STE 600
<CITY>RALEIGH
<STATE>NC
<ZIP>27604
<PHONE>9198724924
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>3100 SMOKETREE COURT
<STREET2>STE 600
<CITY>RALEIGH
<STATE>NC
<ZIP>27604
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-Q
<TEXT>

================================================================================
                       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 June 30, 2000

                       Commission file number: 001 - 13100

                           Highwoods Properties, Inc.
             (Exact name of registrant as specified in its charter)


                  Maryland                                    56-1871668
       (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                   Identification Number)

                 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
                                             ---   ---

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


     The Company has only one class of common stock, par value $.01 per share,
with 58,751,536 shares outstanding as of August 7, 2000.

================================================================================
<PAGE>
                           HIGHWOODS PROPERTIES, INC.
               QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----

<S>  <C>                                                                                                  <C>
PART I.      FINANCIAL INFORMATION
Item 1.      Financial Statements                                                                         3
             Consolidated Balance Sheets as of  June 30, 2000
             and December 31, 1999                                                                        4
             Consolidated Statements of Income for the Three
             and Six Months Ended June 30, 2000 and 1999                                                  5
             Consolidated Statements of Stockholders' Equity
             for the Six Months Ended June 30, 2000                                                       6
             Consolidated Statements of Cash Flows for the
             Six Months Ended June 30, 2000 and 1999                                                      7
             Notes to Consolidated Financial Statements                                                   9
Item 2.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                                                    11
             Results of Operations                                                                        11
             Liquidity and Capital Resources                                                              13
             Recent Developments                                                                          16
             Possible Environmental Liabilities                                                           17
             Impact of Recently Issued Accounting Standards                                               17
             Compliance with the Americans with Disabilities Act                                          17
             Funds From Operations and Cash Available for Distributions                                   17
             Disclosure Regarding Forward-Looking Statements                                              19
             Property Information                                                                         20
             Inflation                                                                                    28
Item 3.      Quantitative and Qualitative Disclosures About Market Risk                                   29
PART II.     OTHER INFORMATION
Item 1.      Legal Proceedings                                                                            30
Item 2.      Changes in Securities and Use of Proceeds                                                    30
Item 3.      Defaults Upon Senior Securities                                                              30
Item 4.      Submission of Matters to a Vote of Security Holders                                          30
Item 5.      Other Information                                                                            30
Item 6.      Exhibits and Reports on Form 8-K                                                             30
</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 income, statements of stockholders' equity and statements of cash
flows reflect all adjustments (consisting of normal recurring accruals) 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 included herein
and in our 1999 Annual Report on Form 10-K.

                                       3
<PAGE>

                           HIGHWOODS PROPERTIES, INC.

                           Consolidated Balance Sheets
                 (dollars in thousands except per share amounts)


<TABLE>
<CAPTION>
                                                                             June 30,         December 31,
                                                                               2000               1999
                                                                         ----------------- -----------------
                                                                           (Unaudited)
Assets
Real estate assets, at cost:
<S>                                                                       <C>                  <C>
  Land and improvements ...........................................       $   472,811          $ 491,273
  Buildings and tenant improvements................................         2,980,623          3,056,962
  Development in process...........................................            77,216            186,925
  Land held for development........................................           150,145            168,396
  Furniture, fixtures and equipment................................             9,310              7,917
                                                                            ---------          ---------
                                                                            3,690,105          3,911,473
  Less - accumulated depreciation..................................          (268,884)          (238,135)
                                                                            ---------          ---------
  Net real estate assets...........................................         3,421,221          3,673,338
Property held for sale.............................................           142,924             48,960
Cash and cash equivalents..........................................            44,507             34,496
Restricted cash....................................................             8,405              1,842
Accounts receivable, net...........................................            20,018             22,847
Advances to related parties........................................            13,175             15,096
Notes receivable...................................................            43,096             58,241
Accrued straight line rents receivable.............................            41,308             35,951
Investment in unconsolidated affiliates............................            60,827             38,977
Other assets:
  Deferred leasing costs...........................................            78,095             66,783
  Deferred financing costs.........................................            40,211             40,125
  Prepaid expenses and other.......................................            13,509             15,614
                                                                            ---------          ---------
                                                                              131,815            122,522
  Less - accumulated amortization..................................           (43,557)           (36,073)
                                                                            ---------          ---------
     Other assets, net.............................................            88,258             86,449
                                                                            ---------          ---------
Total Assets.......................................................        $3,883,739         $4,016,197
                                                                           ==========         ==========
Liabilities and Stockholders' Equity
Mortgages and notes payable........................................        $1,714,531         $1,766,117
Accounts payable, accrued expenses and other liabilities...........           117,206            111,945
                                                                            ---------          ---------
  Total Liabilities................................................         1,831,737          1,878,062
Minority interest..................................................           235,146            245,665
Stockholders' Equity:
Preferred stock, $.01 par value, 50,000,000 authorized shares; 8 5/8% Series A
  Cumulative Redeemable Preferred Shares (liquidation preference $1,000 per
  share), 125,000 shares issued and
     outstanding at June 30, 2000 and December 31, 1999............           125,000           125,000
  8% Series B Cumulative Redeemable Preferred Shares
  (liquidation preference $25 per share), 6,900,000 shares issued and
     outstanding at June 30, 2000 and December 31, 1999............           172,500            172,500
  8% Series D Cumulative Redeemable Preferred Shares
  (liquidation preference $250 per share), 400,000 shares issued and
     outstanding at June 30, 2000 and December 31, 1999............           100,000            100,000
Common stock, $.01 par value, 200,000,000 authorized shares; issued
    62,191,568 (includes 3,214,200 shares in treasury) and 62,068,613
   (includes 1,150,000 shares in treasury) at June 30, 2000 and
    December 31, 1999, respectively................................               621                621
Additional paid-in capital.........................................         1,600,079          1,597,494
Distributions in excess of net earnings............................          (107,601)           (77,670)
Less Treasury stock at cost, 3,214,200 shares at June 30, 2000 and
  1,150,000 shares at December 31, 1999............................           (71,601)           (25,475)
Deferred compensation - restricted stock                                       (2,142)                --
                                                                            ---------          ---------
  Total Stockholders' Equity.......................................         1,816,856          1,892,470
                                                                            ---------          ---------
         Total Liabilities and Stockholders' Equity                        $3,883,739         $4,016,197
                                                                           ==========         ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
                           HIGHWOODS PROPERTIES, INC.

                        Consolidated Statements of Income

              (Unaudited and in thousands except per share amounts)


<TABLE>
<CAPTION>
                                                               Three Months Ended                     Six Months Ended
                                                                    June 30,                              June 30,
                                                           ---------------------------          -----------------------------
                                                               2000             1999                 2000            1999
                                                           -----------     -----------          -------------   -------------

Revenue:
<S>                                                         <C>               <C>                  <C>              <C>
  Rental property.................................      $    137,719       $   142,079          $   273,620        $ 288,800
  Equity in earnings of unconsolidated affiliates.               944               490                1,887              687
  Interest and other income.......................             6,458             5,273               10,773           10,560
                                                         -----------       -----------           ----------      -----------
      Total Revenue                                          145,121           147,842              286,280          300,047

Operating expenses:
  Rental property.................................            41,427            43,761               80,888           89,106
  Depreciation and amortization...................            29,362            27,705               57,690           55,861
  Interest expense:
     Contractual..................................            27,775            29,717               54,822           61,559
     Amortization of deferred financing costs.....               577               734                1,298            1,512
                                                        ------------      ------------          -----------       ----------
                                                              28,352            30,451               56,120           63,071
  General and administrative......................             5,443             6,212               10,539           12,005
                                                        ------------      ------------          -----------       ----------
     Income before (loss)/gain on disposition of
     assets, net of income tax provision, minority
     interest and extraordinary item..............            40,537            39,713               81,043           80,004
  (Loss)/Gain on disposition of assets, net of
     income tax provision.........................           (26,062)            1,524              (19,116)           2,093
                                                        ------------      ------------          -----------       ----------
     Income before minority interest and
     extraordinary item...........................            14,475            41,237               61,927           82,097

Minority interest.................................            (1,822)           (4,879)              (7,842)         (10,705)
                                                        ------------      ------------          -----------       ----------
  Income before extraordinary item................            12,653            36,358               54,085           71,392

Extraordinary item - loss on early
  extinguishment of debt..........................              (839)             (777)              (1,034)            (777)
                                                        ------------      ------------          -----------       ----------
  Net income......................................            11,814            35,581               53,051           70,615

Dividends on preferred stock......................            (8,145)           (8,145)             (16,290)         (16,290)
                                                        ------------      ------------          -----------       ----------
Net income available for common shareholders......      $      3,669       $    27,436          $    36,761        $  54,325
                                                        ============       ===========          ===========       ===========
Net income per common share - basic:
  Income before extraordinary item................      $       0.08       $      0.46          $      0.63        $    0.90
  Extraordinary item - loss on early
     extinguishment of debt.......................             (0.01)            (0.01)               (0.01)           (0.01)
                                                        ------------      ------------          -----------       ----------
  Net income......................................      $       0.07       $      0.45          $      0.62        $    0.89
                                                        ============      ============          ===========      ============
  Weighted average shares outstanding - basic.....            59,293            61,529               59,850           60,930
                                                        ============       ===========          ===========       ===========
Net income per common share - diluted:
  Income before extraordinary item................      $       0.08       $      0.46          $      0.63        $    0.90
  Extraordinary item - loss on early extinguishment
     of debt......................................             (0.01)            (0.01)               (0.01)           (0.01)
                                                        ------------      ------------          -----------       ----------
  Net income......................................      $       0.07       $      0.45          $      0.62        $    0.89
                                                        ============       ===========          ===========       ===========
  Weighted average shares outstanding - diluted...            59,608            61,722               60,055           60,954
                                                        ============       ===========          ===========       ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                           HIGHWOODS PROPERTIES, INC.

                 Consolidated Statements of Stockholders' Equity

                     For the Six Months Ended June 30, 2000

                          (Unaudited and in thousands)

<TABLE>
<CAPTION>
                                                                                                                        Retained
                                                                                                                        Earnings
                   Number of                                                            Additional                 (Distributions in
                    Common      Common     Series A   Series B   Series D   Treasury      Paid-In      Deferred       excess of Net
                    Shares       Stock    Preferred  Preferred   Preferred    Stock      Capital     Compensation      Earnings)
                  ----------  ---------  ----------  ---------   --------- ----------   -----------  ------------  -----------------
<S>               <C>             <C>     <C>         <C>         <C>       <C>         <C>           <C>               <C>
Balance at
December 31,
1999..........    60,918,613      $621    $125,000    $172,500    $100,000  $(25,475)   $1,597,494    $        --       $   (77,670)

Issuance of
Common
Stock..               41,804        --          --          --          --        --           707             --                --

Common
Stock
Dividends.....            --        --          --          --          --        --            --             --           (66,692)

Preferred
Stock
Dividends....             --        --          --          --          --        --            --             --           (16,290)

Issuance of
restricted
stock.........        81,151        --          --          --          --        --         1,878         (2,369)               --

Amortization
of deferred
compensation              --        --          --          --          --        --            --            227                --

Purchase of
Treasury
Stock.........    (2,064,200)       --          --          --          --   (46,126)           --             --                --

Net Income....            --        --          --          --          --        --        53,051             --            53,051
                  ----------      ----    --------    --------    --------  --------     ---------        -------         ----------
Balance at
June 30, 2000.    58,977,368      $621    $125,000    $172,500    $100,000  $(71,601)   $1,600,079        $(2,142)       $ (107,601)
                  ==========      ====    ========    ========    ========  ========     =========        =======         ==========

<CAPTION>
                         Total
                         -----
<S>                   <C>
Balance at
December 31,
1999..........        $1,892,470

Issuance of
Common
Stock..                      707

Common
Stock
Dividends.....           (66,692)

Preferred
Stock
Dividends....            (16,290)

Issuance of
restricted
stock.........              (491)

Amortization
of deferred
compensation                 227

Purchase of
Treasury
Stock.........           (46,126)

Net Income....            53,051
                      ----------
Balance at
June 30, 2000.        $1,816,856
                      ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                           HIGHWOODS PROPERTIES, INC.
                      Consolidated Statements of Cash Flows
                          (unaudited and in thousands)


<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                          June 30,
                                                                                ----------------------------
                                                                                   2000               1999
                                                                                ----------         ---------

Operating activities:
<S>                                                                            <C>             <C>
Net income............................................................         $  53,051          $  70,615
Adjustments to reconcile net income to net cash provided by operating
   activities:

Depreciation and amortization.........................................            57,690             55,861
Minority interest.....................................................             7,842             10,705
Loss/(Gain) on disposition of assets.................................             19,116             (2,093)
Amortization of deferred compensation.................................               227                 --
Changes in operating assets and liabilities...........................            (3,382)           (39,559)
                                                                               ---------          ---------
   Net cash provided by operating activities..........................           134,544             95,529
                                                                               ---------          ---------
Investing activities:
Additions to real estate assets.......................................          (126,256)          (245,342)
Cash paid in exchange for partnership net assets......................                --               (847)
Proceeds from disposition of real estate assets.......................           216,443            502,737
Advances to and repayments from subsidiaries .........................             1,921             (3,831)
Other ................................................................           (16,360)           (21,666)
                                                                               ---------          ---------
   Net cash provided by investing activities .........................            75,748            231,051
                                                                               ---------          ---------

Financing activities:
Distributions paid on common stock and common units...................           (76,241)           (76,147)
Dividends paid on preferred stock.....................................           (16,290)           (16,290)
Borrowings on mortgages and notes payable.............................            72,442              4,385
Repayments on mortgages and notes payable.............................           (89,028)           (22,700)
Borrowings on revolving loans.........................................           279,500            210,500
Repayments on revolving loans.........................................          (314,500)          (362,500)
Net proceeds from the sale of common stock............................               707             14,002
Net payment of deferred financing costs...............................               (86)            (4,494)
Purchase of treasury stock and units..................................           (55,549)                --
Other.................................................................            (1,227)              (777)
                                                                               ---------          ---------
   Net cash used in financing activities..............................          (200,281)          (254,021)
                                                                               ---------          ---------
Net increase in cash and cash equivalents.............................            10,011             72,559
Cash and cash equivalents at beginning of the period..................            34,496             31,445
                                                                               ---------          ---------
Cash and cash equivalents at end of the period........................         $  44,507          $ 104,004
                                                                               =========          =========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................         $  68,306          $  78,057
                                                                               =========          =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                           HIGHWOODS PROPERTIES, INC.

                      Consolidated Statements of Cash Flows

                          (Unaudited and in thousands)

Supplemental disclosure of non-cash investing and financing activities

         The following summarizes (1) the net assets contributed by the holders
of Common Units in the Operating Partnership, (2) the change in net assets
contributed as a result of the reorganization of our Des Moines partnerships and
(3) the net assets acquired subject to mortgage notes payable.


<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                        June 30,
                                                                             --------------------------------
                                                                                 2000                1999
                                                                             -----------          -----------
                                                                             (Unaudited)          (Unaudited)

Assets:
<S>                                                                         <C>                  <C>
Rental property and equipment, net.................................         $    1,356           $  (25,879)
Liabilities:
Mortgages and notes payable .......................................                 --              (52,165)
                                                                          ------------          -----------
     Net assets....................................................         $    1,356           $   26,286
                                                                            ==========           ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       8
<PAGE>

                           HIGHWOODS PROPERTIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2000
                                   (Unaudited)

1.       BASIS OF PRESENTATION

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

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

         The Company has elected and expects to continue to qualify as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended.
Therefore, no provision has been made for income taxes related to REIT taxable
income to be distributed to stockholders. However, during 1999, a provision was
made related to a portion of REIT taxable income that resulted from a gain on
disposition of assets that was not distributed to stockholders at June 30, 1999.

         In June 1998, the Financial Accounting Standards Board ("FASB") 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.
In June 1999, FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the FASB Statement No. 133,
which stipulates the required adoption date to be all fiscal years beginning
after June 15, 2000. In June 2000, FASB issued Statement No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment to
FASB Statement No. 133. Statement No. 133, as amended by Statement No. 138,
requires 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. The fair market value of our derivatives is
discussed in Item 2.

         Minority interest in the Company represents Common Units owned by
various individuals and entities and not the Company in the Operating
Partnership, the entity that owns substantially all of the Company's properties
and through which the Company, as the sole general partner, conducts
substantially all of its operations. Per share information is calculated using
the weighted average number of shares outstanding (including common share
equivalents). In addition, minority interest includes equity of consolidated
real estate partnerships which are owned by various individuals and entities and
not the Company.

2.       SEGMENT INFORMATION

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

         Our 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 total assets for each reportable
segment for the three and six months ended June 30, 2000 and 1999.

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                          Three Months                          Six Months
                                                          Ended June 30,                       Ended June 30,
                                                 ----------------------------         ----------------------------
                                                     2000             1999                2000              1999
                                                 -----------       ----------         -----------        ---------
                                                         (in thousands)                      (in thousands)
Rental Income:
<S>                                                      <C>      <C>                <C>               <C>
Office segment............................      $   112, 032      $   117,045        $    223,449      $   239,660
Industrial segment........................            12,281           12,783              24,028           25,006
Retail segment............................             9,069            8,156              17,473           15,940
Apartment segment.........................             4,337            4,095               8,670            8,194
                                                ------------     ------------        ------------     ------------
   Total Rental Income....................      $    137,719      $   142,079        $    273,620      $   288,800
                                                ============     ============        ============     ============
Net Operating Income:
Office segment............................      $     77,215      $    79,740        $    155,314      $   163,487
Industrial segment........................            10,295           10,645              20,075           20,846
Retail segment............................             6,267            5,561              12,213           10,704
Apartment segment.........................             2,515            2,372               5,130            4,657
                                                ------------     ------------        ------------     ------------
   Total Net Operating Income.............      $     96,292      $    98,318        $    192,732      $   199,694
                                                ------------     ------------        ------------     ------------
Reconciliation to income before minority
   interest and extraordinary item:
Equity in income of unconsolidated affiliates   $        944      $       490        $      1,887      $       687
(Loss)/Gain on disposition of assets, net of
   income tax provision...................           (26,062)           1,524             (19,116)           2,093
Interest and other income.................             6,458            5,273              10,773           10,560
Interest expense..........................           (28,352)         (30,451)            (56,120)         (63,071)
General and administrative expenses.......            (5,443)          (6,212)            (10,539)         (12,005)
Depreciation and amortization.............           (29,362)         (27,705)            (57,690)         (55,861)
                                                ------------     ------------        ------------     ------------
Income before minority interest and
   extraordinary item.....................      $     14,475      $    41,237        $     61,927      $    82,097
                                                ============     ============        ============     ============
Total Assets:
Office segment............................      $  2,872,033      $ 2,950,888        $  2,872,033      $ 2,950,888
Industrial segment........................           410,855          454,023             410,855          454,023
Retail segment............................           287,412          250,534             287,412          250,534
Apartment segment.........................           114,528          119,868             114,528          119,868
Corporate and other.......................           198,911          274,548             198,911          274,548
                                                ------------     ------------        ------------     ------------
    Total Assets..........................      $  3,883,739      $ 4,049,861        $  3,883,739      $ 4,049,861
                                                ============     ============        ============     ============
</TABLE>

3.       DISPOSITION AND JOINT VENTURE ACTIVITY

         On May 9, 2000, we closed a transaction with Dreilander-Fonds 97/26 and
99/32 ("DLF II") pursuant to which we sold or contributed five in-service office
properties encompassing 570,000 rentable square feet and a 246,000-square-foot
development project valued at approximately $117.0 million to a newly created
limited partnership (the "DLF II Joint Venture"). DLF II contributed $24.0
million in cash for a 40.0% ownership interest in the DLF II Joint Venture and
the DLF II Joint Venture borrowed approximately $60.0 million from third-party
lenders. We retained the remaining 60.0% interest in the DLF II Joint Venture,
received net cash proceeds of approximately $74.0 million and are the sole and
exclusive manager and leasing agent of the DLF II Joint Venture's properties,
for which we receive customary management fees and leasing commissions. It is
anticipated that DLF II will exercise its option to contribute up to an
additional $24.0 million in cash to the DLF II Joint Venture before the end of
2000 to increase its ownership percentage to 80.0%. We have adopted the equity
method of accounting for this joint venture.

         In addition to the properties sold or contributed to the DLF II Joint
Venture, during the six months ended June 30, 2000, we sold approximately 2.5
million rentable square feet of non-core office and industrial properties and
89.0 acres of development land for gross proceeds of $153.9 million. We recorded
a gain of $3.9 million related to these dispositions. Included in these sales
were certain properties encompassing 887,000 square feet sold to an entity
majority-owned by a related party for a selling price of $69.0 million. Non-core
office and industrial properties generally include single buildings or business
parks that do not fit our long-term strategy. Since June 30, 2000, an additional
1.7 million square feet of non-core office and industrial properties, which are
included in property held for sale in the Consolidated Balance Sheet at June 30,
2000, have been sold for gross proceeds of $137.2 million. Included in these
sales were certain properties encompassing 1.1 million square feet sold to an
entity majority-owned by a related party for a selling price of $100.0 million.
At June 30, 2000, the carrying value of the assets held

                                       10
<PAGE>

for sale was reduced to fair value based on the selling price less costs to
sell. The resulting adjustment of $23.0 million to reduce the assets held for
sale to fair value was recorded, and is included in the (loss)/gain on
disposition of assets, net of income tax provision, in the Consolidated Income
Statement.

         On August 9, 2000, we agreed to form two joint ventures with an
institutional investor. First, we expect to sell or contribute 20 in-service
office properties encompassing 2.6 million rentable square feet valued at
approximately $352.0 million to a newly created limited liability company. As
part of the formation of this first joint venture, the institutional investor
will contribute approximately $85.0 million in cash for an 80.0% ownership
interest and the joint venture will borrow approximately $250.0 million from
third-party lenders. We will retain the remaining 20.0% ownership interest and
receive net cash proceeds of approximately $300.0 million. Second, we expect to
develop nine additional properties encompassing 861,000 rentable square feet
with a budgeted cost of approximately $110.0 million (including approximately
$15.0 million of development land that we currently own) to a second newly
created limited liability company. We will each own 50.0% of this second joint
venture. In addition, we will be the sole and exclusive manager and leasing
agent for the properties in both joint ventures, for which we will receive
customary management fees and leasing commissions. We will be adopting the
equity method of accounting in both joint ventures. These transactions are
subject to customary closing conditions, including the completion of due
diligence, the execution of other definitive agreements and the ability to
obtain satisfactory financing, and are expected to close before the end of 2000.
However, we cannot assure you that these transactions will be consummated or
that they will be consummated on the terms described in this quarterly report.

4.       LEGAL CONTINGENCIES

         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 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 plaintiff seeks equitable relief and monetary
damages. We believe that the defendants have meritorious defenses to the
plaintiff's allegations and intend to vigorously defend this litigation. By
order dated June 18, 1999, the court granted in part and denied in part our
motion to dismiss. The court has granted the plaintiff's motion seeking
certification of the proposed class of plaintiffs with respect to the remaining
claims. Discovery in this matter has now been completed, and we are seeking
summary judgment and dismissal of all claims asserted by the plaintiff.
Plaintiff John Flake passed away on or about April 2, 2000, and plaintiff's
counsel has substituted his estate as the representative plaintiff in this
action. Due to the inherent uncertainties of the litigation process and the
judicial system, we are not able to predict the outcome of this litigation. At
this time, we do not expect the result of this litigation to have a material
adverse effect on our business, financial condition and results of operations.

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 and is based primarily on
the consolidated financial statements of the Company.

Results of Operations

         Three Months Ended June 30, 2000. Revenues from rental operations
decreased $4.4 million, or 3.1%, from $142.1 million for the three months ended
June 30, 1999 to $137.7 million for the comparable period in 2000. The decrease
is primarily a result of the disposition of 6.4 million square feet of majority-
owned office, industrial and retail properties offset in part by the acquisition
of 0.8 million square feet of majority-owned office, industrial and retail
properties and the completion of 3.8 million square feet of development activity
during the last six months of 1999 and the first six months of 2000. Our
in-service portfolio decreased from 40.0 million square feet at June 30, 1999 to
38.5 million square feet at June 30,

                                       11
<PAGE>

2000. Same property revenues, which are the revenues of the 473 in-service
properties and 1,885 apartment units owned on April 1, 1999, increased 2.8% for
the three months ended June 30, 2000, compared to the same three months in 1999.

         During the three months ended June 30, 2000, 240 leases representing
1.1 million square feet of office, industrial and retail space were executed at
an average rate per square foot which was 6.4% higher than the average rate per
square foot on the expired leases.

         Interest and other income increased $1.2 million, or 22.6%, from $5.3
million for the three months ended June 30, 1999 to $6.5 million for the
comparable period in 2000. The increase was a result of an increase in interest
income related to a $30.0 million note receivable that was recorded as a result
of certain property dispositions in June, 1999 and an increase in cash balances
and termination fees from 1999 to 2000. For the three months ended June 30,
2000, the Company generated $260,788 in auxiliary income (vending and parking)
as a result of acquiring multifamily communities in the merger with J.C. Nichols
in 1998.

         Rental operating expenses decreased $2.4 million, or 5.5%, from $43.8
million for the three months ended June 30, 1999 to $41.4 million for the
comparable period in 2000. The decrease is primarily a result of the disposition
of 6.4 million square feet of majority owned office, industrial and retail
properties offset in part by the acquisition of 0.8 million square feet of
majority owned office, industrial and retail properties and the completion of
3.8 million square feet of development activity during the last six months of
1999 and the first six months of 2000. Rental operating expenses as a percentage
of related revenues decreased from 31.2% for the three months ended June 30,
1999 to 30.1% for the comparable period in 2000.

         Depreciation and amortization for the three months ended June 30, 2000
and 1999 totaled $29.4 million and $27.7 million, respectively. The increase of
$1.7 million, or 6.1%, is due to an increase in depreciable assets over the
prior year. Interest expense decreased $2.1 million, or 6.9%, from $30.5 million
for the three months ended June 30, 1999 to $28.4 million for the comparable
period in 2000. The decrease is attributable to a decrease in the outstanding
debt for the entire quarter of 2000. Interest expense for the three months ended
June 30, 2000 and 1999 included $577,000 and $734,000 respectively, of
amortization of deferred financing costs and the costs related to our interest
rate hedge contracts. General and administrative expenses was 3.8% of total
revenue for the three months ended June 30, 2000 and 4.2% for the comparable
period in 1999.

         Net income before minority interest and extraordinary item equaled
$14.5 million and $41.2 million for the three months ended June 30, 2000 and
1999, respectively. The Company's net income allocated to minority interest
totaled $1.8 million and $4.9 million for the three months ended June 30, 2000
and 1999, respectively. The Company recorded $8.1 million in preferred stock
dividends for the three months ended June 30, 2000 and 1999.

         Six Months Ended June 30, 2000. Revenues from rental operations
decreased $15.2 million, or 5.3%, from $288.8 million for the six months ended
June 30, 1999 to $273.6 million for the comparable period in 2000. The decrease
is primarily a result of the disposition of 6.4 million square feet of
majority-owned office, industrial and retail properties, offset in part by the
acquisition of 0.8 million square feet of majority-owned office, industrial and
retail properties and the completion of 3.8 million square feet of development
activity during the last six months of 1999 and the first six months of 2000.
Our in-service portfolio decreased from 40.0 million square feet at June 30,
1999 to 38.5 million square feet at June 30, 2000. Same property revenues, which
are the revenues of the 470 in-service properties owned on January 1, 1999,
increased 3.2% for the six months ended June 30, 2000, compared to the same six
months in 1999.

         During the six months ended June 30, 2000, 517 leases representing 3.3
million square feet of office, industrial and retail space were executed at an
average rate per square foot which was 6.6% higher than the average rate per
square foot on the expired leases.

         Interest and other income increased $0.2 million, or 1.9%, from $10.6
million for the six months ended June 30, 1999 to $10.8 million for the
comparable period in 2000. The increase was a result of an increase in interest
income related to a $30.0 million note receivable that was recorded as a result
of certain property dispositions in June, 1999 and an increase in cash balances
and termination fees from 1999 to 2000. For the six months ended June 30, 2000,
the Company generated $481,983 in auxiliary income

                                       12
<PAGE>

(vending and parking) as a result of acquiring multifamily communities in the
merger with J.C. Nichols in 1998.

         Rental operating expenses decreased $8.2 million, or 9.2%, from $89.1
million for the six months ended June 30, 1999 to $80.9 million for the
comparable period in 2000. The decrease is primarily a result of the disposition
of 6.4 million square feet of majority-owned office, industrial and retail
properties, offset in part by the acquisition of 0.8 million square feet of
majority-owned office, industrial and retail properties and the completion of
3.8 million square feet of development activity during the last six months of
1999 and the first six months of 2000. Rental operating expenses as a percentage
of related revenues decreased from 30.9% for the six months ended June 30, 1999
to 29.6% for the comparable period in 2000.

         Depreciation and amortization for the six months ended June 30, 2000
and 1999 totaled $57.7 million and $55.9 million, respectively. The increase of
$1.8 million, or 3.2%, is due to an increase in depreciable assets over the
prior year. Interest expense decreased $7.0 million, or 11.1%, from $63.1
million for the six months ended June 30, 1999 to $56.1 million for the
comparable period in 2000. The decrease is attributable to the decrease in the
outstanding debt for the entire six months of 2000. Interest expense for the six
months ended June 30, 2000 and 1999 included $1.3 million and $1.5 million,
respectively, of amortization of deferred financing costs and the costs related
to our interest rate hedge contracts. General and administrative expenses
decreased as a percentage of total revenues to 3.7% in 2000 from 4.0% in 1999.

         Net income before minority interest and extraordinary item equaled
$61.9 million and $82.1 million for the six months ended June 30, 2000 and 1999,
respectively. The Company's net income allocated to minority interest totaled
$7.8 million and $10.7 million for the six months ended June 30, 2000 and 1999,
respectively. The Company recorded $16.3 million in preferred stock dividends
for the six months ended June 30, 2000 and 1999.

Liquidity and Capital Resources

         Statement of Cash Flows. For the six months ended June 30, 2000, cash
provided by operating activities increased by $39.0 million, or 40.8%, to $134.5
million, as compared to $95.5 million for the same period in 1999. The increase
is due to (1) the collection of a $30.0 million note receivable and (2) the
accrual of an $18.0 million liability related to the DLF II Joint Venture during
the six months ended June 30, 2000. Cash provided by investing activities was
$75.7 million for the first six months of 2000, as compared to $231.1 million
for the same period in 1999. The decrease is primarily due to the decline in
disposition activity, offset in part by the decline in acquisition activity
during the six months ended June 30, 2000, as compared to the same period in
1999. Cash used in financing activities was $200.3 million for the six months
ended June 30, 2000, as compared to $254.0 million for the same period in 1999.
The decrease is primarily due to the increase in borrowings on mortgages and
notes payable and under the revolving loan from 1999 to 2000, offset in part by
the decrease in net proceeds from the sale of Common Stock and the repurchase of
Common Stock and Common Units in 2000. Payments of distributions remained
constant at $76.2 million for the first six months of 2000 and 1999. Preferred
stock dividend payments were $16.3 million for the six months ended June 30,
2000 and 1999.

         Capitalization. The Company's total indebtedness at June 30, 2000
totaled $1.7 billion and was comprised of $568.9 million of secured indebtedness
with a weighted average interest rate of 7.9% and $1.1 billion of unsecured
indebtedness with a weighted average interest rate of 7.4%. Except as stated
below, all of the mortgage and notes payable outstanding at June 30, 2000 were
either fixed rate obligations or variable rate obligations covered by interest
rate hedge contracts. A portion of our $450.0 million unsecured revolving loan
(the "Revolving Loan") and approximately $37.8 million of floating rate notes
payable assumed upon consummation of the merger with J.C. Nichols were not
covered by interest rate hedge contracts on June 30, 2000.

         Based on the Company's total market capitalization of $3.7 billion at
June 30, 2000 (at the June 30, 2000 stock price of $23.98 and assuming the
redemption for shares of Common Stock of the 8.7 million Common Units of
minority interest in the Operating Partnership), the Company's debt represented
approximately 45.9% of its total market capitalization.

         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

                                       13
<PAGE>

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 June 30, 2000:

<TABLE>
<CAPTION>
                      Notional         Maturity                                        Fixed          Fair Market
  Type of Hedge        Amount            Date           Reference Rate                 Rate              Value
  -------------       --------         --------         ---------------              --------        ------------
<S>                    <C>              <C>                 <C>                          <C>             <C>
Swap                   $20,117          6/10/02        1-Month LIBOR + 0.75%             6.95%           $234
Collar                  80,000         10/15/01        1-Month LIBOR              5.60 - 6.25%            556
</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 $122.3 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 $243.5
            million was available as of June 30, 2000);
         o  the issuance of secured debt;
         o  the selective disposition of non-core assets; and
         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.

         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.

                                       14
<PAGE>

         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

         Stock Repurchase. From January 1, 2000 to August 14, 2000, the Company
repurchased 3.5 million shares of Common Stock and Common Units at a weighted
average price of $23.50 per share/unit, a total purchase price of $82.6 million.

         Disposition and Joint Venture Activity. On May 9, 2000, we closed a
transaction with Dreilander-Fonds 97/26 and 99/32 ("DLF II") pursuant to which
we sold or contributed five in-service office properties encompassing 570,000
rentable square feet and a 246,000-square-foot development project valued at
approximately $117.0 million to a newly created limited partnership (the "DLF II
Joint Venture"). DLF II contributed $24.0 million in cash for a 40.0% ownership
interest in the DLF II Joint Venture and the DLF II Joint Venture borrowed
approximately $60.0 million from third-party lenders. We retained the remaining
60.0% interest in the DLF II Joint Venture, received net cash proceeds of
approximately $74.0 million and are the sole and exclusive manager and leasing
agent of the DLF II Joint Venture's properties, for which we receive customary
management fees and leasing commissions. It is anticipated that DLF II will
exercise its option to contribute up to an additional $24 million in cash to the
DLF II Joint Venture before the end of 2000 to increase its ownership percentage
to 80.0%.

         In addition to the properties sold or contributed to the DLF II Joint
Venture, during the six months ended June 30, 2000, we sold approximately 2.5
million rentable square feet of non-core office and industrial properties and
89.0 acres of development land for gross proceeds of $153.9 million. Non-core
office and industrial properties generally include single buildings or business
parks that do not fit our long-term strategy. Since June 30, 2000, we have sold
an additional 1.7 million square feet of non-core office and industrial
properties for gross proceeds of $137.2 million.

         On August 9, 2000, we agreed to form two joint ventures with an
institutional investor. First, we expect to sell or contribute 20 in-service
office properties encompassing 2.6 million rentable square feet valued at
approximately $352.0 million to a newly created limited liability company. As
part of the formation of this first joint venture, the institutional investor
will contribute approximately $85.0 million in cash for an 80.0% ownership
interest and the joint venture will borrow approximately $250.0 million from
third-party lenders. We will retain the remaining 20.0% ownership interest and
receive net cash proceeds of approximately $300.0 million. Second, we expect to
develop nine additional properties encompassing 861,000 rentable square feet
with a budgeted cost of approximately $110.0 million (including approximately
$15.0 million of development land that we currently own) to a second newly
created limited liability company. We will each own 50.0% of this second joint
venture. In addition, we will be the sole and exclusive manager and leasing
agent for the properties in both joint ventures, for which we will receive
customary management fees and leasing commissions. These transactions are
subject to customary closing conditions, including the completion of due
diligence, the execution of other definitive agreements and the ability to
obtain satisfactory financing, and are expected to close before the end of 2000.
However, we cannot assure you that these transactions will be consummated or
that they will be consummated on the terms described in this quarterly report.

                                       15
<PAGE>

         We expect to use a portion of the net proceeds from our recent and
pending disposition activity to reinvest in tax-deferred exchange transactions
under Section 1031 of the Internal Revenue Code. As of August 14, 2000, we
expect to reinvest up to $37.0 million of the net proceeds from recent
disposition activity to acquire in tax-deferred exchange transactions in-service
properties, development land and development projects located in core markets
and in sub-markets where we have a strong presence. For an exchange to qualify
for tax-deferred treatment under Section 1031, the net proceeds from the sale of
a property must be held by an escrow agent until applied toward the purchase of
real estate qualifying for gain deferral. Given the competition for properties
meeting our investment criteria, there may be some delay in reinvesting such
proceeds. Delays in reinvesting such proceeds will reduce our income from
operations. In addition, the use of net proceeds from dispositions to fund
development activity, either through direct payments or repayment of borrowings
under our revolving loan, will reduce our income from operations until such
development projects are placed in service.

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 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

                                       16
<PAGE>

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 ("FASB") 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.
In June 1999, FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the FASB Statement No. 133,
which stipulates the required adoption date to be all fiscal years beginning
after June 15, 2000. In June 2000, FASB issued Statement No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133. Statement No. 133, as amended by Statement No. 138,
requires 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. The fair market value of our derivatives is
discussed under "- Liquidity and Capital Resources".

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 equals net income (computed in accordance with GAAP) 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. In October 1999, NAREIT issued an additional
clarification effective as of January 1, 2000 stipulating that FFO should
include both recurring and non-recurring operating results. Consistent with this
clarification, non-recurring items that are not defined as "extraordinary" under
GAAP will be reflected in the calculation of FFO. Gains and losses from the sale
of depreciable operating property will continue to be excluded from the
calculation of FFO.

         Cash available for distribution is defined as FFO reduced by
non-revenue enhancing capital expenditures for building improvements and tenant
improvements and lease commissions related to second generation space.


                                       17
<PAGE>

         FFO and cash available for distribution for the three and six month
periods ended June 30, 2000 and 1999 are summarized in the following table (in
thousands):

<TABLE>
<CAPTION>
                                                                       Three Months Ended           Six Months Ended
                                                                            June 30,                    June 30,
                                                                       --------------------        -------------------
                                                                         2000        1999           2000         1999
                                                                       --------    --------        -------     -------
Funds from operations:
<S>                                                                     <C>         <C>            <C>         <C>
Income before minority interest and extraordinary item.............     $14,475     $41,237        $61,927     $82,097
Add/(Deduct):
   Dividends on preferred stock....................................      (8,145)     (8,145)       (16,290)    (16,290)
   Severance costs and other division closing                                --       1,233             --       1,233
     expenses .....................................................

   Loss/(Gain) on disposition of assets, net of income tax               26,062      (1,524)        19,116      (2,093)
     provision.....................................................
   Depreciation and amortization...................................      29,362      27,705         57,690      55,861
   Depreciation on unconsolidated affiliates.......................         920         745          1,798       1,222
                                                                       --------     -------       -------      -------
     Funds from operations before minority interest................      62,674      61,251        124,241     122,030
Cash available for distribution:
Add/(Deduct):
   Rental income from straight-line rents..........................      (3,995)     (3,524)        (7,795)     (7,509)
   Amortization of deferred financing costs........................         577         734          1,298       1,512
   Non-incremental revenue generating capital
    expenditures (1):
     Building improvements paid....................................      (2,296)     (2,957)        (3,665)     (4,475)
     Second generation tenant improvements paid....................      (5,048)     (4,112)        (9,830)    (10,121)
     Second generation lease commissions paid......................      (3,678)     (4,082)        (6,809)     (7,613)
                                                                       --------     -------       -------      -------
       Cash available for distribution.............................     $48,234     $47,310        $97,440     $93,824
                                                                       ========     =======       ========     =======

Weighted average common shares/common units
   outstanding - basic (2).........................................      68,043      70,445         68,649      70,329
                                                                       ========     =======       ========     =======
Weighted average common shares/common units
   outstanding - diluted (2).......................................      68,358      70,468         68,854      70,360
                                                                       ========     =======       ========     =======

Dividend payout ratios:
   Funds from operations...........................................        60.5%       62.1%          61.5%       62.3%
                                                                       ========     =======       ========     =======
   Cash available for distribution.................................        78.7%       80.4%          78.4%       81.0%
                                                                       ========     =======       ========     =======
</TABLE>

---------------------
(1)  Amounts represent cash expenditures.
(2)  Assumes redemption of Common Units for shares of Common Stock. Minority
     interest Common Unit holders and the stockholders of the Company share
     equally on a per share and per Common Unit basis; therefore, the resultant
     per share information is unaffected by the conversion.

         On July 31, 2000, the Company's Board of Directors declared a dividend
of $0.57 per share for the second quarter ended June 30, 2000 ($2.28 on an
annualized basis) payable on August 23, 2000 to stockholders of record as of
August 10, 2000.

                                       18
<PAGE>

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,
           reinvestment, 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;
         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.

                                       19
<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 June 30, 2000 and 1999:

<TABLE>
<CAPTION>
                                                              Rentable           Percent Leased/
June 30, 2000                                                Square Feet            Pre-Leased
-------------                                                -----------            ----------

In-Service:
<S>                                                           <C>                      <C>
   Office.............................................        26,227,000               94%
   Industrial.........................................        10,607,000               93%
   Retail.............................................         1,660,000               94%
                                                              ----------            ------
     Total or Weighted Average........................        38,494,000               93%
                                                              ==========            ======

Development:
Completed - Not Stabilized
   Office.............................................         1,334,000               75%
   Industrial.........................................           131,000               69%
   Retail.............................................            81,000               89%
                                                              ----------            ------
     Total or Weighted Average........................         1,546,000               75%
                                                              ==========            ======

In Process
   Office.............................................         1,498,000               61%
   Industrial.........................................           395,000               82%
   Retail.............................................              ----              ----
                                                              ----------            ------
     Total or Weighted Average........................         1,893,000               65%
                                                              ==========            ======

Total:
   Office.............................................        29,059,000
   Industrial.........................................        11,133,000
   Retail.............................................         1,741,000
                                                              ----------
     Total or Weighted Average........................        41,933,000
                                                              ==========

June 30, 1999
-------------

In-Service:
   Office.............................................        26,666,000               94%
   Industrial.........................................        11,497,000               90%
   Retail.............................................         1,790,000               91%
                                                              ----------            ------
     Total or Weighted Average........................        39,953,000               93%
                                                              ==========            ======

Development:
Completed - Not Stabilized
   Office.............................................         1,951,000               78%
   Industrial.........................................           476,000               78%
   Retail.............................................           119,000               97%
                                                              ----------            ------
   Total or Weighted Average..........................         2,546,000               79%
                                                              ==========            ======

In Process
   Office.............................................         3,065,000               69%
   Industrial.........................................           472,000               17%
   Retail.............................................            81,000               53%
                                                              ----------            ------
     Total or Weighted Average........................         3,618,000               61%
                                                              ==========            ======

Total:
   Office.............................................        31,682,000
   Industrial.........................................        12,445,000
   Retail.............................................         1,990,000
                                                              ----------
   Total or Weighted Average..........................        46,117,000
                                                              ==========
</TABLE>

                                       20
<PAGE>

         The following table sets forth certain information with respect to our
properties under development as of June 30, 2000 ($ in thousands):


<TABLE>
<CAPTION>
                                          Rentable                                 Pre-Leasing                       Estimated
In-Process                                 Square      Estimated      Cost at      Percentage        Estimated     Stabilization
            Name              Market        Feet         Cost         6/30/00         (1)            Completion          (2)
       --------------         ------     ----------   ----------     ---------   ----------------    ----------   -------------

Office:
<S>                           <C>            <C>         <C>       <C>                <C>               <C>             <C>
Genus                         Orlando        30,000    $   3,307     $  2,282         100%              3Q00            3Q00
Intermedia Building 4         Tampa         211,000       29,773       20,542         100%              3Q00            3Q00
IXL                           Richmond       59,000        7,153        6,685         100%              3Q00            3Q00
ECPI Build-to-suit            Piedmont
                              Triad          30,000        3,020        2,324         100%              4Q00            4Q00
Centre Green One              Research
                              Triangle       97,000       11,246        6,111          94%              3Q00            3Q01
Intermedia Building 5         Tampa         185,000       27,633        3,758         100%              3Q00            3Q01
Deerfield III                 Atlanta        54,000        5,276        1,629          28%              4Q00            3Q01
Highwoods Plaza               Tampa          66,000        7,505        1,992          20%              4Q00            3Q01
380 Park Place                Tampa          82,000        9,675        1,847          47%              1Q01            4Q01
Maplewood                     Research
                              Triangle       36,000        3,901          624         100%              1Q01            1Q02
Highwoods Tower II            Research
                              Triangle      167,000       25,134        6,812          72%              1Q01            2Q02
Cool Springs II               Nashville     205,000       22,718        4,614           0%              2Q01            2Q02
Highwoods Centre @
  Peachtree Corners III       Atlanta        54,000        5,140          952           0%              2Q01            2Q02
North Shore Commons           Richmond      116,000       13,084        1,806          32%              2Q01            3Q02
Stony Point III               Richmond      106,000       11,425          ----         44%              2Q01            3Q02
                                          ---------    ---------     ---------        ----

In-Process Office Total or                1,498,000    $ 185,990     $ 61,978          61%
Weighted Average                          ---------    ---------     ---------        ----

Industrial:
Jones Apparel Expansion
                              Piedmont
                              Triad         209,000    $   6,071     $  2,444         100%              4Q00            4Q00
Holden Road                   Piedmont
                              Triad          64,000        2,014           33          40%              4Q00            2Q01
Tradeport Place III           Atlanta       122,000        4,780        1,500          72%              4Q00            4Q01
                                          ---------    ---------     --------         ----
In-Process Industrial Total
  or Weighted Average                       395,000    $  12,865     $  3,977          82%
                                          ---------    ---------     --------         ----

Total or Weighted Average
  of all In-Process
  Development Projects
                                          1,893,000    $ 198,855     $ 65,955          65%
                                          =========    =========     ========        =====
</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 95.0% occupied or one
    year from the date of completion.

                                       21
<PAGE>

<TABLE>
<CAPTION>
Completed - Not                                    Rentable                              Pre-Leasing                   Estimated
  Stabilized                                        Square       Estimated   Cost at      Percentage    Estimated    Stabilization
     Name                       Market               Feet          Cost      6/30/00         (1)        Completion       (2)
----------------                ------             --------      ---------   -------     -----------    ----------   -------------

Office:
<S>                            <C>                    <C>           <C>         <C>             <C>          <C>           <C>
3737 Glenwood Avenue         Research Triangle      108,000       16,700      17,095          92%          3Q99          3Q00
Deerfield II                 Atlanta                 67,000        6,994       6,809         100%          3Q99          3Q00
Parkway Plaza 14             Charlotte               90,000        7,690       7,276          76%          3Q99          3Q00
Valencia Place               Kansas City            241,000       34,850      32,403          83%          1Q00          4Q00
Lakepoint II                 Tampa                  225,000       30,524      28,829          96%          4Q99          4Q00
Mallard Creek V              Charlotte              118,000       12,262      11,717          49%          4Q99          4Q00
4101 Research Commons        Research Triangle       73,000        9,311       8,771         100%          3Q99          4Q00
Highwoods Centre @
  Peachtree Corners II       Atlanta                109,000        9,238       8,869          60%          3Q99          4Q00
Capital Plaza                Orlando                303,000       53,000      32,054          50%          1Q00          4Q01
                                                  ----------  ----------   ---------       ------         -----         -----
Completed-Not Stabilized
  Office Total or                                 1,334,000     $180,569    $153,823          75%
  Weighted Average                                ----------  ----------   ---------       ------


Industrial:
Newpoint II                  Atlanta                131,000  $     5,167   $   5,300          69%          3Q99          2Q01
                                                  ----------  ----------   ---------       ------
Completed-Not Stabilized
  Industrial Total or                               131,000  $     5,167   $   5,300          69%
  Weighted Average                                ----------  ----------   ---------       ------

Retail:
Valencia Place               Kansas City             81,000  $    16,650   $  13,511          89%          1Q00          4Q00
Completed-Not Stabilized                          ----------  ----------   ---------       ------
  Retail Total or                                    81,000  $    16,650   $  13,511          89%
  Weighted                                        ----------  ----------   ---------       ------
  Average

Total or Weighted
  Average of all                                  ----------  ----------   ---------       ------
  Completed-Not Stabilized                        1,546,000   $  202,386   $ 172,634          75%
  Development Projects                            ----------  ----------   ---------       ------


Total or Weighted Average                          3,439,000   $  401,241   $ 238,589          70%
  Average of all                                   =========   ==========   =========       ======
  Development Projects
</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 95.0% occupied or one
    year from the date of completion.

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                               Rentable
                                                                Square       Estimated         Pre-Leasing
Development Analysis                                             Feet          Costs          Percentage (1)
                                                             -------------- ------------- -------------------
                                                                            (in thousands)
Summary by Estimated Stabilization Date:
<S>                                                            <C>          <C>                     <C>
   Third Quarter 2000..................................        565,000      $   71,617              95%
   Fourth Quarter 2000.................................      1,086,000         121,926              85%
   First Quarter 2001..................................             --              --              --
   Second Quarter 2001.................................        195,000           7,181              59%
   Third Quarter 2001..................................        402,000          51,660              76%
   Fourth Quarter 2001.................................        507,000          67,455              55%
   First Quarter 2002..................................         36,000           3,901             100%
   Second Quarter 2002.................................        426,000          52,992              28%
   Third Quarter 2002..................................        222,000          24,509              38%
                                                               -------          ------              ---
     Total or Weighted Average.........................      3,439,000      $  401,241              70%
                                                             =========      ==========             ====

Summary by Market:
   Atlanta.............................................        537,000      $   36,595              61%
   Charlotte...........................................        208,000          19,952              61%
   Kansas City.........................................        322,000          51,500              85%
   Nashville...........................................        205,000          22,718              --
   Orlando.............................................        333,000          56,307              55%
   Piedmont Triad......................................        303,000          11,105              87%
   Research Triangle...................................        481,000          66,292              87%
   Richmond............................................        281,000          31,662              51%
   Tampa...............................................        769,000         105,110              86%
                                                               -------         -------             ----
     Total or Weighted Average.........................      3,439,000      $  401,241              70%
                                                             =========      ==========             ====


     Build-to-Suit.....................................        724,000          76,957             100%
     Multi-Tenant......................................      2,715,000         324,284              62%
                                                             ---------         -------             ----
     Total or Weighted Average.........................      3,439,000      $  401,241              70%
                                                             =========      ==========             ====

<CAPTION>
                                                              Average
                                                             Rentable        Average           Pre-Leasing
                                                              Square        Estimated        Percentage (1)
                                                               Feet           Costs
                                                             -------------- ------------- -------------------
                                                                            (in thousands)
Per Property Type:
<S>                                                            <C>          <C>                     <C>
   Office..............................................        118,000      $   15,273              67%
   Industrial..........................................        131,500           4,508              78%
   Retail..............................................         81,000          16,650              89%
                                                              --------       ---------             ----
   All.................................................        118,586       $  13,836              70%
                                                              ========       =========             ====
</TABLE>

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

                                       23
<PAGE>

         The following tables set forth certain information about our leasing
activities at our majority-owned in service properties (excluding apartment
units) for the three months ended June 30 and March 31, 2000 and December 31 and
September 30, 1999.

<TABLE>
<CAPTION>
                                                            Office Leasing Statistics
                                                               Three Months Ended
                                     ------------------------------------------------------------------------
                                       6/30/00        3/31/00       12/31/99       9/30/99        Average
                                       -------        -------       --------       -------        -------
<S>                                         <C>            <C>           <C>            <C>           <C>
Net Effective Rents Related to
  Re-Leased Space:
Number of lease transactions
  (signed leases)                           221            207           251            234           228
Rentable square footage leased          990,663        931,686     1,337,611      1,015,789     1,068,937
Average per rentable square foot
  over the lease term:
     Base rent                            18.43     $    17.04    $    17.28     $    14.61    $    16.84
     Tenant improvements                  (1.39)         (1.07)        (0.90)         (0.70)        (1.02)
     Leasing commissions                  (0.57)         (0.40)        (0.36)         (0.38)        (0.43)
     Rent concessions                     (0.05)         (0.04)        (0.04)         (0.03)        (0.04)
                                     ------------   -----------   -----------    -----------   -----------
     Effective rent                       16.42          15.53         15.98          13.50         15.36
     Expense stop (1)                     (5.37)         (5.00)        (5.09)         (3.92)        (4.85)
                                     ------------   -----------   -----------    -----------   -----------
     Equivalent effective net rent   $    11.05     $    10.53    $    10.89     $     9.58    $    10.51
                                     ============   ===========   ===========    ===========   ===========
Average term in years                         5              4             5              4             4
                                     ============   ===========   ===========    ===========   ===========

Capital Expenditures Related to
  Released Space:
Tenant Improvements:
  Total dollars committed under      $5,510,054     $4,756,023    $6,224,907     $3,602,102    $5,023,271
     signed leases
  Rentable square feet                  990,663        931,686     1,337,611      1,015,789     1,068,937
                                     ------------   -----------   -----------    -----------   -----------
  Per rentable square foot           $     5.56     $     5.10    $     4.65     $     3.55    $     4.70
                                     ============   ===========   ===========    ===========   ===========
Leasing Commissions:
  Total dollars committed under
     signed leases                   $2,392,441     $1,505,559    $2,151,399     $1,560,041    $1,902,360
  Rentable square feet                  990,663        931,686     1,337,611      1,015,789     1,068,937
                                     ------------   -----------   -----------    -----------   -----------
  Per rentable square foot           $     2.41     $     1.62    $     1.61     $     1.54    $     1.78
                                     ============   ===========   ===========    ===========   ===========
Total:
  Total dollars committed under
     signed leases                   $7,902,495     $6,261,582    $8,376,306     $5,162,143    $6,925,631
  Rentable square feet                  990,663        931,686     1,337,611      1,015,789     1,068,937
                                     ------------   -----------   -----------    -----------   -----------
  Per rentable square foot           $     7.98     $     6.72    $     6.26     $     5.08    $     6.48
                                     ============   ===========   ===========    ===========   ===========
Rental Rate Trends:
  Average final rate with expense
     pass throughs                   $    16.59     $    15.79    $    16.96     $    14.09    $    15.86
  Average first year cash rental
     rate                            $    17.58     $    16.76    $    17.16     $    14.93    $    16.61
                                     ------------   -----------   -----------    -----------   -----------
  Percentage increase                      6.02%          6.11%         1.16%          5.94%         4.72%
                                     ============   ===========   ===========    ===========   ===========
</TABLE>
------------
(1) "Expense stop" represents operating expenses (generally including taxes,
utilities, routine building expense and common area maintenance) which we will
not be reimbursed by our tenants.

                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                          Industrial Leasing Statistics
                                                                Three Months Ended
                                      -----------------------------------------------------------------------
                                        6/30/00       3/31/00       12/31/99        9/30/99       Average
                                        -------       -------       --------        -------       -------
<S>                                            <C>           <C>          <C>             <C>           <C>
Net Effective Rents Related to
   Re-Leased Space:
Number of lease transactions
   (signed leases)                             46            66           64              50            57
Rentable square footage leased            362,521     1,305,697      543,522         815,044       756,696
Average per rentable square foot
   over the lease term:
     Base rent                          $    5.14   $      4.34   $     5.85      $     4.86    $     5.05
     Tenant improvements                    (0.28)        (0.19)       (0.38)          (0.14)        (0.25)
     Leasing commissions                    (0.12)        (0.11)       (0.11)          (0.10)        (0.11)
     Rent concessions                       (0.01)        (0.00        (0.01)          (0.00)        (0.01)
                                      -----------   -----------   ----------      ----------    ----------
     Effective rent                          4.73          4.04         5.35            4.62          4.69
     Expense stop (1)                       (0.48)        (0.14)       (0.39)          (0.18)        (0.30)
                                      -----------   -----------   ----------      ----------    ----------
     Equivalent effective net rent      $    4.25   $      3.90   $     4.96      $     4.44    $     4.39
                                      ===========   ===========   ==========      ==========    ==========
Average term in years                           4             5            4               3             4
                                      ===========   ===========   ==========      ==========    ==========

Capital Expenditures Related to
   Re-leased Space:
Tenant Improvements:
   Total dollars committed under        $ 389,592   $   966,338   $1,042,852      $  692,497    $  772,820
     signed leases
   Rentable square feet                   362,521     1,305,697      543,522         815,044       759,696
                                      -----------   -----------   ----------      ----------    ----------
   Per rentable square foot             $    1.07   $      0.74   $     1.92      $     0.85    $     1.02
                                      ===========   ===========   ==========      ==========    ==========

Leasing Commissions:
   Total dollars committed under        $ 185,028   $   671,182   $  222,728      $  271,184    $  337,531
     signed leases
   Rentable square feet                   362,521     1,305,697      543,522         815,044       756,696
                                      -----------   -----------   ----------      ----------    ----------
   Per rentable square foot             $    0.51   $      0.51   $     0.41      $     0.33    $     0.45
                                      ===========   ===========   ==========      ==========    ==========

Total:
   Total dollars committed under        $ 574,620   $ 1,637,520   $1,265,580      $  963,681    $1,110,350
     signed leases
   Rentable square feet                   362,521     1,305,697      543,522         815,044       756,696
                                      -----------   -----------   ----------      ----------    ----------
   Per rentable square foot             $    1.59   $      1.25   $     2.33      $     1.18    $     1.47
                                      ===========   ===========   ==========      ==========    ==========

Rental Rate Trends:
Average final rate with expense         $    4.44   $      3.91   $     5.50      $     4.63    $     4.62
   pass throughs
Average first year cash rental rate     $    4.72   $      4.19   $     5.66      $     4.78    $     4.84
                                      -----------   -----------   ----------      ----------    ----------
Percentage increase                         6.35%          6.98%        2.84%           3.39%         4.70%
                                      ===========   ===========   ==========      ==========    ==========
</TABLE>

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

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

                                       25
<PAGE>

<TABLE>
<CAPTION>
                                                               Retail Leasing Statistics
                                                                   Three Months Ended
                                      -----------------------------------------------------------------------------
                                         6/30/00         3/31/00        12/31/99        9/30/99        Average
                                         -------         -------        --------        -------        -------
<S>                                            <C>           <C>              <C>         <C>           <C>
Net Effective Rents Related to
   Re-Leased Space:
Number of lease transactions
   (signed leases)                             15            20               28          19            21
Rentable square footage leased             37,036        37,556           85,476      70,706        57,694
Average per rentable square foot
   over the lease term:
     Base rent                        $     21.84     $   19.81       $    14.54   $   24.58     $   20.19
     Tenant improvements                    (1.97)        (0.60)           (1.51)      (0.66)        (1.19)
     Leasing commissions                    (0.57)        (0.76)           (0.59)      (0.37)        (0.57)
     Rent concessions                        0.00          0.00             0.00        0.00          0.00
                                      -----------     ---------       ----------   ---------     ---------
     Effective rent                         19.30         18.45            12.44       23.55         18.44
     Expense stop (1)                       (0.12)         0.00             0.00        0.00         (0.03)
                                      -----------     ---------       ----------   ---------     ---------
     Equivalent effective net rent    $     19.18     $   18.45       $    12.44   $   23.55     $   18.41
                                      ===========     =========       ==========   =========     =========
Average term in years                           8             5                8           5             6
                                      ===========     =========       ==========   =========     =========

Capital Expenditures Related to
   Re-leased Space:
Tenant Improvements:
   Total dollars committed under
     signed leases                    $   914,200     $  82,365       $1,119,000   $ 437,735     $ 638,325
   Rentable square feet                    37,036        37,556           85,476      70,706        57,694
                                      -----------     ---------       ----------   ---------     ---------
   Per rentable square foot           $     24.68     $    2.19       $    13.09   $    6.19     $   11.06
                                      ===========     =========       ==========   =========     =========

Leasing Commissions:
   Total dollars committed under
     signed leases                    $   175,122     $ 145,060       $  397,123   $ 124,241     $ 210,386
   Rentable square feet                    37,036        37,556           85,476      70,706        57,694
                                      -----------     ---------       ----------   ---------     ---------
   Per rentable square foot           $      4.73     $    3.86       $     4.65   $    1.76     $    3.65
                                      ===========     =========       ==========   =========     =========

Total:
   Total dollars committed under
     signed leases                    $ 1,089,322     $ 227,425       $1,516,123   $ 561,976     $ 848,711
   Rentable square feet                    37,036        37,556           85,476      70,706        57,694
                                      -----------     ---------       ----------   ---------     ---------
   Per rentable square foot           $     29.41     $    6.06       $    17.74   $    7.95     $   14.71
                                      ===========     =========       ==========   =========     =========

Rental Rate Trends:
Average final rate with expense
   pass throughs                      $     16.60     $   15.20       $     8.87   $   19.12     $   14.95
Average first year cash rental rate   $     19.06     $   18.68       $    12.41   $   22.30     $   18.11
                                      -----------     ---------       ----------   ---------     ---------
Percentage increase                         14.82%        22.83%           39.86%      16.63%        21.15%
                                      ===========     =========       ==========   =========     =========
</TABLE>

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

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


                                       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 June 30, 2000 assuming no tenant exercises renewal options.

<TABLE>
<CAPTION>
 Office Properties:

                                                 Percentage of     Annual Rents                         Percentage of
                                                 Leased Square        Under          Average Annual     Leased Rents
    Year of       Number of   Total Rentable       Footage           Expiring        Rental Rate Per     Represented
    Lease          Leases      Square Feet      Represented by      Leases (1)       Square Foot for     by Expiring
  Expiration                    Expiring        Expiring Leases    (in thousands)    Expirations (1)        Leases
  ----------       ------     --------------    ---------------   ----------------   ---------------     -----------
<S>                 <C>         <C>                  <C>             <C>               <C>                   <C>
  Remainder of
     2000           521         2,130,058            8.5%            $  35,376         $   16.61             8.5%
     2001           581         3,461,003           13.8%               57,654             16.66            13.9%
     2002           609         3,356,797           13.4%               55,888             16.65            13.5%
     2003           508         3,784,766           15.1%               63,852             16.87            15.4%
     2004           391         2,776,447           11.1%               47,401             17.07            11.4%
     2005           270         2,438,783            9.7%               39,153             16.05             9.4%
     2006            66         1,689,017            6.7%               27,623             16.35             6.7%
     2007            39           981,945            3.9%               15,266             15.55             3.7%
     2008            53         1,405,514            5.6%               21,190             15.08             5.1%
     2009            24           926,790            3.7%               14,739             15.90             3.6%
     2010 and
     thereafter      92         2,136,866            8.5%               36,411             17.04             8.8%
                -------       -----------       ---------            ---------         ---------         --------
                  3,154        25,087,986          100.0%            $ 414,553         $   16.52           100.0%
                =======        ==========       =========            =========         ==========        ========

<CAPTION>
  Industrial Properties:


                                                 Percentage of     Annual Rents                         Percentage of
                                                 Leased Square        Under          Average Annual     Leased Rents
    Year of       Number of   Total Rentable       Footage           Expiring        Rental Rate Per     Represented
    Lease          Leases      Square Feet      Represented by       Leases (1)      Square Foot for     by Expiring
  Expiration                    Expiring        Expiring Leases    (in thousands)    Expirations (1)        Leases
 -------------    --------   --------------     ---------------   ----------------   ---------------     -----------
<S>                 <C>         <C>                  <C>             <C>               <C>                   <C>
  Remainder of
     2000            72           844,578             8.6%             4,482            $ 5.31               9.3%
     2001           106         1,721,011            17.5%             8,601              5.00              17.9%
     2002           103         1,694,857            17.2%             7,508              4.43              15.6%
     2003            75         1,242,504            12.6%             6,249              5.03              13.0%
     2004            63         2,166,835            22.1%             9,325              4.30              19.3%
     2005            29           400,902             4.1%             2,471              6.16               5.1%
     2006            11           356,062             3.6%             2,277              6.39               4.7%
     2007            11           451,348             4.6%             2,624              5.81               5.4%
     2008             6           247,737             2.5%             2,014              8.13               4.2%
     2009             6           268,813             2.7%             1,806              6.72               3.7%
     2010 and
     thereafter      12           438,976             4.5%               872              1.99               1.8%
                              -----------         --------          --------          ---------           -------
                     494        9,833,623           100.0%           $48,229         $    4.90              100.0%
                  ======       ==========         ========           =======         =========            =======
</TABLE>

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

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


                                       27
<PAGE>

<TABLE>
<CAPTION>
Retail Properties:
                                                Percentage of
                                                   Leased
                                                   Square        Annual Rents       Average        Percentage of
                                    Total          Footage           Under       Annual Rental      Leased Rents
   Year of                         Rentable      Represented       Expiring        Rate Per        Represented by
    Lease         Number of      Square Feet     by Expiring     Leases (1)     Square Foot for      Expiring
  Expiration       Leases         Expiring         Leases       (in thousands)   Expirations (1)      Leases
  ----------      ---------     ------------    ------------    --------------  ----------------   --------------
<S>                   <C>          <C>             <C>           <C>                <C>                 <C>
  Remainder of
     2000             50           161,041         10.1%         $ 2,270            $14.10              7.3%
     2001             49           108,352          6.8%           3,036             28.02              9.8%
     2002             45           135,732          8.5%           2,350             17.31              7.6%
     2003             46           113,566          7.1%           2,416             21.27              7.8%
     2004             37           217,192         13.6%           2,617             12.05              8.4%
     2005             32            80,564          5.1%           2,244             27.85              7.2%
     2006             23            80,498          5.1%           1,788             22.21              5.8%
     2007             11            53,641          3.4%           1,007             18.77              3.2%
     2008             15           107,595          6.8%           3,649             33.91             11.8%
     2009             23           172,898         10.9%           3,269             18.91             10.5%
     2010 and
     thereafter       24           360,094         22.6%           6,369             17.69             20.6%
                   ------       ----------        ------          ------            ------            ------
                     355         1,591,173        100.0%          31,015            $19.49            100.0%
                   ======       ==========        ======          ======            ======            ======

<CAPTION>
Total:

                                                Percentage of
                                                   Leased
                                                   Square        Annual Rents       Average        Percentage of
                                    Total          Footage           Under       Annual Rental      Leased Rents
   Year of                         Rentable      Represented       Expiring        Rate Per        Represented by
    Lease         Number of      Square Feet     by Expiring     Leases (1)     Square Foot for      Expiring
  Expiration       Leases         Expiring         Leases       (in thousands)   Expirations (1)      Leases
  ----------      ---------     ------------    ------------    --------------  ----------------   --------------
<S>                   <C>          <C>             <C>           <C>                <C>                 <C>
  Remainder of
     2000            643         3,135,677         8.6%        $  42,128            $13.44              8.5%
     2001            736         5,290,366        14.5%           69,291             13.10             14.1%
     2002            757         5,187,386        14.3%           65,746             12.67             13.4%
     2003            629         5,140,836        14.1%           72,517             14.11             14.7%
     2004            491         5,160,474        14.1%           59,343             11.50             12.0%
     2005            331         2,920,249         8.0%           43,868             15.02              8.9%
     2006            100         2,125,577         5.8%           31,688             14.91              6.4%
     2007             61         1,486,934         4.1%           18,897             12.71              3.8%
     2008             74         1,760,846         4.8%           26,853             15.25              5.4%
     2009             53         1,368,501         3.7%           19,814             14.48              4.0%
     2010 and
     thereafter      128         2,935,936         8.0%           43,652             14.87              8.8%
                  -------      -----------     --------       ----------           -------          --------
                   4,003        36,512,782       100.0%         $493,797            $13.52            100.0%
                   =====        ==========       ======         ========            ======            ======
</TABLE>

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

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

         To meet in part our long-term liquidity requirements, we borrow funds
at a combination of fixed and variable rates. Borrowings under 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 June 30, 2000, the Company had
approximately $151.8 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 June 30, 2001, our interest expense would be increased or
decreased approximately $1.5 million. In addition, as of June 30, 2000, 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 65 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 June 30, 2000, 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 June 30, 2000 would increase by approximately $1.2 million. If interest
rates decrease by 100 basis points, the aggregate fair market value of these
interest rate hedge contracts as of June 30, 2000 would decrease by
approximately $1.0 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.

                                       29
<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 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 plaintiff seeks equitable relief and monetary
damages. We believe that the defendants have meritorious defenses to the
plaintiff's allegations and intend to vigorously defend this litigation. By
order dated June 18, 1999, the court granted in part and denied in part our
motion to dismiss. The court has granted the plaintiff's motion seeking
certification of the proposed class of plaintiffs with respect to the remaining
claims. Discovery in this matter has now been completed, and we are seeking
summary judgment and dismissal of all claims asserted by the plaintiff.
Plaintiff John Flake passed away on or about April 2, 2000, and plaintiff's
counsel has substituted his estate as the representative plaintiff in this
action. Due to the inherent uncertainties of the litigation process and the
judicial system, we are not able to predict the outcome of this litigation. At
this time, we do not expect the result of this litigation to have a material
adverse effect on our business, financial condition and results of operations.

Item 2.    Changes in Securities and Use of Proceeds

         (c) During the three months ended June 30, 2000, the Company issued an
aggregate of 9,911 shares of Common Stock in connection with the merger of Eakin
& Smith, Inc. into the Company on April 1, 1996. The shares were issued to
principals of Eakin & Smith, pursuant to an exemption from the registration
requirements of the Securities Act of 1933. Each of the principals is an
accredited investor. We exercised reasonable care to assure that the principals
were not purchasing the shares with a view to their distribution.


Item 3.    Defaults Upon Senior Securities - NA

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

       On May 24, 2000, we held our Annual Meeting of Stockholders. The final
vote of the matters presented for a vote at such meeting was as follows:

<TABLE>
<CAPTION>
Matter                                           For           Against         Broker Non-Vote          Abstain
------                                           ---           -------         ---------------          -------

(A)  Election of Directors

<S>                                           <C>                <C>               <C>                  <C>
     Gene M. Anderson....................     46,706,925         --                  --                 367,833
     Ronald P. Gibson....................     46,716,534         --                  --                 358,224
     O. Temple Sloan, Jr.................     46,716,520         --                  --                 358,238
     John L. Turner......................     46,711,267         --                  --                 363,491
     William E. Graham, Jr...............     46,728,262         --                  --                 346,496
(B)  Ratify appointment of Ernst & Young,
     LLP as independent auditors.........     46,964,653       65,271                --                  44,834
</TABLE>

Item 5.    Other Information - NA

Item 6.     Exhibits and Reports on Form 8-K

(a) Exhibits

                                       30
<PAGE>

Exhibit No.     Description
-----------     -----------

    2           Agreement to Form Limited Liability Companies, entered into as
                of August 9, 2000, by and among Miller Global Fund III, L.P.,
                MGA Development Associates, L.P., Highwoods Realty Limited
                Partnership and Highwoods/Florida Holdings, L.P.

    27          Financial Data Schedule

(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 PROPERTIES, INC.

                                          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:  August 14, 2000



                                       32
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>AGREEMENT TO FORM LIMITED LIABILITY COMPANIES
<TEXT>

                                                                       EXHIBIT 2

                  AGREEMENT TO FORM LIMITED LIABILITY COMPANIES

         AGREEMENT TO FORM LIMITED LIABILITY COMPANIES (this "Agreement"),
entered into as of August 9, 2000, by and among MILLER GLOBAL FUND III, L.P., a
Colorado limited partnership ("MG III"), MGA DEVELOPMENT ASSOCIATES, L.P., a
Colorado limited partnership ("MDA"), HIGHWOODS REALTY LIMITED PARTNERSHIP, a
North Carolina limited partnership ("HIW"), and HIGHWOODS/FLORIDA HOLDINGS,
L.P., a Delaware limited partnership ("HIW Florida").

         WHEREAS, MGIII, HIW and HIW Florida wish to form a Delaware limited
liability company (the "Operating LLC") for the purposes, among others, of
acquiring, owning and operating in-service office buildings, with the buildings
to be contributed or sold by HIW and HIW Florida pursuant to one or more
contribution agreements and/or purchase and sale agreements (each a "Purchase
Agreement", and collectively, the "Purchase Agreements"); and

         WHEREAS, MG III, HIW and HIW Florida also wish to form a Delaware
limited liability company (the "Land LLC") for the purpose of acquiring a tract
of land in Orlando, Florida, with the possibility of future development thereof
as part of a coordinated project with other Pine Street Properties (as
hereinafter defined) to be owned, directly or indirectly, by the Operating LLC;
and

         WHEREAS, MG III, MDA, HIW and HIW Florida wish to create a framework
for the formation of one or more limited liability companies (each a
"Development LLC", and collectively, the "Development LLCs"), which are intended
primarily or exclusively for the development of office and/or so-called "flex"
buildings on land now owned or hereafter acquired by MG III, MDA, HIW and/or HIW
Florida, or one or more of the affiliates of any of them;

         NOW THEREFORE, for and in consideration of Ten Dollars ($10.00), the
foregoing recitals and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties hereto, the parties hereby
agree as follows:

         1. Closing; Purchase Prices and Contribution Values. Provided that all
of the Conditions Precedent (as hereinafter defined) are theretofore fully
satisfied or performed, or waived by the party or parties for whose benefit the
subject Condition Precedent exists, the closing (the "Closing") of the
transactions contemplated by this Agreement (collectively, the "Transactions")
shall take place at the offices of HIW, at 9:00 a.m. local time on October 25,
2000, or on such other date and at such other time and place as the parties may
mutually agree; provided, however, that, if on October 25, 2000, the parties are
both using good-faith commercially reasonable efforts to effectuate the Closing
but cannot do so due to the inability to satisfy or perform one or more
Conditions Precedent as of such date, either MG III, on the one hand, or HIW and
HIW Florida, on the other hand, may unilaterally extend the Closing hereunder
one time, to a date in no event later than December 1, 2000. MG III, HIW and HIW
Florida hereby agree that the purchase

<PAGE>

prices or contribution values for the properties proposed to be acquired by the
Operating LLC and the Land LLC (each a "Property" and collectively, the
"Properties") are set forth on Schedule 1 attached hereto and by this reference
made a part hereof.

         2. Inspection Period. (a) The parties acknowledge that the willingness
of MG III to enter into the Transactions is subject to its satisfaction with the
Properties. The parties hereby agree that MG III shall have the period of time
from the execution hereof until 5:00 p.m., Eastern Daylight Time, on October 9,
2000 (the "Inspection Period") in which to conduct its inspections of the
Properties. HIW and HIW Florida hereby agree to provide the information
described in Section 6.2 of the form of Purchase Agreement attached hereto as
Exhibit A and by this reference made a part hereof. (Each of MG III, HIW and HIW
Florida hereby acknowledges and agrees that Exhibit A hereto and the exhibits
attached thereto, with only such additions and modifications as are necessary to
conform Exhibit A to the facts of the particular transaction at hand (i.e.,
appropriate parties, legal descriptions, agreed permitted title exceptions,
whether transaction is a contribution or purchase and sale of the subject
Properties, etc.), or as MG III, HIW and/or HIW Florida may otherwise mutually
agree, shall be employed as the Purchase Agreement in each of the acquisitions
of the Properties by the Operating LLC and the Land LLC and for the acquisition
of land by each of the Development LLCs (collectively, the "Development Land".)
MG III and its agents and employees shall have the right to enter upon the
Properties and the Development Land for the purpose of making inspections, at MG
III's sole risk, cost and expense, and subject to the rights of the tenants
thereof, if any. All of such entries shall be at reasonable times, upon
reasonable advance notice and during normal business hours, and HIW or HIW
Florida, as appropriate, or its agent shall have the right to accompany MG III
or its agents or employees during any activities performed on the Properties and
the Development Land. MG III and its designees shall also have the right to meet
with employees and management personnel of HIW and HIW Florida, tenants,
governmental agencies and such other third parties as MG III determines will be
helpful in evaluating the Properties and the Development Land; provided that MG
III shall give reasonable advance notice of any proposed meetings with tenants
or governmental agencies and HIW or HIW Florida, as appropriate, or its agent
shall have the right to accompany MG III or its agents or employees during any
of such meetings. MG III shall promptly provide to HIW or HIW Florida, as
appropriate, copies of all third-party physical inspection reports (including,
without limitation, environmental and engineering reports and asbestos studies,
but excluding any financial or legal due diligence which MG III may obtain or
perform) which MG III may obtain relating to the Properties.

                  (b) If MG III is dissatisfied, for any reason or no reason and
in MG III's sole and absolute discretion, with the result of MG III's
inspections, then MG III may terminate this Agreement by notifying all parties
hereto of such termination at any time between the date hereof and 5:00 p.m.,
Eastern Daylight Time, on October 9, 2000, whereupon all parties shall be
released from all further obligations under this Agreement, except for those
which expressly survive such termination. If MG III terminates this Agreement
pursuant to the terms hereof, MG III shall, upon HIW's or HIW Florida's written
request, promptly deliver to HIW or HIW Florida, as appropriate, or certify the
destruction of, destroy all due diligence documents as required by the letter
agreement

<PAGE>

referred to in Section 11 hereof, such obligation to survive the termination of
this Agreement. Upon MG III's waiver of or failure to duly exercise its right to
terminate described in this Section 2(b), MG III shall have elected to proceed
with the formation of the Operating LLC, the Land LLC and the Development LLCs
agreed upon during the Inspection Period pursuant to the terms of this
Agreement.

                  (c) Notwithstanding any provision of this Agreement to the
contrary, MG III hereby indemnifies and agrees to defend and hold harmless HIW
and HIW Florida and their respective officers, directors, partners, members,
agents and employees, and the successors and assigns of any thereof, from and
against any and all losses, claims, damages, liabilities, attorneys' and
accountants' fees, costs of litigation and all other expenses arising from the
investigation of or entry upon the Properties or the Development Land,
including, without limitation, mechanic's or materialmen's liens. If MG III does
not consummate the Transactions, it shall repair any damage caused by its entry
onto any of the Properties or the Development Land. The provisions of this
Section 2(c) shall expressly survive the Closing or the earlier termination of
this Agreement.

                  (d) The scope of any Phase II environmental inspection of any
of the Properties or the Development Land shall be subject to the prior written
consent of HIW or HIW Florida, as appropriate, which shall not be unreasonably
withheld, conditioned or delayed.

                  (e) To the maximum extent permitted by applicable law, except
for the representations and warranties of HIW and HIW Florida contained in this
Agreement, the Purchase Agreements and the documents of conveyance and
assignment to be delivered at the Closing (collectively, "Highwoods'
Warranties"), this Agreement is made without representation, covenant or
warranty of any kind (whether express, implied, or, to the maximum extent
permitted by applicable law, statutory) by HIW and HIW Florida. As a material
part of the consideration for this Agreement, MG III agrees that the Properties
and the Development Land will be offered by HIW and HIW Florida on an "AS IS"
and "WHERE IS" basis, with all faults and any and all latent and patent defects,
and without any representation or warranty, all of which HIW and HIW Florida
hereby disclaim, except for Highwoods' Warranties. Except for Highwoods'
Warranties, no warranty or representation is made by HIW or HIW Florida as to
(a) fitness for any particular purpose, (b) merchantability, (c) design, (d)
quality, (e) condition, (f) operation or income, (g) compliance with drawings or
specifications, (h) absence of defects, (i) absence of hazardous or toxic
substances, (j) absence of faults, (k) flooding, or (1) compliance with laws and
regulations, including, without limitation, those relating to health, safety and
the environment. MG III acknowledges that MG III has entered into this Agreement
with the intention of making and relying upon its own investigations of the
physical, environmental, title, survey, economic and legal compliance condition
of the Properties and the Development Land, and that, except for Highwoods'
Warranties, MG III is not now relying, and will not later rely, upon any
representations and warranties made by HIW or HIW Florida or anyone acting or
claiming to act, by, through or under or on its behalf. The provisions of this
Section 2(e) shall survive the Closing or any termination of this Agreement and
shall not be merged into the closing documents.
<PAGE>

          3.   Agreements Respecting Properties.

               (a)  Title.

                    (i) Delivery of Title Commitments. As soon as reasonably
practicable following the date hereof (but not later than September 8, 2000),
each of HIW and HIW Florida shall, at its expense, make commercially reasonable
efforts to deliver or cause to be delivered to MG III:

                         (A) owner's title insurance commitments (collectively,
the "Title Commitment") covering the Properties, to be issued by Chicago Title
Insurance Company (the "Title Company"), pursuant to which the Title Company
will agree to insure title to the Properties under an ALTA Owner's Policy Form B
1970 (or, if not available, such other form as is available) Extended Coverage
in the full aggregate amount of the Purchase Prices and Contribution Values (as
such terms are defined in the Purchase Agreements), calling for the standard
printed exceptions related thereto to be deleted upon receipt of the Survey (as
hereinafter defined), a current tax certificate and mechanics' lien affidavits
from HIW and HIW Florida (such affidavits to be in form and content reasonably
acceptable to HIW, HIW Florida, the Operating LLC and the Land LLC,
respectively), with the exception for taxes and assessments to be limited to
real property taxes and assessments for the year of closing, not yet due and
payable, and with the title exception for the leases and tenancies of the
Properties (collectively, the "Leases") to be limited to the leases in effect as
of the Closing, as specified by HIW and HIW Florida in affidavits to be provided
to the Title Company at the Closing. The Title Commitment shall also provide for
issuance of a non-imputation endorsement protecting the Operating LLC and the
Land LLC against matters in the knowledge of HIW and HIW Florida (as sellers or
contributors and as members of the Operating LLC and the Land LLC); and

                         (B) True and correct legible copies of any and all
instruments referred to in the Title Commitment as constituting exceptions or
restrictions upon the title of HIW and HIW Florida to the Properties.

                    (ii) Survey. As soon as reasonably practicable following the
date hereof, MG III shall, at MG III's expense, make commercially reasonable
efforts to cause to be delivered to MG III and HIW or HIW Florida, as
appropriate, surveys of the Properties (collectively, the "Survey"), certified
to MG III, the Operating LLC or the Land LLC, as appropriate, and the Title
Company, made by a duly licensed surveyor. The Survey shall be improvement
survey plats in accordance with any statutory requirements for improvement
survey plats and with "Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys," jointly established and adopted by ALTA and ACSM in 1999, shall
meet the requirements of the Urban Survey, as defined therein, and shall include
Table A items 1 through 16 with item 5 revised to require datum of elevations
only. The Survey shall show the location of all improvements on the Properties.
<PAGE>

                    (iii) Title and Survey. On or prior to 5:00 p.m., Eastern
Daylight Time, on the earlier to occur of (x) the twentieth (20th) day following
the delivery of all of the items to be delivered in accordance with Sections
3(a)(i) and 3(a)(ii) above, or (y) the fifth (5th) day prior to the end of the
Inspection Period, MG III shall deliver in writing to HIW or HIW Florida, as
appropriate, such objections as MG III may have to anything contained in the
Survey or the Title Commitment. Any such item disclosed in the Survey or the
Title Commitment to which MG III does not timely object within the twenty
(20)-day period shall be deemed a "Permitted Title Exception" under the
appropriate Purchase Agreement. Within five (5) days of receipt of any notice of
objections by MG III (it being understood that MG III may deliver one or more
such notices), HIW or HIW Florida, as appropriate, shall notify MG III either
(A) of the actions that HIW or HIW Florida, as appropriate, will take to correct
MG III's objections, or (B) that HIW or HIW Florida, as appropriate, will not or
cannot satisfy all or certain of the items of which MG III has given timely
notice of objection (collectively, the "Uncured Title Objections"). If HIW or
HIW Florida, as appropriate, fails to timely respond, HIW or HIW Florida, as
appropriate, shall be deemed to have elected not to correct any of such
objections. In such case, MG III shall, before the end of the Inspection Period,
either (I) waive the Uncured Title Objections, and proceed to close the
Transactions (subject to MG III's right, prior to the Closing, to give notice of
objections not evidenced by the Title Commitment or the Survey), or (II)
terminate this Agreement by giving written notice to the other parties hereto;
provided, however, that MG III shall have the right to have the Uncured Title
Objections constituting liens or monetary claims (other than environmental liens
or claims) satisfied by reduction of the Purchase Price or Contribution Value
(as defined in each Purchase Agreement) at the Closing and receive a credit for
such amounts. If MG III does not give notice of its election to waive the
Uncured Title Objections, it shall be deemed to have waived the Uncured Title
Objections. Current taxes not yet due and payable, the Leases and any additional
exceptions to be added to the Title Commitment by the Title Company as disclosed
by the Survey or upon deletion of the standard printed exceptions relating
thereto, unless objected to by MG III as provided above, shall be deemed to be
Permitted Title Exceptions. If, after delivery of the Title Commitment and prior
to the Closing, the Title Company gives notice to MG III of any additional
exceptions to title, MG III shall have the right to give further notice within
five (5) days that MG III considers such exceptions to be Uncured Title
Objections (collectively, "Additional Uncured Title Objections"); provided,
however, that (A) if the Closing would otherwise occur before MG III has had a
full period for waiving the Additional Uncured Title Objections or terminating
this Agreement, MG III shall have the right to extend the closing hereunder to
permit the periods for notice as provided above; (B) if HIW or HIW Florida, as
appropriate, notifies MG III that HIW or HIW Florida, as appropriate, intends to
take actions approved by MG III (which approval shall not be unreasonably
withheld, conditioned or delayed) to correct the Additional Uncured Title
Objections, HIW or HIW Florida, as appropriate, shall have the right to extend
the closing for up to thirty (30) days for purposes of completing such actions,
and (c) if HIW or HIW Florida, as appropriate, fails to correct the Additional
Uncured Title Objections for any reason within said thirty (30)-day period, if
applicable, MG III shall have the right to have the Additional Uncured Title
Objections constituting liens or monetary claims (other than environmental liens
or claims) satisfied

<PAGE>

by reduction of the Purchase Price or Contribution Value (as defined in each
Purchase Agreement) at the Closing and receive a credit for such amounts.

                    (b) Preservation of Leases, Service Contracts and
Guaranties. This Section 2(b) shall not apply to Leases or proposed new leases
for five thousand (5,000) rentable square feet or less (except for HIW's or HIW
Florida's obligation to deliver copies of executed documents, as provided
below). Prior to the Closing, unless its actions are consistent with the Argus
Runs (as hereinafter defined) or mutually-agreed underwriting assumptions (in
which case only notice shall be required hereunder), neither HIW nor HIW Florida
shall, without MG III's prior written consent (which shall not be unreasonably
withheld, conditioned or delayed), amend or modify the Leases, including,
without limitation, any provisions thereof relating to the payment of leasing
commissions, tenant improvement allowances or the allowance of rent concessions,
or the Service Contracts, nor enter into any new lease or service contract, or
cancel any Lease, Service Contract or Guaranty, or consent to any surrender or
release of any Lease or Guaranty or to any assignment or sublease under any such
Lease. If MG III's consent is required, HIW or HIW Florida, as appropriate,
shall give notice of any such contemplated action (including a copy of any
applicable letter of intent, related financial or credit information and the
proposed documentation) and MG III shall give HIW or HIW Florida, as
appropriate, either its consent or objection, including a statement of its
reasons for objections, within one (1) business day of its receipt of such
notice. It shall be deemed to be reasonable for MG III to refuse consent if the
proposed transaction would be materially inconsistent with said the Argus Runs
or mutually-agreed underwriting assumptions. If MG III fails to give notice of
its election within said time period, it shall be deemed to have given its
consent to said request. HIW or HIW Florida, as appropriate, shall, from and
after the date hereof to the date of Closing, subject only to the foregoing,
perform and discharge all of the duties and obligations and otherwise comply
with every material covenant and agreement of the landlord or lessor under the
Leases, in its ordinary manner of business and within the time limits required
thereunder. In any event, HIW or HIW Florida, as appropriate, shall deliver
copies of executed documents (any new leases, service contracts or guarantys or
any amendment or modification of any Lease, Service Contract or Guaranty) within
five (5) business days following execution by all parties.

                    (c) Tenant Estoppel Certificates. HIW and HIW Florida shall
make reasonable efforts to obtain and deliver to the Operating LLC, the Land LLC
and the Lender (as hereinafter defined), at or prior to the Closing, a tenant
estoppel certificate, substantially in the form attached as Exhibit H to the
Purchase Agreement (which form has been previously approved by the parties
hereto, subject to any modifications that the Lender may require) (each a
"Tenant Estoppel Certificate", and collectively, the "Tenant Estoppel
Certificates") with respect to each of the Leases, duly executed by the tenant
thereunder and dated within thirty (30) calendar days of the date of the
Closing. If HIW and HIW Florida are unable to so obtain and deliver Tenant
Estoppel Certificates from each tenant, then HIW and HIW Florida, as
appropriate, may deliver, subject to MG III's rights with respect thereto as
hereinafter set forth, on or before the Closing, a substitute certificate of HIW
or HIW Florida, as appropriate, addressing the items set forth in each Tenant
Estoppel Certificate which HIW or HIW Florida, as appropriate, is unable to


<PAGE>

obtain (but granting HIW or HIW Florida, as appropriate, the benefit of
"knowledge" qualifications in situations analogous to those in which the tenant
was given such benefit), in which HIW or HIW Florida, as appropriate,
indemnifies the Operating LLC, the Land LLC and the Lender and holds the
Operating LLC, the Land LLC and the Lender harmless from and against any and all
losses, liabilities, claims, costs and expenses incurred by the Operating LLC,
the Land LLC and the Lender after the Closing as a result of any false statement
of HIW or HIW Florida, as appropriate, contained in any such substitute
certificate. MG III's obligation to close hereunder shall be subject to its
receipt of Tenant Estoppel Certificates from each of the tenants under the Major
Leases and Tenant Estoppel Certificates or substitute certificates from those
tenants leasing at least eighty percent (80%) in the aggregate of the remaining
rentable space in any of the Properties (excluding the rentable space occupied
under the Major Leases). However, if HIW or HIW Florida, as appropriate, has
been unable to obtain a Tenant Estoppel Certificate from any tenant under any of
the Major Leases, MG III shall have the right to terminate this Agreement by
written notice to HIW or HIW Florida, as appropriate, in which event the parties
shall have no further rights or obligations hereunder, except for those which
expressly survive any such termination. However, if MG III, at MG III's option
and in its sole and absolute discretion, elects not to so terminate this
Agreement, and HIW and HIW Florida are willing to deliver, and MG III is willing
to accept, on or before the Closing, a sufficient number of substitute
certificates to provide Tenant Estoppel Certificates from, or substitute
certificates for, tenants under each of the Major Leases, HIW and HIW Florida
shall deliver a sufficient number of substitute certificates to provide Tenant
Estoppel Certificates or substitute certificates for all tenants under the Major
Leases and tenants leasing at least eighty percent (80%) in the aggregate of the
remaining rentable space in each of the Properties (excluding the rentable space
occupied under the Major Leases), and the Closing shall occur hereunder. If,
subsequent to the Closing, the Operating LLC, the Land LLC or the Lender
receives any such Tenant Estoppel Certificates not previously delivered, HIW or
HIW Florida, as appropriate, shall thereafter be relieved of any further
obligation or liability under or pursuant to the indemnity of HIW or HIW
Florida, as appropriate, with respect to the particular Lease. Upon request by
MG III prior to the Closing, HIW or HIW Florida, as appropriate, shall also use
reasonable efforts to obtain from parties to the Service Contracts (as defined
in the Purchase Agreements) estoppel certificates in a form reasonably
satisfactory to MG III; provided, however, that an estoppel certificate for a
Service Contract shall not be a condition to closing hereunder unless such
Service Contracts (i) expressly require the giving of such estoppel, and (ii)
cannot be terminated without penalty on less than one (1) months' notice. For
purposes of this Agreement, "Major Lease" shall mean and refer to each Lease
having premises in excess of ten thousand (10,000) rentable square feet, if the
building in which such premises are located contains one hundred thousand
(100,000) rentable square feet or less, and in excess of twenty thousand
(20,000) rentable square feet, if the building in which such premises are
located contains more than one hundred thousand (100,000) rentable square feet.

               (d) Condemnation or Destruction of Properties.
<PAGE>

                    (i) Condemnation. Upon becoming aware of the same, HIW or
HIW Florida, as appropriate, agrees to give MG III immediate written notice of
any actual or threatened taking in condemnation or by eminent domain (or a sale
in lieu thereof) of any of the Properties. Any actual or bona fide threat of
taking or condemnation for any public or quasi-public purpose or use by any
competent authority in appropriate proceedings or by any right of eminent domain
of all or any part of the Properties which would, in MG III's reasonable
judgment, materially adversely affect any Property or would, in itself, because
of the time period necessary to respond to or resolve the action or for any
other reason, give rise to a right of any tenant to terminate its Lease, shall,
at MG III's option, allow MG III, by written notice to HIW or HIW Florida, as
appropriate, to be received within fifteen (15) calendar days of MG III's
receiving notice of such bona fide threat, condemnation or taking, or by the
date of the Closing, whichever is earlier, to elect to terminate this Agreement.

                    (ii) Damage or Destruction. If, prior to the Closing, all or
any material part of any Property is damaged or destroyed by any cause, HIW or
HIW Florida, as appropriate, agrees to give MG III immediate written notice of
such occurrence and the nature and extent of such damage and destruction, and,
as soon thereafter as practicable, shall provide MG III with an estimate made by
an architect, engineer or contractor ("HIW's Professional"), selected by HIW or
HIW Florida, as appropriate, and reasonably approved by MG III, of the cost and
amount of time required to repair such damage. If such estimate cannot
reasonably be obtained by HIW or HIW Florida, as appropriate, and delivered to
MG III at least ten (10) days prior to the Closing, then HIW or HIW Florida, as
appropriate, shall so notify MG III, whereupon the date of the Closing shall
automatically be extended to such date as would allow MG III ten (10) days
before the Closing in which to make its election hereunder. If a material
portion of any Property is damaged or destroyed or would, in itself, because of
the time period necessary to respond to or repair the damage or destruction or
for any other reason, give rise to a right of any tenant to terminate its Lease,
MG III, by written notice to HIW or HIW Florida, as appropriate, to be received
within fifteen (15) calendar days of MG III's receipt of notice of such damage
or destruction, or by the date of the Closing, whichever is earlier, may elect
to terminate this Agreement.

                    (iii) Termination. If this Agreement is terminated as a
result of the provisions of either Section 3(d)(i) or Section 3(d)(ii) hereof,
the parties shall have no further rights or obligations hereunder, except for
those which expressly survive any such termination.

                    (iv) Awards and Proceeds. If MG III does not elect to
terminate this Agreement following any notice of a bona fide threat of taking or
taking by condemnation or notice of damage or destruction to any Property, as
provided above, or if any such taking, damage or destruction is not material,
this Agreement shall remain in full force and effect and the Transactions, less
any interest in any Property taken by eminent domain or condemnation, or sale in
lieu thereof, shall be effected. In the event of damage or destruction, HIW or
HIW Florida, as appropriate, shall promptly contract for and commence the
required repairs and restoration and complete so much thereof as

<PAGE>

may be accomplished prior to the Closing. In the event of damage or destruction
which is not material, the Closing shall occur as scheduled, and HIW or HIW
Florida, as appropriate, shall be responsible for completing the required
repairs and restoration, at its own cost and expense, after the Closing, and
shall be entitled to all available insurance proceeds therefor (other than loss
of rents insurance, if applicable, which shall be payable to the Operating LLC
(or the owner of the affected Property, as appropriate, as provided below). If
the casualty is material and has not been completely repaired prior to the
Closing, and MG III has elected not to terminate this Agreement as provided
above, MG III may elect to either (A) extend the Closing until HIW or HIW
Florida, as appropriate, shall have completed all repairs necessary to return
such Property to its pre-casualty condition; or (B) close on the scheduled date
of the Closing and assume the responsibility for completing such repair, receive
all insurance proceeds and receive from HIW or HIW Florida, as appropriate, the
deductible portion of the insurance proceeds. In any event, if MG III elects to
close, the Operating LLC (or the owner of the affected Property, as appropriate)
shall receive any insurance proceeds available to HIW or HIW Florida, as
appropriate, or the Operating LLC (or the owner of the affected Property, as
appropriate) for loss of rents after the Closing as the result of such casualty
(it being acknowledged by each of HIW and HIW Florida that, under its present
insurance program, the Operating LLC would be entitled to continue to receive
loss of rents payments after the Closing, to the limits of the coverage in
force, as long as the insurance program remains in force). In such case, at the
Closing, HIW or HIW Florida, as appropriate, shall assign, transfer and set over
to the Operating LLC (or the owner of the affected Property, as appropriate) all
of the right, title and interest of HIW or HIW Florida, as appropriate, in and
to any taking awards, payments or insurance proceeds for the actual value of the
property lost or destroyed that have been or may thereafter be made for any such
taking or sale in lieu thereof or damage or destruction, to the extent that such
awards, payments or proceeds shall not have theretofore been used for
restoration of the Property pursuant to a plan of restoration approved in
writing by MG III. HIW or HIW Florida, as appropriate, shall assign to the
Operating LLC (or the owner of the affected Property, as appropriate) its rights
and obligations under all construction contracts pursuant to which such
restoration is being accomplished.

                    (v) Materiality Defined. For purposes of this Section 3(d),
damage or destruction to a part of the Property shall be deemed to be "material"
in the event that (a) fifteen percent (15%) of the net rentable square feet
within any Building is taken or damaged, (b) HIW's Professional's estimate of
the cost of repairing or restoring the same is greater than $1,000,000.00, or
(c) HIW's Professional's estimate of the time required to effect such repairs or
restoration is in excess of one hundred eighty (180) days.

               (e) Maintenance of Properties. Between the date hereof (which
shall be "the Contract Date" for the purposes of Section 9 of Exhibit A hereto)
and the Closing, HIW and HIW Florida covenant and agree to be bound by Section 9
of Exhibit A hereto.
<PAGE>

               (f) Prorations. Section 4 of Exhibit A hereto shall govern
prorations in connection with the Closing, after which time Section 4 of the
Purchase Agreements will control for the post-closing prorations and adjustments
required thereunder.

               (g) Financing of Properties. Each of MG III, HIW and HIW Florida
shall use commercially reasonable efforts and reasonably cooperate to secure
mutually-acceptable non-recourse (subject to typical carveouts) financing for
the acquisition of the Properties by the Operating LLC and the Land LLC from a
mutually-acceptable lender (the "Lender"). If required in order to facilitate
the foregoing financing, HIW Florida or HIW shall provide short-term financing
for the acquisition of the Property known as 301 E. Pine Street at Capital
Plaza, one of the "Pine Street Properties" (as described on Exhibit B attached
hereto and by this reference made a part hereof); the terms of such financing
shall be on the same terms as the parties approve and obtain from Lender with
respect to the balance of the Properties and shall use the same documents (with
appropriate revisions), but, unless the Lender takes out the HIW or HIW Florida
financing upon the stabilization of 301 E. Pine Street at Capital Plaza
following the stabilization thereof, the Operating LLC shall be required to
refinance said Property on a non-recourse basis as soon as it is commercially
reasonable to do so in order to repay such loan by HIW or HIW Florida. In
addition, at its option, HIW or HIW Florida may elect to loan any negative
difference between the average loan-to-value ratio on all of the Properties and
the loan-to-value ratio on any of the Properties in the Orlando, Florida City
Group (but only in amounts necessary to bring any of such Properties up to the
average loan-to-value ratio for all of the Properties), upon the same terms as
the Lender's loan as aforesaid.

         4. Entry Into Operating LLC and Land LLC. If MG III does not terminate
this Agreement as hereinabove provided, MG III, HIW and HIW Florida shall enter
into the Operating LLC, in the form attached hereto as Exhibit C, and the Land
LLC, using the same form approved for the Development LLCs pursuant to Section 5
hereof (and incorporating the business understandings with respect thereto that
are set forth in Exhibit D attached hereto and by this reference made a part
hereof), respectively, immediately prior to the Closing. It is also mutually
agreed and understood that, as a structural matter, the Operating LLC will be
the single member of four (4) additional LLCs, which will own, respectively, all
of the Properties in each of the cities of Atlanta, Raleigh, Orlando and Tampa,
so that the first offer and buy-sell provisions of the Operating LLC's operating
agreement can be exercised on a city-by-city basis for all of the membership
interests of each single-member LLC so formed.

         5. Development LLCs. MG III, MDA, HIW (on behalf of itself and its
affiliates which own developable land which may be suitable for development by
the Development LLCs) and HIW Florida (respecting developable land owned by HIW
Florida in the State of Florida which may be suitable for development by the
Development LLCs) have reached an agreement in principle to develop the projects
identified on Schedule 2 attached hereto and made a part hereof, subject only to
customary and usual due diligence respecting the Development Land and mutual
agreement on a form of operating agreement for each Development LLC, all of
which

<PAGE>

shall be completed by the end of the Inspection Period, and hereby agree to use
commercially reasonable efforts to identify any other development projects which
are suitable for undertaking by the Development LLCs by the end of the
Inspection Period. If any party is not satisfied with the number or quality of
the Development LLCs which they have agreed to form by the end of the Inspection
Period (provided, however, that all parties shall be deemed to be so satisfied
if there is agreement to form Development LLCs for all of the projects
identified on Schedule 2 hereto), such party may terminate this Agreement by
written notice to the other parties hereto. The parties agree that the operating
agreement of each Development LLC, at a minimum: (a) shall indicate that the
Development LLC is intended to be owned 50% by MG III and/or MDA (or a
wholly-owned affiliate of either), and 50% by one or more HIW entities; (b)
shall provide for development fee income of three percent (3%) of the total
budgeted development costs (including land costs) of the subject project, not to
exceed $4.00 per square foot, to be shared 68.75% to the development affiliate
of HIW or HIW Florida, and 31.25% to Miller Global Properties, LLC or as it may
direct; (c) shall provide for the engagement of HIW as property manager and
exclusive leasing agent, upon the same terms and conditions as HIW is to be so
engaged by the Operating LLC and the Land LLC pursuant to Exhibit E hereto, and
the engagement of Vector Property Services (or another affiliate of MG III, MDA,
or as either may direct) as property management services consultant upon the
terms set forth in Section 4.01 of Exhibit E hereto; and (d) shall not contain
any so-called "lock-out" period, during which the parties thereto are prohibited
from exercising the buy-sell provisions thereof.

         6. Rental Shortfall; Master Leases. It is mutually agreed and
understood that HIW or HIW Florida, as the case may be, shall be obligated to,
at its option, either reduce the Purchase Price or the Contribution Value (as
such terms are defined in the Purchase Agreements), using MG III's going-in
capitalization rates, or enter into one or more master leases to cover tenant
leases that do not generate the expected operating income set forth in the April
11, 2000 Argus runs with respect to the Properties (collectively, the "Argus
Runs"), in order to provide the Operating LLC with the operating income
reflected in the Argus Runs, up to a maximum shortfall coverage of five percent
(5%) per building within each Property. In the event that the tenancies in any
such building would require a reduction in the Purchase Price or the
Contribution Value of more than five percent (5%), or would require HIW or HIW
Florida, as the case may be, to master lease space to cover a shortfall in
operating income which is greater than five percent (5%) of the operating income
set forth in the Argus Runs, MG III shall have the right to terminate this
Agreement, and no party shall be entitled to liquidated damages as a result
thereof or have any further rights or obligations hereunder, except for those
which expressly survive any such termination. Each of the master leases shall
provide that, as to any master-leased space that is vacant as of closing or to
become vacant during the term thereof, HIW or HIW Florida, as the case may be,
shall be liable for the tenant finish costs and leasing commissions for any
replacement tenant put into possession during the terms of such master leases in
order to relieve HIW or HIW Florida, as the case may be, of its obligations
thereunder; provided, however, that, as to any space which has a tenant in
possession under circumstances where such tenant is not paying the full rent
reflected in the Argus Runs, HIW or HIW Florida, as the case may be, shall be
responsible for any

<PAGE>

tenant improvement costs or leasing commissions with respect to such space only
if HIW or HIW Florida, as the case may be, puts a replacement tenant into
possession during the term of the applicable master lease in order to relieve
HIW or HIW Florida, as the case may be, from its obligations thereunder, and
then, HIW or HIW Florida, as the case may be, shall be liable only for the
prorated portion of tenant finish costs and leasing commissions allocable to the
period of time from the execution of the replacement lease until the rental
shortfall obligations of HIW or HIW Florida, as the case may be, under the
subject master lease would have terminated. HIW agrees to enter into a
provisional master lease as of closing for the 2 Raleigh Research Commons
buildings where the tenants may not renew when the time comes. In addition, HIW
and HIW Florida agree to add to Exhibit Q to each Purchase Agreement at the
Closing any vacant space not reflected as such on the Argus Runs, but HIW or HIW
Florida, as the case may be, will also get credit at the Closing for any space
as to which the rentals exceed the Argus Runs, using MG III's capitalization
rates to determine the credit. Such credit, if any, shall be offset against the
obligation of HIW or HIW Florida, as the case may be, to pay rent under the
master leases (by elimination of master lease obligations and, if necessary, the
reduction of other master lease obligations in an amount sufficient to cover
such credit), but if the amount to be offset exceeds such obligations, the
Operating LLC shall pay the difference to HIW or HIW Florida, as the case may
be, out of "Net Cash Flow" (as defined in the Operating LLC's operating
agreement). Notwithstanding anything to the contrary contained in the operating
agreement for the Operating LLC, all distributions of Net Cash Flow shall be
paid to HIW or HIW Florida (as contract vendors, and not as members of the
Operating LLC) until the total credit due them hereunder has been paid, and
before any distribution thereof is made to the Members of the Operating LLC.
Highwoods Properties, Inc., by its execution of this Agreement as the sole
general partner of HIW, hereby agrees to guarantee the obligations of HIW and
HIW Florida under any master leases which either may execute pursuant to this
Section 6.

         7. Conditions Precedent to Closing. The obligations of the parties
hereto to consummate the Closing shall be subject to the satisfaction,
performance or waiver by the appropriate party of each of the following
conditions precedent (each a "Condition Precedent" and collectively, the
"Conditions Precedent"):

               (a) MG III, MDA, HIW and HIW Florida, as appropriate, shall have
formed the Operating LLC, the Land LLC and the Development LLCs agreed upon
during the Inspection Period, using the forms of operating agreements provided
for herein;

               (b) MG III, HIW and HIW Florida shall have arranged
mutually-acceptable financing for the acquisition of the Properties by the
Operating LLC and the Land LLC, and the Lender must be prepared to close
thereunder;

               (c) the Operating LLC and the Land LLC and HIW shall have
executed and delivered Property Management and Leasing Agreements in the form
attached hereto as Exhibit E and by this reference made a part hereof;
<PAGE>

               (d) the Operating LLC, the Land LLC, and HIW or HIW Florida, as
appropriate, shall have executed and delivered the Purchase Agreements and all
other documents required thereunder, and each of the Purchase Agreements for the
Properties comprising the Orlando, Florida City Group (as defined in Exhibit C
hereto) shall provide for purchase price adjustments as provided in Exhibit F
attached hereto and by this reference made a part hereof;

               (e) HIW and/or HIW Florida and the Operating LLC (or the owner of
the affected Property, as appropriate) shall enter into the master leases
contemplated by Section 6 above, the forms of which shall be agreed to by the
parties prior to the end of the Inspection Period;

               (f) the closing on the acquisition of all of the Properties to be
acquired by the Operating LLC and the Land LLC shall occur simultaneously
(unless mutually agreed to the contrary); and

               (g) the conditions precedent contained in Section 6.4 and 6.5 of
each Purchase Agreement shall have been satisfied, performed or waived by the
appropriate party thereunder.

         8.    Default and Remedies.

               (a) MG III's Default. If the Closing does not occur as a result
of a material default or willful breach by MG III under the terms of this
Agreement, HIW and HIW Florida shall be entitled, as their sole remedy
hereunder, to terminate this Agreement and to receive from MG III, as liquidated
damages hereunder (the parties hereto agreeing that, for the purposes of this
Section 8(a) and Section 8(b) below, in the event that the Closing fails to
occur due to a default by any party, damages would be difficult or impossible to
ascertain, and thus, the liquidated damages provided for herein are intended as
a reasonable estimate of such damages and not as a penalty), the sum of Eight
Million Dollars ($8,000,000.00).

               (b) HIW's and/or HIW Florida's Default. If the Closing does not
occur as a result of a material default or willful breach by HIW and/or HIW
Florida under the terms of this Agreement, MG III and MDA shall be entitled, as
their sole remedy hereunder, to terminate this Agreement and to receive from HIW
and HIW Florida, jointly and severally, as liquidated damages hereunder, the sum
of Eight Million Dollars ($8,000,000.00).

               (c) Termination. In the event that this Agreement is terminated
in accordance with its terms, HIW and HIW Florida shall bear the cost of the
Title Commitment, MG III shall bear the cost of the Survey and all other due
diligence expenses that it has incurred (including, without limitation,
environmental investigations), and each party shall otherwise bear its own costs
and expenses incurred in connection herewith.
<PAGE>

               (d) Post-Closing Defaults. Any post-closing defaults or the
untruth or breach, as the case may be, of representations or warranties shall be
governed by the Purchase Agreements.

         9. Brokerage. MG III, MDA, HIW and HIW Florida each represents and
warrants to the others that such party has not employed a real estate broker or
agent in connection with the Transactions, except for Frederick Ross Company,
whose compensation has been determined by separate agreement and will be shared
equally by both parties. Each party agrees to indemnify and hold the others
harmless from any loss or cost suffered or incurred by it as a result of the
other's representation herein being untrue.

         10. Assignment. None of MG III, MDA, HIW or HIW Florida shall, without
the prior written consent of the others, which may be withheld in each party's
sole and absolute discretion, assign any of its rights hereunder or any part
thereof, except to a person or entity controlling, controlled by or under common
control with it (in which case the assignor shall remain fully liable for its
assignee's performance hereunder). If any assignment is made with consent, then
the Transactions shall be consummated in the name of, and by and through the
authorized officials of, any such assignee, but in no event shall any assignor
be released of its obligations under this Agreement as a result of any such
assignment.

        11. Confidentiality. Each party's obligations respecting confidentiality
hereunder shall be governed by that certain letter agreement dated March 28,
2000 from Highwoods Properties, Inc. to Miller Global Properties, LLC.
Notwithstanding the foregoing, nothing contained herein shall be construed so as
to prohibit any party from making any disclosure required by U.S. or foreign
law, including any such disclosure required by any Federal, state or local
governmental agency or court of competent jurisdiction, or any disclosure that
is reasonably necessary to protect any such party's interest in any action, suit
or proceeding brought by or against such party.

        12. Notices. Wherever any notice or other communication is required or
permitted hereunder, such notice or other communication shall be in writing and
shall be delivered by hand, by nationally-recognized overnight express delivery
service, by U. S. registered or certified mail, return receipt requested,
postage prepaid, or by electronic transfer with prompt written confirmation,
sent as provided above to the addresses set out below or at such other addresses
as are specified by written notice delivered in accordance herewith:

         MG III and MDA:      c/o Miller Global Properties, LLC
                              4649 South Ulster, Suite 1500
                              Denver, Colorado 80237
                              Telephone:  (303) 773-0369
                              Facsimile:   (303) 694-0082
                              Attn: James H. Miller and Donald E. Spiegleman
<PAGE>

         With a copy to:      Isaacson, Rosenbaum, Woods & Levy, PC
                              633 17th Street, Suite 2200
                              Denver, Colorado 80202
                              Telephone:  (303) 292-5656
                              Facsimile:   (303) 292-3152
                              Attn: Lawrence J. Donovan, Jr., Esq.

      HIW and HIW Florida:    c/o Highwoods Realty Limited Partnership
                              3100 Smoketree Court, Suite 600
                              Raleigh, North Carolina  27604
                              Telephone:  (919) 872-4924
                              Facsimile:  (919) 876-6329
                              Attn: Ronald P. Gibson

         With a copy to:      Highwoods Realty Limited Partnership
                              3100 Smoketree Court, Suite 600
                              Raleigh, North Carolina  27604
                              Telephone:  (919) 872-4924
                              Facsimile:  (919) 876-6329
                              Attn: Mack D. Pridgen, III, Esq.

         With a copy to:      Alston & Bird LLP
                              3605 Glenwood Avenue, Suite 310
                              Raleigh, North Carolina  27612
                              Telephone:  (919) 420-2206
                              Facsimile:  (919) 420-2260
                              Attn:  William R. Klapp, Jr., Esq.

Any notice or other communication mailed as hereinabove provided shall be deemed
effectively given (a) on the date of delivery, if delivered by hand; (b) on the
date mailed if sent by overnight express delivery or if sent by U.S. mail; or
(c) on the date of transmission, if sent by electronic transfer device with a
follow-up as provided above. Such notices shall be deemed received (a) on the
date of delivery, if delivered by hand or overnight express delivery service;
(b) on the date indicated on the return receipt if mailed; or (c) on the date of
transmission, if sent by electronic transfer device, with a written follow-up as
provided above. If any notice mailed is properly addressed but returned for any
reason, such notice shall be deemed to be effective notice and to be given on
the date of mailing.

         13.      Miscellaneous.

                  (a) Governing Law; Headings; Rules of Construction. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of North Carolina, without reference to the conflicts of laws
or choice of law provisions thereof. The titles of sections and subsections
herein have been inserted as a matter of convenience of reference only and shall
not control or affect the meaning or

<PAGE>

construction of any of the terms or provisions herein. All references herein to
the singular shall include the plural, and vice versa.

                  (b) No Waiver. Neither the failure of either party to exercise
any power given such party hereunder or to insist upon strict compliance by the
other party with its obligations hereunder, nor any custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of either
party's right to demand exact compliance with the terms hereof.

                  (c) Entire Agreement. This Agreement contains the entire
agreement of the parties hereto with respect to the Transactions, and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties not embodied herein or incorporated herein by reference shall be of
any force or effect.

                  (d) Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors and assigns
(subject to Section 10 above).

                  (e) Amendments. No amendment to this Agreement shall be
binding on any of the parties hereto unless such amendment is in writing and is
executed by the party against whom enforcement of such amendment is sought.

                  (f) Date For Performance. If the time period by which any
right, option or election provided under this Agreement must be exercised, or by
which any act required hereunder must be performed, or by which the Closing must
be held, expires on a day other than a business day, then such time period shall
be automatically extended through the close of business on the next regularly
scheduled business day.

                  (g) Recording. Each of the parties agrees that it will not
record this Agreement and that they will not record a short form of this
Agreement.

                  (h) Counterparts. This Agreement may be executed in any number
of counterparts (including facsimile counterparts, to be followed by the
circulation of copies of the original document for execution), each of which
shall be deemed to be an original, but all of which, when taken together, shall
constitute but one and the same instrument.

                  (i) Time of the Essence. Time shall be of the essence of this
Agreement and each and every term and condition hereof.

                  (j) Severability. This Agreement is intended to be performed
in accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations, and is intended, and shall for all purposes
be deemed to be, a single, integrated document setting forth all of the
agreements and understandings of the parties hereto, and superseding all prior
negotiations, understandings and agreements of such parties. If any term or
provision of this Agreement or the application thereof to any

<PAGE>

person or circumstance shall for any reason and to any extent be held to be
invalid or unenforceable, then such term or provision shall be ignored, and to
the maximum extent possible, this Agreement shall continue in full force and
effect, but without giving effect to such term or provision.

                  (k) Interpretation. Each of the parties acknowledges to the
others that both it and its counsel have reviewed this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any amendments or exhibits hereto. Any words following the
words "include," "including," "such as," "for example," or similar words or
phrases shall be illustrative only and are not intended to be exclusive, whether
or not language of non-limitation is used.

<PAGE>

                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and sealed by its duly authorized signatory, effective
as of the day and year first above written.

                       HIW:

                       HIGHWOODS REALTY LIMITED PARTNERSHIP,
                       a North Carolina limited partnership

                           By:  Highwoods Properties, Inc., a Maryland
                           corporation, its general partner


                                By: /s/ Mack D. Pridgen III
                                   ------------------------------------
                                Name:   Mack D. Pridgen III
                                     ----------------------------------
                                Title:  Vice President
                                      ---------------------------------



                       HIW FLORIDA:

                       Highwoods/Florida Holdings, L.P., a Delaware
                       limited partnership

                           By:  HIGHWOODS/FLORIDA GP CORP., a
                           Delaware corporation, its sole general partner

                                By: /s/ Mack D. Pridgen III
                                   ------------------------------------
                                Name:   Mack D. Pridgen III
                                     ----------------------------------
                                Title:  Vice President
                                      ---------------------------------

<PAGE>
                       MG III:

                       MILLER GLOBAL FUND III, L.P. a Colorado limited
                       partnership, its Manager

                           By:  MG IV-GP, LLC, a Colorado limited liability
                                company, its sole general partner

                                By: MILLER GLOBAL PROPERTIES, LLC,
                                    a Colorado limited liability company,
                                    its sole member

                                By: /s/ James H. Miller
                                   ------------------------------------
                                Name:   James H. Miller
                                     ----------------------------------
                                Title:  Authorized Signatory
                                      ---------------------------------


                       MDA:

                       MGA DEVELOPMENT ASSOCIATES, L.P., a Colorado
                       limited partnership


                       By:  /s/ James H. Miller
                          -----------------------------------------
                                    Authorized Signatory
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S>                             <C>                     <C>
<PERIOD-TYPE>                   3-MOS                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-2000             DEC-31-2000
<PERIOD-START>                             APR-01-2000             JAN-01-2000
<PERIOD-END>                               JUN-30-2000             JUN-30-2000
<CASH>                                          52,912                  52,912
<SECURITIES>                                         0                       0
<RECEIVABLES>                                   77,131                  77,131
<ALLOWANCES>                                       842                     842
<INVENTORY>                                          0                       0
<CURRENT-ASSETS>                                86,105                  86,105
<PP&E>                                       3,690,105               3,690,105
<DEPRECIATION>                               (268,884)                 268,884
<TOTAL-ASSETS>                               3,883,739               3,883,739
<CURRENT-LIABILITIES>                          117,206                 117,206
<BONDS>                                      1,714,531               1,714,531
<PREFERRED-MANDATORY>                                0                       0
<PREFERRED>                                    397,500                 397,500
<COMMON>                                     1,600,700               1,600,700
<OTHER-SE>                                   (181,344)               (181,344)
<TOTAL-LIABILITY-AND-EQUITY>                 3,883,739               3,883,739
<SALES>                                        137,719                 273,620
<TOTAL-REVENUES>                               145,121                 286,280
<CGS>                                           41,427                  80,888
<TOTAL-COSTS>                                   70,789                 138,578
<OTHER-EXPENSES>                                 5,443                  10,539
<LOSS-PROVISION>                              (26,062)                (19,116)
<INTEREST-EXPENSE>                              28,352                  56,120
<INCOME-PRETAX>                                 12,653                  54,085
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                             12,653                  54,085
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                  (839)                 (1,034)
<CHANGES>                                            0                       0
<NET-INCOME>                                    11,814                  53,051
<EPS-BASIC>                                        .07                     .62
<EPS-DILUTED>                                      .07                     .62


</TABLE>
</TEXT>
</DOCUMENT>
</SUBMISSION>
